New York AG Files Enforcement Action Against FanDuel, DraftKings
The New York Attorney General has filed an enforcement action detailing what he says are violations committed by Daily Fantasy Sports powerhouses FanDuel and DraftKings. Both companies were ordered to cease taking bets form New York state citizens last week.
The following are excerpts of the memorandum of law filed by the Office of the Attorney General:
The New York State Constitution has prohibited bookmaking and other forms of sports gambling since 1894. Under New York law, a wager constitutes gambling when it depends on either a (1) “future contingent event not under [the bettor’s] control or influence” or (2) “contest of chance.” So-called Daily Fantasy Sports (“DFS”) wagers fit squarely in both these definitions, though by meeting just one of the two definitions DFS would be considered gambling. DFS is nothing more than a rebranding of sports betting. It is plainly illegal.
Yet FanDuel and DraftKings insist that DFS is not gambling because it involves skill. But this argument fails for two clear reasons. First, this view overlooks the explicit prohibition against wagering on future contingent events, a statutory test that requires no judgment of the relative importance of skill and chance—they are irrelevant to the question. Second, the key factor establishing a game of skill is not the presence of skill, but the absence of a material element of chance. Here, chance plays just as much of a role (if not more) than it does in games like poker and blackjack. A few good players in a poker tournament may rise to the top based on their skill; but the game is still gambling. So is DFS.
FanDuel and DraftKings’ current denials about DFS constituting gambling are belied by how the sites depicted themselves in the past and how they portray themselves behind closed doors. FanDuel’s DFS contests were designed by a veteran of the legal online betting industry in the United Kingdom, Nigel Eccles. The company admitted to an early investor that its target market is male sports fans who “cannot gamble online legally.”
DraftKings depicts itself to investors in a similar fashion. For example, in one investor presentation, DraftKings pitched itself to a prospective investor by noting the “Global opportunity for online betting,” pointing to the massive revenue of the “global online poker market,” and making direct comparisons throughout the presentation to poker and sports wagering.
The CEO of DraftKings previously spoke openly about DraftKings as a gambling company. He called DFS a “mash[-]up between poker and fantasy sports,” suggested that DraftKings operates in the “gambling space,” and described its revenue model as “identical to a casino.”
The rejection of the gambling label by the DFS sites is particularly hard to square with the overt strategy of recruiting gamblers. For FanDuel, this has meant hiring a former top executive from Full Tilt, the online poker company, and affiliating with gambling industry stalwarts like “Vegas Insider” and BetVega, a sports betting and handicapping website. For DraftKings, this has meant aligning itself closely and negotiating sponsorships with other gambling ventures, like the World Series of Poker and the Belmont Stakes.
DraftKings has also embedded gambling keywords into the programming code for its website. Some of these keywords include “‘fantasy golf betting,’’ “weekly fantasy basketball betting,” ‘‘weekly fantasy hockey betting,” “weekly fantasy football betting,” “weekly fantasy college football betting,” “weekly fantasy college basketball betting,” “Fantasy College Football Betting,” “daily fantasy basketball betting,” and “Fantasy College Basketball Betting.” This increases the likelihood that search engines, like Google, will send users looking for gambling straight to the DraftKings site.
FanDuel’s advertisements commonly showcase testimonials from ostensibly ordinary DFS players (g.,“Zack from Fairfield, California”), and play up the ease of playing and of winning huge cash prizes…The reality is that like poker, blackjack, and horseracing, a small percentage of professional gamblers use research, software, and large bankrolls to extract a disproportionate share of DFS jackpots. With poker and DFS, professional players, known as “sharks,” profit at the expense of casual players, known as “minnows.” The numbers show that the vast majority of players are net losers, losing far more money playing on the sites than they win. DraftKings data show that 89.3% of DFS players had an overallnegative return on investment across 2013 and 2014.
While irresponsibly denying their status as gambling companies, the DFS Sites pose precisely the same risks to New York residents that New York’s anti-gambling laws were intended to avoid. Experts in gambling addiction and other compulsive behaviors have identified DFS as a serious and growing threat to people at risk for, or already struggling with, gambling-related illnesses.
Jeffrey L. Derevensky, Director of the International Centre for Youth Gambling Problems and High-Risk Behavior at McGill University, notes that, among other things, false or misleading representations of the skill involved in DFS “can lead players to a preoccupation with DFS, chasing of losses, and developing symptoms and behaviors associated with a gambling disorder.”