It’s the subject of endless commercials, debate among GOP presidential candidates, and federal and state investigations. Yet the multi-billion dollar daily fantasy sports industry, and the legal questions surrounding it, is perhaps as misunderstood as its commercials promising million-dollar prizes are ubiquitous, Fordham Law Adjunct Professor Marc Edelman said last week.
Ongoing FBI and New York Attorney General’s Office investigations into the industry focus largely on allegations a DraftKings employee won $350,000 on FanDuel—its chief rival—using private information not accessible to the site’s other competitors. Such insider fraud allegations, if true, are “ambiguous in their legal implications” and take attention away from a potentially larger issue: allegations the two leading sites are operating contests that constitute illegal gambling within certain states and look the other way in regard to user entry from these high-risk states.
“By turning a blind eye toward accepting entries from users based in states where daily fantasy sports likely violate the law, daily fantasy sports operators place themselves at risk under both federal and state law,” explained Edelman, who teaches sports law at Fordham and writes about the fantasy sports industry for Forbes. Operators for DraftKings and FanDuel could potentially be found in violation of the Wire Act based on conduct in states like Louisiana if the allegations prove true that users entered these contests while based in such states.
Daily fantasy sports sites provide a relatively new spin on an old game—namely, selecting “teams” to compete in sports such as football, baseball, and basketball on a daily basis rather than a weekly or seasonal one. This emphasis on daily play—with its attendant monetary wins and losses—has not only pulled in participants but also the financial backing of professional sports leagues, franchise owners, and television networks.
The legal status of daily fantasy sports is currently in flux, with the legality of these contests seeming to vary based on specific game rules and states of operation. During the most recent Republican presidential debate, candidate Jeb Bush likened daily fantasy sports to day trading without regulations. Fellow candidate Chris Christie countered by asking why fantasy sports were discussed when ISIS and America’s $19 trillion deficit were more serious national concerns.
“The Republican party has a longstanding history of attempting to stamp out online gaming,” Edelman said, noting Christie’s response to Bush raises the question of how important it is for the government to devote limited prosecutorial resources to fantasy sports.
The financial involvement of professional sports leagues such as Major League Baseball makes it an important issue, the professor continued.
“There is a big difference between allowing online sports gambling in the privacy of one’s home and a $24 billion sports business that receives public subsidies actively endorsing the participation of these contests on national television,” Edelman said, referring to Major League Baseball, one of DraftKings’ first major backers in 2013.
Major League Baseball has long been known among American sports fans for its hardline stances on gambling (e.g., the 1919 Black Sox scandal, Pete Rose). However, the potential for a new revenue source seems to have outweighed precedent.
“The biggest problem with what Major League Baseball is doing is that it jumped the gun,” Edelman said, noting he based his belief on publicly available information. “It would have been a lot more appropriate to lobby Congress to ensure daily fantasy sports were legal and then jump into the marketplace.”
In addition to Major League Baseball, ESPN also owns a stake in DraftKings. The NBA owns a stake in FanDuel. Meanwhile, powerful NFL owners Robert Kraft (New England Patriots) and Jerry Jones (Dallas Cowboys) and networks such as CBS and NBC, which broadcast NFL games, have also purchased stakes in daily fantasy sports sites.
This could further complicate any government attempts to regulate the industry.
“It is possible too big to fail will protect daily fantasy,” Edelman said. “Not only the bigness in revenue but in political clout.”
Fordham Sports Law Forum Discusses Fantasy Sports
The debate over daily fantasy sports’ legality is unlikely to end soon. As such, the Fordham Sports Law Forum on April 1 will feature a panel on the topic, said Katie Rosenberg, the forum’s editor-in-chief and an avid fantasy football fan.
Rosenberg, whose own fantasy team is called the Whooping Coughlins in honor of New York Giants coach Tom Coughlin, reflects that daily fantasy is more of a buyer beware proposition than traditional fantasy sports, which she plays with friends and family.
“Anyone who’s playing daily fantasy hopefully goes in knowing, just like people who buy lottery tickets, that the more entries they submit the more likely they are to win,” Rosenberg said of daily fantasy. “That speaks to why (NBA Commissioner) Adam Silver wants to legalize gambling. People deserve to know their odds and go into this with a lot of information.”
–Ray Legendre