DraftKings executives are playing a risky game with potential criminal implications should they continue to offer New Yorkers daily fantasy sports contests in defiance of Attorney General Eric Schneiderman’s cease-and-desist letter, Fordham Law Adjunct Professor Marc Edelman said this week.
The Boston-based web site plans to continue offering daily contests to its 500,000 New York customers while seeking a ruling in court on whether daily fantasy sports violate the state’s illegal gambling statute, as Schneiderman alleges. Meanwhile, DraftKings’ chief rival, FanDuel, has temporarily stopped servicing its 600,000 New York customers while also fighting the attorney general’s ban order in court.
Disregarding the attorney general’s order could open DraftKings executives to criminal charges if a state court rules daily fantasy sports advanced illegal gambling in violation of state law.
“It seems foolish to move forward and risk liability and jail time for executives simply to retain revenues for a short time,” said Edelman, who is a consultant to the daily fantasy sports industry and writes about it for Forbes. The professor pointed to the early 2000s case of WorldSportsExchange co-founder Jay Cohen, who went to prison for running an online gambling site, as proof of the dangers the daily fantasy sites risk in defying Schneiderman’s ban order.
This fall, the multibillion dollar fantasy sports industry has faced increased scrutiny—including an FBI investigation for insider trading and a mention during a recent GOP presidential debate—as its advertisements promising millions of dollars in prizes have become almost as ubiquitous as the sports they revolve around. Complicating matters, American professional sports leagues, sports owners, and television networks broadcasting the contests have financial stakes in the industry.
Schneiderman’s declaration last week that daily fantasy sports is a game of chance that can foster addiction among its participants places the industry’s largest market at risk. DraftKings and FanDuel participants in New York account for almost 13 percent of the industry as a whole, according to the New York Times.
Schneiderman’s daily fantasy sports ban is being watched closely across the country, Edelman noted. Should New York succeed in banning these games under its illegal gambling statutes, other states might seek to do the same in their jurisdictions.
Under such a scenario, daily fantasy sports in states like New York, New Jersey, Pennsylvania, and Nevada could conceivably fall under state oversight for licensing and tax revenue purposes.
“It is certainly possible many within New York would like to tax and regulate daily fantasy sports, given the same course of action proposed in other states,” said Edelman, who is also Associate Professor of Law at Baruch’s Zicklin School of Business.
FanDuel, which has its main office in Manhattan, and DraftKings can continue operating national business in New York, so long as it doesn’t include New Yorkers, Schneiderman said last week. The attorney general’s distinction likely means he feels the contests don’t violate gambling statutes in states like California and Massachusetts, Edelman reasoned. It also allows New York to continue collecting revenue from the sites’ operation here.
DraftKings’ one tournament golf and one-race NASCAR contests—both of which FanDuel don’t offer—puts DraftKings at more legal risk, Edelman said. The reason, he explained, is because a state court could determine these contests have a material element of chance even if games involving other major American sports were deemed games of skill.
–Ray Legendre