DraftKings, FanDuel Fantasy Games Are Illegal Sports Gambling: NY Attorney General

New York is the latest state to join the growing movement to ban fantasy sports sites, saying that FanDuel and DraftKings are engaged in illegal gambling operations.  

In cease-and-desist letters (PDF) sent last week, New York Attorney General Eric Schneiderman called on the fantasy game sites to stop operating in the state, indicating that they violate New York state laws.

“Our investigation has found that, unlike traditional fantasy sports, daily fantasy sports companies are engaged in illegal gambling under New York law, causing the same kinds of social and economic harms as other forms of illegal gambling, and misleading New York consumers,” Schneiderman said in a press release. “Daily fantasy sports is neither victimless nor harmless, and it is clear that DraftKings and FanDuel are the leaders of a massive, multi-billion-dollar scheme intended to evade the law and fleece sports fans across the country.”

FanDuel and Draftkings, which are now both owned by the same company, responded by filing their own lawsuit against Schneiderman, arguing that he is abusing his power and attempting to bully legitimate businesses to shut down.

Both websites allow players to choose certain athletes and teams, then compete based on the performance for that week. Players pay entry fees and win cash prizes based on how their selections perform in comparison to other participants in the fantasy game.

A growing number of critics say that the websites are illegal sports gambling, using the “fantasy games” phenomenon as a cover for classic sports betting online, which is illegal.

New York is not the first state to move against the websites. Arizona, Iowa, Louisiana, Montana and Washington state have all banned the sites from operating, and Nevada has declared that they are gambling sites, requiring casino licenses to continue operations in the state.

A number of smaller fantasy football websites, which operate in a similar manner are reportedly abiding by the state’s orders and blocking New York users from joining.

FanDuel and DraftKing Class Action Lawsuits

In addition to state actions against the companies, a growing number of class action lawsuits against FanDuel and DraftKings have been filed by users, alleging the sites engage in unfair practices, allowing employees with inside knowledge about how other contestants are playing to compete in the fantasy games for cash prizes. Other lawsuits claim that the operations are a thin veil for illegal sports gambling practices.

As more complaints are filed in U.S. District Courts throughout the federal court system, at least three petitions have been filed with the U.S. Judicial Panel on Multidistrict Litigation asking that the cases be centralized before one judge for coordinated pretrial proceedings.

The lawsuits claiming the entire operations are illegal, note that in traditional fantasy sports leagues, players choose specific athletes to form a “fantasy team” at the start of the season and maintain those teams for months. However, the betting websites operate on a weekly or per-game basis, with players chosen each time.

Some lawsuits have also been filed not arguing that the websites are illegal, but that they are cheating customers. Those claims are focused primarily on recent revelations that FanDuel employees are allowed to bet on Draftkings fantasy games, and vice versa, despite the fact that the companies are jointly owned and employees have access to data about how large numbers of other individuals are playing the games.

In a recent contest, an employee won $350,000 after posting player roster percentages. Although an investigation by the company indicates that the employee did not get the roster data until after he had already placed his bets, serious questions have been raised about whether employees have access to inside information and data that gives them a distinct advantage.