Daily Fantasy Sports (DFS) operators have been increasingly embroiled in challenges to the legality of their services over the past few months. Perhaps none of these challenges is more significant than the one levied by New York state Attorney General Eric Schneiderman, whose office has deemed DFS to be “plainly illegal”–“nothing more than a rebranding of sports betting.”
AG Schneiderman began his attack on the putative gambling sites by issuing cease-and-desist letters to the two largest DFS operators, DraftKings and FanDuel. DFS has grown in public prominence over the past year primarily with the financial success of DraftKings and FanDuel, both of whose advertisements and sponsorships overwhelm popular sports television networks and websites like ESPN. Schneiderman’s cease-and-desist letters were issued in response to this burgeoning ubiquity and Schneiderman’s belief that the DFS websites constitute illegal gambling under federal and state law.
The New York action is particularly important, experts say, because of the state’s status as a large consumer market and a guide to other states, which may open their own investigations as a consequence of a court ruling against the DFS operators. On Monday, November 16th, the Supreme Court of New York denied requests by DraftKings and FanDuel for temporary restraining orders to prevent AG Schneiderman from shutting down the sites in-state. Currently, the court is considering two enforcement actions seeking preliminary injunctions against DraftKings and FanDuel. The principal arguments therein allege that New York state defines gambling as “wagering on a ‘future contingent event not under the bettor’s control or influence’ or on a contest of chance,” and that under this definition DFS constitutes illegal sports betting. By making their argument based on this definition, the AG’s office pushes the debate away from the nebulous question of whether the determinative factor is the amount of skill, or the degree of chance, involved in the DFS games. In arguing that DFS meets the asserted definition, AG Schneiderman differentiates traditional season-long fantasy–narrowly excepted from the Unlawful Internet Gambling Enforcement Act passed by Congress in 2006– as depending less on events not controlled by users, citing the competitive and skill-based aspects of team drafting and week-to-week management. Critics of this approach argue that its validity depends upon the perspective with which one views fantasy sports. For instance, while it may be true that daily fantasy looks more like gambling than does season-long fantasy when viewed as a wager on the results of individual athletes on a single day, the two games are harder to distinguish when viewed as different forms of competition between fantasy sports users in their respective abilities to predict the performance of a collection of players based on the results within the games.
Although it is unclear whether Schneiderman’s arguments will pass legal muster, he continues to put pressure on DFS operators. A report by Law360 indicated on Wednesday, November 18th, that Schneiderman’s office told the Fantasy Sports Trade Association that other DFS sites should be “on notice,” and that his office is currently in the midst of investigating the relatively new DFS services provided by Yahoo.
The relevant cases are DraftKings v. Eric Schneiderman, case number 102014/2015 and FanDuel Inc. v. Eric Schneiderman, case number 161691/2015 in the Supreme Court of the State of New York, County of New York.
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