State legislators hope to keep fantasy sports a legal reality

The country’s two largest daily fantasy sports operators, DraftKings Inc. and FanDuel Inc., are barreling toward a showdown with New York’s top law enforcement official, refusing for now his order that their contests be closed to state residents because he says the games amount to illegal gambling.

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The operations of Boston-based DraftKings and New York-based FanDuel rely on an exemption in a 2006 federal law that banned online poker but allowed fantasy sports, which were categorized as games of skill and not chance, and therefore don’t fall under the purview of gambling laws. He called the industry a “multi-billion-dollar scheme meant to evade the law and fleece sports fans across the country”.

While many fantasy sports players think Schneiderman will lose in court, at least one in NY said he was closing down his accounts and advising his friends to do the same.

“Given the NY attorney general’s historic role as a consumer-protection advocate, legal experts said the action was likely to reverberate in other states where legislators and investigators are increasingly questioning whether the industry should operate unfettered by regulations that govern legalized gambling”, The NY Times reported.

Capital Off-Track Betting is regulated by the state and generates money for the state. A Draft Kings spokeswoman, Sabrina Macias, said, “We’re disappointed he hasn’t taken the time to meet with us or ask any questions about our business model before his opinion”. A spokeswoman, Susan Newer, said that was so obvious that the commission never even had to meet to discuss it. “We all just sort of knew, ” she said.

Jones calls this eagerness to align with pay-for-play fantasy sports a “fundamental shift” in leagues’ stance on gambling, and the relationships have enabled massive marketing campaigns. When this law was passed, daily fantasy was nonexistent.

ESPN also noted that DraftKings co-founder Paul Liberman said at a conference that a few DraftKings employees made more off of other daily fantasy sites than their salaries at the company.

The attorney general’s investigation also revealed that both companies “deliberately target demographics susceptible to problem gambling”. The trial judge in NY agreed, emphatically.

Mr. Schneiderman began his investigation of the sites after a DraftKings employee released internal betting data and that same week won $350,000 on the rival site, FanDuel, which is based in NY.

Tuesday’s cease-and-desist letters gave each company five business days to avoid a possible lawsuit by the state.

“This is the beginning of a legal process and not the end of it”, Zwillinger said.

FanDuel and DraftKings contend their daily contests are legal because they are based on skill, not chance, but Schneiderman concluded the opposite. Coakley says DraftKings intends to challenge the cease-and-desist, and they’re reviewing their options. In Florida two state lawmakers said this week they had filed legislation to exempt fantasy sports from the state’s gambling laws.

The leagues hope the daily fantasy partnerships drive more eyeballs toward their games.

Q: Have FanDuel and DraftKings stopped accepting contest entries from NY?

That became “crystal clear”, according to the attorney general’s memo, when the state Legislature this year passed Senate Bill 9, which directed regulators to encourage the development of new casino games that incorporate more elements of skill.