Fantasy sites sue NY attorney general: Is daily fantasy gambling?

Two fantasy-betting giants, FanDuel and DraftKings are filing a lawsuit against New York state for banning daily fantasy betting. Daily fantasy has exploded in popularity over the past year, leaving many states unsure how to regulate it.

Should betting money on fantasy sports be illegal?

That's the debate raging in New York Friday after two daily fantasy football betting sites filed a lawsuit in New York State's Supreme Court to prevent New York Attorney General Eric Schneiderman from banning daily fantasy games in New York.

The companies, DraftKings and FanDuel, are giants in a billion-dollar industry that allows online players to create multiple fantasy sports teams per day and compete against other users, and their teams, for money. Mr. Schneiderman issued a cease-and-desist letter earlier this week to prevent the companies from accepting wagers from New York residents, arguing that daily fantasy betting is a game of chance, and thus constitutes illegal gambling.

“Our review concludes that DraftKings’/FanDuel’s operations constitute illegal gambling under New York law,” Schneiderman wrote in a letter obtained by ESPN’s David Purdum and Darren Rovell. “[Users] are clearly placing bets on events outside their control of influence, specifically on the real game performance of professional athletes.” 

Two days after Schneiderman made motions to ban fantasy sports gambling, both companies filed petition statements against New York state.

“We are very disappointed that New York Attorney General Eric Schneiderman took such hasty action today, particularly since he did not take any time to understand our business or why daily fantasy sports are clearly a game of skill,” countered DraftKings in a statement. “We strongly disagree with the reasoning in his opinion and 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.”

Last month, the Nevada Gaming Control Board and Nevada attorney general ruled that fantasy sports betting was a form of gambling and requires a license to operate in Nevada. 

FanDuel immediately challenged the decision, citing that it “stymies innovation and ignores the fact that fantasy sports is a skill-based entertainment product loved and played by millions of sports fans,” said Justine Sacco, FanDuel’s director of communications, in a statement. “This decision deprives these fans of a product that has been embraced broadly by the sports community, including professional sports teams, leagues and media partners.”

DraftKings has raised a large portion of its funding through investment arrangements from media companies and sports leagues. As the Wall Street Journal reported in October:

DraftKings often landed these deals ahead of competitors by offering extremely generous terms, the people said. In July, Fox Networks contributed $150 million to a $300 million venture-funding round for DraftKings and received an 11% stake in the company. In a related deal with Fox, DraftKings agreed to spend $250 million during the next three years on advertisements for the company’s Fox Sports unit, said a person familiar with the terms. That arrangement allowed Fox to take an ownership stake while collecting a 66% return on its money within three years.

New York is home to the largest population of daily fantasy participants in the country. Although betting on fantasy sports is prohibited in Arizona, Iowa, Louisiana, Montana, and Washington, the industry is fairly new – and subject to little regulation. Schneiderman’s cease-and-desist petition is, in part, an attempt by authorities to curtail what is seen by many as a loophole in the law or illegal gambling.

And Friday's lawsuit filing may just be the latest contest in a long season. Daily fantasy is under investigation or legislative scrutiny in several other states, including Massachusetts, Florida, New Jersey.