On Tuesday, November 10th, New York Attorney General Eric Schniederman classified daily fantasy sports sites such as Draftkings and FanDuel as illegal gambling and ordered them to cease all operations in New York.

For those who are not familiar with daily fantasy sports sites, they are websites where players compete against other each other by building a team of professional athletes and earning points based on how that athlete does during that day.  The market is mainly dominated by Boston-based Draftkings and New York-based FanDuel.  The fact that the two companies have an estimated value of at least $1 billion means that the New York order could have dramatic effects on the market.

From a legal standpoint, what makes the order truly significant is the fact that fantasy sports generally have been exempt from anti-gambling statutes.  Under the Unlawful Internet Gambling Act of 2006, most internet gambling sites were made illegal across the United States.  The Act ended up being a big problem for online poker sites such as PokerStars, Full Tilt Poker, and Absolute Power, and eventually led to their demise in 2011.  However, the Act explicitly excludes fantasy sports, skill-games, and legal intrastate and inter-tribal gaming.  Therefore, it would be understandable to presume that daily fantasy sports would fall under this category as well.

The New York Attorney General, however, tends to disagree.  In his order, he declared that daily fantasy sports was considered “illegal gambling under New York law.”  Specifically, he noted that it was “clear that DraftKings and FanDuel are the leaders of a massive, multibillion-dollar scheme intended to evade the law and fleece sports fans across the country.”  Mr. Schniederman also noted in his order that the sites constitute gambling under the New York law definition, which states that “a person engages in gambling when he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence.”  He distinguished the sites at issue with traditional fantasy sports sites in that traditional fantasy sports sites last an entire season and play for bragging rights or “side wagers.”  Furthermore, he explained that traditional sites make their money from administrative fees and advertising.

It appears hard to find the statutory underpinnings for Mr. Schniderman’s arguments, mainly due to the fact that season-long fantasy sports generally have money changing hands and that a great deal of the games are not under the control of the players.  FanDuel and Draftkings strongly believe they fall in the category with other fantasy sports sites mainly due to the fact that the selection of players requires a level of skill and therefore qualifies for the exemption that traditional fantasy sports do.  Instead of complying with the Attorney General’s order, they have decided to file suit on November 13, 2015.

This is not the first time daily fantasy sports sites have been in hot water this year.  In October of 2015, Washington Redskins wide receiver Pierre Garcon filed a class action lawsuit against FanDuel for improperly exploiting popularity and performance.

Ricky Hernandez

 

One Response to New York Attorney General Attempts to Tackle Daily Fantasy Sports Sites

  1. ckring says:

    It appears there is only more litigation coming. I think it is pretty interesting that now, people who were using Fanduel and Draftkings are suing because they couldn’t win. To me this seems like a case of sour grapes, where someone loses a bunch of money and then as soon as the Attorney General says it is illegal gambling, they sue the companies. Personally, I don’t find this plaintiff to be very sympathetic. It will be interesting to see how this litigation proceeds, and is dependent upon the lawsuit that you wrote about.

    http://www.nydailynews.com/new-york/brooklyn-fantasy-sports-player-sues-fanduel-draftkings-article-1.2440366