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FanDuel And DraftKings: A Tale Of Two Daily Fantasy Companies

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FanDuel and DraftKings may seem as though they are the same, but in actuality, they could not be more different. While both offer daily fantasy sports game play for users to put money on the line in exchange for the opportunity to win large cash prizes, FanDuel and DraftKings have differed in the way they handle legal concerns surrounding the industry in which they belong.

Response to New York Attorney General Cease and Desist Demand.

Roughly a week ago, New York Attorney General Eric T. Schneiderman issued cease and desist letters to FanDuel and DraftKings, demanding that the two daily fantasy sports operators immediately halt accepting entry fees from inside New York. Neither FanDuel nor DraftKings was pleased with the Attorney General's position that he considered their respective operations to be forms of gambling, but the response thereafter was exceptionally different.

DraftKings has since called the New York Attorney General's decision "hasty and uninformed" and says that it has taken legal action to prevent a "unilateral, misinformed and legally misguided attempt" to act as "judge, jury and executioner." In a statement earlier today, a company spokesperson for DraftKings said that the Attorney General's view is a "fundamental misinterpretation and misapplication of the law."

DraftKings continues to allow New York residents to participate in its entry fee, cash prize competitions.

Meanwhile, FanDuel, which has also indicated its intention to fight the New York State Attorney General's decision to the fullest extent possible, has taken a much more conservative approach. As of 2:30 p.m. ET, FanDuel has placed a restriction on entry in paid contests for those living in New York.

Types of Games Offered by the Daily Fantasy Sports Operators.

DraftKings offers daily fantasy golf and NASCAR products. Such products do not seem to comply with the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA).

The UIGEA says that in order for participation in a fantasy sports game to not be considered a bet or wager the fantasy sports game outcomes must be based on the performance of individuals in multiple real-world sporting events. It would appear that a golf tournament and NASCAR race are each considered single real-world sporting events and thus such fantasy sports games would not comply with the federal Act.

Meanwhile, FanDuel refuses to offer fantasy NASCAR and golf to its users.

"We won’t be introducing fantasy golf. I think it is commercially attractive (its probably our next most requested sport) but I’m uncomfortable with the legality of it. Every time I have to make a decision like this I think whether the argument would stand up in court. To me a reasonable person would consider a golf tournament to be a single event, not multiple events. Therefore it would not fall under the UIGEA safe harbor. That does not automatically make it illegal (it may still be a game of skill under state law) but it does make it more risky," said FanDuel CEO Nigel Eccles in 2014.

Why the Bold Action by DraftKings?

There is a clear dichotomy between FanDuel and DraftKings, with Eccles appearing to be much more conservative and "behind the scenes," while DraftKings CEO Jason Robins is often sitting on panels, being interviewed on national television programs and willing to take risks with the legality of his operation. The reason for DraftKings' willingness to take such chances may be due to the fragility of the industry in which it belongs.

The actual size of potential players in daily fantasy sports is likely smaller than most people think. Hundreds of millions of dollars have poured into the space, which may turn out to be an industry where one winner takes all. DraftKings could see an opportunity in pushing the envelope to acquire a broader user base, where FanDuel finds risks that it is unwilling to take.

In the end, will either daily fantasy sports operator survive legal scrutiny? If only one prevails, will it be the one more amenable to taking risks or the more conservative actor that was unwilling to stick its middle finger up to the New York State Attorney General?

Darren Heitner is a lawyer and the Founder of South Florida-based HEITNER LEGAL, P.L.L.C., which has a focus on Sports Law and Entertainment Law.