In the biggest blow yet to the daily fantasy sports industry, New York State attorney general Eric Schneiderman has ruled that DraftKings and FanDuel are operating illegally and must cease all operations immediately. While New York becomes the second state after Nevada to rule that daily fantasy is indeed gambling, the repercussions of the ruling will have a much greater impact on the multi-billion dollar industry. New York has long been known for its strong consumer protection laws, and with dozens of other states investigating both DraftKings and FanDuel, it is likely that the two companies will be facing similar bans across the country in the very near future.
According to Schneiderman's cease-and-desist letter, both "DraftKings and FanDuel operations constitute illegal gambling under New York law" and they companies must stop accepting wagers from state residents and discontinue doing business with New York. Such a ruling goes against daily fantasy's primary defense - the Unlawful Internet Gambling Enforcement Act (UIGE) of 2006 - which contends that their games are not in fact gambling because they are based on skill. Yet Schneiderman believes to the contrary, and that each daily fantasy wager "represents a wager on a 'contest of chance' where winning or losing depends on numerous elements of chance to a 'material degree.'"
The Brooklyn Nets are one of several New York state teams with daily fantasy sports sponsorship... [+]
"Our investigation has found that, unlike traditional fantasy sports, daily fantasy sports companies are engaged in illegal gambling under New York law, causing the same kinds of social and economic harms as other forms of illegal gambling, and misleading New York consumers," Schneiderman said, in a statement. "Daily fantasy sports is neither victimless nor harmless, and it is clear that 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. Today we have sent a clear message: not in New York, and not on my watch."
Not surprisingly, both operators have stuck by the defense that their business practices are wholly legal under the UIGE, going so far as to call Schneiderman flat out wrong in his ruling. In a statement, FanDuel said: “Fantasy sports is a game of skill and legal under New York state law. This is a politician telling hundreds of thousands of New Yorkers they are not allowed to play a game they love and share with friends, family, co-workers and players across the country.” DraftKings representatives had a similar response, " New York’s actions today are an unfortunate example of a state government stifling innovation, technology and entrepreneurship and acting without full and fair consideration of the interests of consumers.” Of course, both companies can challenge the ruling in court, where they would they could force the state to prove that chance is a "material factor" in fantasy sports, and thus it is inherently gambling.
Schneiderman's investigation was spurred after reports arose that a DraftKings employee used internal data to win $350,000 on rival site FanDuel, which the operators denied. While both companies had allowed employees to place bets on the others site, they have since banned such practices.
The ruling also affects several New York professional sports teams that have entered into partnerships with the both companies. In particular, the Brooklyn Nets announced last year that FanDuel would be one of its premier partners, and that the brand would have prominent activation throughout the
Jason Belzer, Esq. is Founder of GAME, Inc. and a Professor of Organizational Behavior and Sports Law at Rutgers University. Follow him on Twitter @JasonBelzer.
