FanDuel, DraftKings Refunds Should Be Required in New York State, Lawsuit Alleges

The state of New York is demanding that the fantasy sports sites FanDuel and DraftKings, which have been accused of engaging in illegal gambling operations, to return any money they made from individuals in the state. 

New York Attorney General Eric Schneiderman amended a lawsuit against the company that owns both websites on Thursday, calling for restitutions to New York customers, in addition to up to $5,000 in civil fines sought for each case.

The demand comes on the heels of a New York judge’s decision to allow Schneiderman to ban FanDuel and DraftKings from operating in the state.

DraftKings and FanDuel lawsuits claims that in 2014, New York consumers spent more than $25 million betting on the performance of sports teams on the internet websites.

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 constitute 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.

Last month, Manhattan Supreme Court Justice Manuel Mendez allowed Schneiderman to proceed with a motion to stop the websites, both owned by the same company, from doing business in the state. In addition, he rejected calls from DraftKings and FanDuel to prevent the state from taking legal action against them. The owners have appealed that ruling.

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.

With a growing number of complaints being 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 (JPML) asking that the cases be centralized before one judge for coordinated pretrial proceedings.

On January 28, the JPML will hear oral arguments over whether to consolidate the litigation in the Southern District of New York to reduce duplicative discovery into common issues in the cases, avoid conflicting pretrial rulings from different judges and to serve the convenience of the parties, witnesses and the courts.

The lawsuits claim the entire operations are illegal, noting 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.