Today, sports fans in New York were stunned to hear that New York State Attorney General, Eric T. Schneiderman, has issued a cease and desist order to two of the most popular daily fantasy sports site in the state: DraftKings and FanDuel. The Attorney General issued the order to protect consumers, claiming that games on the sites constituted illegal gambling under state law. Schneiderman referred to DraftKings and FanDuel as "the leaders of a massive, multibillion-dollar scheme intended to evade the law and fleece sports fans across the country."
DraftKings and FanDuel clearly have a different opinion. According to FanDuel.com:
Fantasy Sports is considered a game of skill and received a specific exemption from the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA)… Thanks to fantasy sports being specifically excluded from laws affecting online sports betting, FanDuel is not illegal in any way.
DraftKings has a similar statement on its website:
We are a US-based skill games company, and all of our contests are operated 100% legally under United States and Canadian law. The US Government and 45 of the 50 states consider fantasy sports a game of skill.
However, despite those positions, some politicians are doubling down, claiming that games on the sites are the same as gambling. In Nevada, for example, officials ruled last month that fantasy sports did constitute gambling and ordered fantasy sports companies to shut down until they obtain a gambling license. Additionally, states like Georgia, Massachusetts, New Jersey and my own state of Pennsylvania have considered implementing new rules to try and regulate the sites.
And remember that 2006 Unlawful Internet Gambling Enforcement Act (UIGEA) cited on the websites? The man who sponsored the original UIGEA bill, former Rep. Jim Leach (R-IA) says that he had no idea that fantasy sports would "morph into today’s cauldron of daily betting." The purpose of the bill, he says, was to regulate gambling on the internet, not provide exceptions to encourage it. Leach stressed, "There is no credible way fantasy sports betting can be described as not gambling. Only a sophist can make such a claim."
The question of whether to regulate fantasy sports even made its way into the October 28 GOP presidential debate at the University of Colorado. Former Florida Governor Jeb Bush compared fantasy sports to day trading while New Jersey Governor Chris Christie expressed credulity that the question was even broached, saying, "We’re talking about Fantasy Football?" Maybe not so incidentally, New Jersey has some of the strictest gambling regulations in the country.
You can bet we'll hear more about the matter in the days to come. Meanwhile, spokespersons from FanDuel and DraftKings responded to my request for comment.
From FanDuel:
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, coworkers and players across the country. 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. We have operated openly and lawfully in New York for several years. The only thing that changed today is the Attorney General's mind.
From DraftKings:
We are very disappointed that New York Attorney General Eric Schneiderman took such hasty action today, particularly since he did not take any time to understand our business or why daily fantasy sports are clearly a game of skill. We strongly disagree with the reasoning in his opinion and will examine and vigorously pursue all legal options available to ensure our over half a million customers in New York State can continue to play the fantasy sports games they love.
We continue to see a number of other officials, including Senator Negron in Florida, Representative Zalewski in Illinois and the Federal Trade Commission, take a reasoned, informed and measured approach to the daily fantasy sports business. We hope this trend continues along with due consideration for over 56 million sports fans across the country who enjoy playing fantasy sports. We remain committed to working with all relevant authorities to ensure that our industry operates in a manner that is transparent and fair for all consumers.
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.
To read about my experience on a fantasy sports site - as well as the tax consequences - click here.
