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FanDuel and DraftKings raise their bets

November 15, 2015

     It is all over the news.  Last week, Eric Schneiderman, the Attorney General of New York State, released a statement that daily fantasy sports by FanDuel Inc. and DraftKings, Inc. violate New York's laws against gambling.  Along with the pronouncement, the Attorney General sent both fantasy sports operators cease and desists letters.  The letter to FanDuel can be found here, and the letter to DraftKings can be found here.

     The heart of those letters is that under the New York State Constitution gambling in all forms is prohibited, except as specifically authorized by the Legislature.  N.Y. Const. Art. I, sec. 9.  And, the Legislature has defined gambling as:

A person engages in gambling when he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome.

N.Y. Penal Law § 225.00(2).  Thus, a customers are "clearing placing bets on events outside of their control or influence, specifically on the real-game performance of professional athletes. Further, each [business's] wager represents a wager on a "contest of chance" where winning or losing depends on numerous elements of chance to a 'material degree.'" Cease & Desist letters, at 1.

     In response to those letters, FanDuel and DraftKings filed a declaratory judgment lawsuits against the Attorney General of New York State and New York State.  A copy of the FanDuel complaint is available here (I am hosting it on Mega.co.nz), and a copy of the DraftKings complaint is available here (I am hosting it on Mega.co.nz). 

    The flagship argument by both FanDuel and DraftKings is that daily fantasy sports are games of skill and not chance.  DraftKings Complaint, ¶¶ 25-35, FanDuel Complaint, ¶¶ 24-30.  Additionally, they cite the federal exception to fantasy sports in the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) as evidence that fantasy sports are games of skill and that they are not accepting bets or wagers under the Act.  DraftKings Complaint, ¶¶ 36-38, FanDuel Complaint, ¶¶ 26.  Finally, DraftKings points out that the legal standard for determining whether a game is a game of chance or skill requires that chance be the "dominating element".  DraftKings Complaint, ¶ 66.

     If we assume that DraftKings did it research and that under New York State law the dominating element in a game must be chance for it be declared a game of chance, then both businesses are in a decent posture heading into their lawsuits.  

     Both businesses' attempts to cloth themselves in the federal exception in UIGEA is not particularly convincing.  First, the Act did not preempt any State law prohibiting, permitting or regulating gambling.  31 U.S.C. § 5361(b).  Next, the fantasy sports discussed in the Act were the traditional season long version which is different from the daily fantasy sports currently at issue.  Finally, the Attorney General has not alleged that there are bets or wagers in violation of the Act.

     I look forward to hearing from both FanDuel and DraftKings about how in a single fantasy game chance, such as an injury, is not a dominating element.

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