New York Shuts the Book on Daily Fantasy Sports: AG Schneiderman Rules Activities of DraftKings, FanDuel Illegal

Forget to set your daily fantasy sports lineup in New York? This will no longer be a problem for you.

Following the September 2015 daily fantasy sports (DFS) scandal, both state and federal authorities began investigating the business operations of industry leaders DraftKings, Inc. and FanDuel, Inc. The scandal stems from the acts of a DraftKings employee, Ethan Haskell, who used inside data to win $350,000 on FanDuel’s website.

New York Attorney General Eric Schneiderman initiated an investigation into the business operations of DraftKings and FanDuel on October 6, 2015. Now, just over a month later, Schneider has imposed his ruling as to the DFS issue — and, it is not favorable to the DFS proponent.

In letters to both DraftKings and FanDuel, Schneiderman ordered the companies to “cease and desist from illegally accepting wagers in New York State . . .” (although both letters are identical, DraftKings’ letter found here, FanDuel’s letter here). New York has more DFS users than any other state, according to research firm Eilers Research.

For several years prior to the scandal, DFS companies operated under an exemption drafted into the Uniform Internet Gambling Enforcement Act — a piece of federal legislation. The UIGEA rendered many internet gambling activities as illegal. However, games of “skill” are permissible under the Act, which until now has carved a loophole for DFS operations.

The caveat to the UIGEA is that the states have the power to determine what undertakings qualify as “skilled” activities. While DFS users are not dealt cards, their success relies on the real-game performances of professional athletes — an activity that clearly has a degree of luck. On the other hand, DFS involves some choice and analysis; users may analyze athletes’ stats from previous weeks and/or seasons prior to making their “roster” selections. Both the proposing and opposing stances therefore have decent arguments as to whether DFS qualifies as a skill activity. Nevertheless, each state may individually choose its definition of “skill.” As a result, ten states currently define as gambling the wagering on an event involving even the smallest degree of chance. DFS gaming is illegal in these states.

Schneiderman concluded that DFS games are illegal under New York law, which defines gambling as staking or risking “something of value upon the outcome of a contest of chance . . . .” Therefore, New York now joins the states finding DFS as a game of luck. Schneiderman has required DraftKings and FanDuel to stop accepting DFS wagers in New York. The companies are, however, permitted to continue the operations of their business in other states from their New York-based offices.

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