Eric Schneiderman, the Attorney General of New York State, sent a cease-and-desist letter to FanDuel, DraftKings, and other daily fantasy operators in the state. After weeks of probing the DFS industry, Schneiderman determined he daily fantasy sports is illegal in the stat.
To defend his actions, Eric Schneiderman signed a press release that suggested the daily fantasy sports sites were predatory and immoral. His statement said, "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." "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."
His statement ended with a message to his constituency: "Today we have sent a clear message: not in New York and not on my watch."
Sites Must Stop Accepting Money from NY Residents
The attorney general demanded the operators should stop accepting wagers from resident of New York state. At the moment, though, he is not asking the gaming operators to discontinue operations in the state.
Schneiderman's letter reads, "Our review concludes that DraftKings'/FanDuel's operations constitute illegal gambling under New York law."
After reviewing the daily fantasy sports industry, which is conducted through websites on the latest football, baseball, basketball, and hockey contests, the attorney general found that "each DraftKings/FanDuel wager represents a wager on a 'contest of chance' where winning or losing depends on numerous elements of chance to a 'material degree.'"
UIGEA and Legality
Since they first began operating in 2009, daily fantasy sports companies have pointed to the Unlawful Internet Gambling Enforcement Act of 2006 as the legal justification for their legal operations. The UIGEA created a carve-out for three forms of gambling: lottery betting, horse racing, and fantasy sports. At the time, DFS did not exist; all fantasy fooball and baseball leagues involved seasonal or yearly wagers.
Of course, the UIGEA only covers federal law. States also have the right to ban forms of gaming. Schneiderman does not buy the argument that fantasy sports requires skill, but is instead a contest of chance. He said that entrants on DraftKings and FanDuel "are clearly placing bets on events outside their control of influence, specifically on the real game performance of professional athletes."
Not a Retroactive Injunction
The AG said the state was not looking to recoup any money lost during DFS gaming in the state. Team owners on FanDuel and DraftKings do not compete against the sites themselves, like they would in blackjack. Instead, the entrants play against other contestants, who are (generally) average people. The daily fantasy sports services instead collect a fee of about 10% for hosting the contests and assuring efficiency and fairness.
That sense of fairness was thrown into question when it was learned a DraftKings employee won hundreds of thousands of dollars on a FanDuel contest--perhaps with privileged information. That revelation led to the probe by the New York attorney general.
FanDuel Claims Schneiderman Is Being Political
FanDuel was critical in its public statement, after hearing about the decision.
The statement said, "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."
FanDuel continued, "We have operated openly and lawfully in New York for several years. The only thing that changed today is the Attorney General's mind."
DraftKings Suggested It Might Sue
DraftKings released a more measured statement, though it also took exception to the decision by the Schneiderman, who was appointed by Gov. Andrew Cuomo to be attorney general. The DraftKings statement read, "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."
The statement from the Boston-based company mentioned several officials it considered to have shown exemplary leadership in assessing the legal status of the daily fantasy sports in America. DraftKings had a spokesman say, "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."
DraftKing added that it might ban pursue legal action in the case. In a carefully-worded release, DK said "there is a process by which hasty and uninformed opinions can be challenged in a court of law, which would allow DraftKings to not have to cease operations in the state of New York. We will pursue this fight to the fullest to ensure that New York fantasy sports fans do not need to stop playing the games they love."
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