DraftKings and FanDuel Sent Packing by New York Attorney General

on November 12, 2015

DraftKings FanDuel Nigel Eccles

DraftKings and FanDuel CEO Nigel Eccles aren’t ready to concede New York’s robust population of daily fantasy sports players even after the state’s attorney general labeled the industry as illegal. (Image: forbes.com)

DraftKings and FanDuel have been issued cease-and-desist orders by New York Attorney General Eric Schneiderman after the state’s primary legal analyst determined that daily fantasy sports (DFS) constitutes illegal gambling.

In a memo of his findings Schneiderman said, “Daily fantasy sports companies are engaged in illegal gambling under New York law,” and it is “neither victimless nor harmless.”

“DraftKings and FanDuel are the leaders of a massive, multi-billion-dollar scheme intended to evade the law and fleece sports fans across the country,” the attorney general concluded.

In a letter from his office to the two market leaders, Schneiderman specified that the DFS websites are unlawful due to a series of violations including operating a bookmaking business, knowingly profiting from illegal gambling, and misrepresenting the legal status of the companies.

Not Going Without a Fight

Unlike what happened when the Nevada Gaming Control Board forced DFS to cease operations until they obtain interactive gaming licenses, it appears DraftKings and FanDuel won’t go quietly in New York.

That’s likely because folding on Nevada’s 2.8 million residents is a lot easier than New York’s population of 19.7 million.

Schneiderman gave the daily fantasy groups five business days to respond to his orders, but it took only hours for the companies’ legal camps to retort.

“We believe this was a hasty and uninformed decision by the New York Attorney General,” DraftKings said. “Fortunately, there is a process by which DraftKings can challenge it in a court of law in an effort to prevent us from having to cease operations.”

FanDuel also hinted at a legal challenge during a teleconference on Wednesday, and also took a jab at the attorney general. “The game has been played legally in New York for years and years, but after the Attorney General realized he could now get himself some press coverage, he decided a game that has been around for a long, long time is suddenly now not legal.”

Legal Precedent

DraftKings and FanDuel might call Schneiderman’s bluff, especially since they could be holding the better hand.

In a 2007 case titled Humphrey v. Viacom, a New Jersey court ruled that players in a fantasy sports league are not gamblers because they do not “sustain gambling losses.” At the time the court opined, “The success of a fantasy sports team depends on the participants’ skill in selecting players for his or her team… “

Schneiderman contends the 2007 verdict applies only to season-long daily fantasy leagues and doesn’t have any legal merit for daily or weeklong contests.

However, the attorney general concedes, “While marketed as a game that anyone can win, in fact distributes the vast majority of winnings to a small subset of experienced, highly sophisticated players. These winners constitute roughly one percent of all players on the two sites.”

The arbitrary rhetoric will continue for what’s expected to be a lengthy legal process.

“We intend to pursue this fight to the fullest to ensure that New York fantasy sports fans can continue to play the games they love,” DraftKings resolved.