New York Attorney General Eric Schneiderman shocked the daily fantasy sports industry last week, hitting its two biggest operators with cease-and-desist letters demanding they immediately stop taking wagers from New York residents and deeming their businesses to be illegal gambling operations under state law.
With Schneiderman’s bold move made, it has forced DraftKings Inc. and FanDuel Inc. into the proverbial corner where they are now fighting to defend the legality of their short-term daily fantasy sports, or DFS, contests in New York with a hearing on whether to grant the attorney general’s requested preliminary injunctions scheduled for next week.
If they were to lose, it could have a long-lasting devastating consequence for the DFS industry beyond just losing the large New York market as other states may look to take similar action.
But Schneiderman has done something that could have an even greater effect on the fantasy sports community. He has gone to great lengths to distinguish season-long fantasy sports from the short-term DFS contests offered by DraftKings and FanDuel and in doing so, has framed what legal and fantasy experts say will be a fact-specific debate over whether the DFS contests eliminate a sufficient amount of skill to classify them as gambling as opposed to legal season long contests.
The attorney general cites the New York penal law, which defines illegal gambling as risking something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence.
The definition sets up two alternative tests, whether it is a contest of chance, which depends on whether there is a material degree of skill or whether the event is outside the contestant, or fantasy user’s, control or influence.
In making the distinction between “traditional” season long fantasy sports and daily contests, the attorney general makes the argument that DFS contests are outside the user’s control, pushing the debate away from whether or not DFS are games of skill.
However, some experts say this way of viewing daily fantasy sports as based on the outcome of sporting events may miss the point of fantasy and that this case against DraftKings and FanDuel could hinge on how fantasy sports are viewed.
Fantasy sports contests could be viewed as wagering on the results of professional athletes, or it could be viewed as a competition between fantasy sports users over who can best predict the performance of a collection of players based on events that occur within the games.
Further, some experts have noted that despite season long contests occurring over a longer period of time, they are still contingent on what happens in uncontrollable sports games or events.
In some ways, with season long fantasy games, events are further out of the control of the user because it is harder to predict events that will happen weeks and months in the future.
With season long games, users generally draft their team prior to the start of the sports season, with limited ability to adjust throughout the season through trades and the addition of so-called free agents — players who are not on the rosters of other users.
Regardless, many experts believe that the fight will come down to whether the games rely on a material degree of skill, where the distinction between season long and daily could be problematic. Others state that with longer-term games, there are more elements of skill involved given the longer period of time.
But DraftKings and FanDuel have both maintained that their games rely on skill and are thus legal in New York. The companies requested a temporary restraining order to stop the attorney general but were denied. DraftKings went as far as to argue that DFS contests actually involve more skill than season long.
While that’s debatable, many experts say that even if there is a difference in skill between seasonlong and daily contests, it’s negligible as far as the New York test is concerned. However, the DFS industry has faced criticism for its perceived lack of consumer protection policies, which has led to a slew of putative class actions. These questions are what sparked the attorney general’s inquiry in the first place.
Still, Schneiderman is faced with a dilemma in going after the DFS industry that he apparently perceives to be operating unlawfully and engaged in deceptive trade practices with taking on traditional, season long fantasy sports that are enjoyed by anywhere between 30 million and 60 million people, according to estimates.
It is one way for him to kind of come out of the box and say, “Hey, I am not trying to take down what everyone enjoys doing, I am just looking at a very small segment and how this enjoyable thing kind of went off the track”.