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Sports Illustrated Looks at Implications of NY AG Action Against DraftKings, FanDuel

by | Nov 11, 2015 | Uncategorized | 0 comments

Michael McCann of Sports Illustrated asks the question “What’s Next for DraftKings and FanDuel?”  This after New York Attorney General Eric Schneiderman declared their activity as illegal gambling and forbidden in the Empire State.

The possibilities: Schneiderman claims that DFS games constitute a form of gambling that is in violation of New York Constitution and New York Penal Law Section 225.00. Article I, Section 9 of the state’s constitution expresses “no lottery or the sale of lottery tickets, pool-selling, book-making, or any other kind of gambling, except lotteries offered by the state…”

McCann suggests that under this statute, gaming contests are unlawful under New York law when chance is a “material” element and, as such, New York may be one of a handful of states where Daily Fantasy Sports should have considered avoiding to begin with. 

Despite federal legislation that explicitly allows fantasy sports, some state laws prohibiting cash winnings from contests such as that which exists in Kansas override any federal law.

FanDuel and DraftKings have five business days to respond to Schneiderman if they wish to contest his determination.  The two companies could – and likely will – seek an injunction from the Court questioning Schneiderman’s findings. 

From SI:

A finding that FanDuel and DraftKings violate New York law would increase the odds that federal indictments are brought against DFS companies and their executives. As explained in a prior SI.com article, Preet Bharara, the U.S. Attorney for the Southern District of New York, has launched a probe into the relationship between DFS games and federal law. Of particular concern to FanDuel and DraftKings, when a violation of a state gambling law exists, the federal Illegal Gambling Business Act of 1970 (IGBA) permits indictments and accompanying prosecutions. As gaming attorney Daniel Wallach told SI.com, “a conviction under IGBA may sound the death knell for the DFS industry—it would allow the feds to seize assets, money and property, including the all-important domain names.”
Businesses that have entered into relationships with DFS companies should also be troubled by Schneiderman’s allegations against FanDuel and DraftKings. This is perhaps most true of professional sports leagues, such as the NBA, NFL and MLB, that have invested in DFS companies or entered into promotional agreements with them. These leagues—all of which are headquartered in New York City and thus within the jurisdiction of Schneiderman—are increasingly poised to reconsider their business relationships with DFS companies. Of greater concern, leagues’ executives could be dragged into the DFS legal dispute.