On November 10, New York Attorney General Eric T. Schneiderman issued cease-and-desist letters to FanDuel and DraftKings, the two largest daily fantasy sports companies, demanding that they stop accepting bets in New York State.
According to the letters, daily fantasy sports constitute illegal gambling in violation of both the New York Constitution (N.Y. Const. Art I, § 9) and the criminal statute (N.Y. Penal Law §§ 225.00-225.40). Furthermore, the letters accused the companies of misrepresenting the likelihood that an ordinary player will win a jackpot, misrepresenting the degree of skill implicated in the games, and misrepresenting that the games do not constitute gambling and that the companies comply with applicable laws. These misrepresentations amount to violations of Sections 349 and 350 of New York State General Business Law and Section 63(12) of the Executive Law. Schneiderman also argued that FanDuel and DraftKings run afoul of Section 1303 of New York Business Corporation Law by transacting business in a persistently fraudulent and illegal manner. The letters are available here (FanDuel) and here (DraftKings).
Schneiderman distinguished daily fantasy sports from traditional fantasy sports, which is legal in New York. Participants in traditional fantasy sports, the State argued, conduct a competitive draft, compete over the course of a season, and repeatedly adjust their teams. The internet sites that host traditional fantasy sports receive most of their revenue from administrative fees and advertising. In contrast, daily fantasy sports sites are in full control of and profit directly from the wagering; they set prizes and control relevant variables such as athlete “salaries”. Moreover, daily fantasy sports sites promote instant gratification, easy game play, and no long-term strategy.
Schneiderman’s investigation found that the quick rate of play, the large jackpots, and the promotion of daily fantasy sports as an easy path to riches make it a dangerous activity for consumers, creating the same public health and economic concerns as other forms of gambling, including addiction.
The cease-and-desist letters serve as formal pre-litigation notices. This means that FanDuel and DraftKings may within five business days of receiving the letters show why the Attorney General should not initiate proceedings.
Both DraftKings and FanDuel have issued statements in response to the letters. DraftKings has indicted that the company “will examine and vigorously pursue all legal options available to ensure our over half a million customers in New York State can continue to play the fantasy sports games they love.” Similarly, FanDuel has taken the position that “Fantasy sports is a game of skill and legal under New York State law.”
By all indications, the battle for daily fantasy sports in New York is far from over. Let the games begin!