New York Attorney Wants FanDuel and DraftKings to Return Profits

Although the New Year resembles a fresh start for many, the ugly court battle between leading DFS companies and the state of New York is continuing into 2016. Both DraftKings and  FanDuel are facing a statewide lawsuit filed by New York Attorney General Eric Schneiderman in October of 2015. In a recent amendment to the case, Schneiderman is now requesting that FanDuel and DraftKings pay back profits as restitution costs to those who have lost in daily fantasy sports.

The Amendment

The two defendants, DraftKings, and FanDuel have been fighting to keep conducting business in the Empire State, appealing the case instantly after the lawsuit was filed. The new amendment would enforce restitution payments for all the losing participants from the state of New York on top of additional fines of $5,000 per case. The request arises from the statistics that both platforms received over $200 million from 600,000 different New York players.

DraftKings and FanDuel's Defense

The defense attorney for DraftKings, David Boies, continues to build a case on a basis that daily fantasy sports are a game of skill, which still stands strong against Schneiderman's claims. Boies, who acts as Chairman to Boies, Schiller, & Flexner LLP spoke out about the ongoing case in a recent statement:

“Originally, the NYAG claimed that daily fantasy sports were illegal gambling because they were games of chance. That was disproven. Now, the NYAG complains that DFS contests are so much contests of skill that some advertising is misleading because, the NYAG says, certain ads imply that DFS contests are games of chance. This claim, too, is baseless.”

The defensive claims made by DraftKings and FanDuel state that Schneiderman does not understand the fundamentals of the system and how daily fantasy sports competitions work.

In the earlier months, Schneiderman took the necessary steps against DFS companies for a temporary injunction to go through December 11th, 2015. However, an appellate court judge reversed the ruling within the same day of taking effect. The current court date has been set to hear both sides on January 4th, 2016 in front of an appellate panel of judges. Although the case will most likely continue to trial, the newest court appearance on the 4th will officially settle whether or not the DFS companies can continue business throughout the rest of the trial period.

Schneiderman team was granted a temporary injunction on Dec. 11 to stop DraftKings and FanDuel from operating in New York, but hours later, an appellate court reversed the decision. The two sides are set to argue before an appellate panel on Jan. 4 to decide whether the fantasy companies can continue to operate in New York as the case proceeds to the trial stage, but Thursday's filing significantly raises the stakes should the case get to trial.

The Prosecution

The new amendment focuses on the deception behind the company's advertising. However, Schneiderman also continues to claim that the companies are operating illegally under New York State Law. Although DraftKings & FanDuel will push that their systems are solely skill based, the current New York gambling laws state that any element of chance would deem the game illegal.

The attorney general uses multiple examples to explain how the illicit advertising practices pull participants in deceptively. One of the largest “tricks” is found in the deposit bonus. Schneiderman claims members that fall for a $600 bonus for DraftKings is only fully unlocked until the customer has spent a minimum of $15,000.

In the amended complaint, Schneiderman — who has maintained that the two companies are operating an illegal gambling operation in New York — focused more on what he calls the deceptive advertising practices of the companies. Specifically, he refers to deposit bonuses that instead, he says, were a “convoluted scheme.”

DraftKings, for example, offered a $600 deposit bonus that, Schneiderman said, would yield the customer only $24 back. The full $600 would unlock after the customer has spent at least $15,000 on the site, producing only $24 in winnings. Another statistic arising in the recent statement cited that only 11.7 percent of DraftKings customers came out on top in the years 2013 and 2014.

This dramatic statistic is contrary to the several winners constantly on display in advertisements. Schneiderman makes a strong case comparing the companies to Las Vegas casinos, although DFS platforms simply facilitate the competitions and do not profit from any particular outcome.

Conclusion

With DraftKings and FanDuel taking 9 percent of the winnings for acting as the middleman, the two behemoth DFS platforms cleared over 3 billion in 2015 before paying winners. The massive amount of profit paints a large target on both companies’ backs, as seen in Schneiderman’s latest amendment. The total amount of fines for the platforms outlined in the request would cost them over $500 million before paying restitution to the losers. If DraftKings or FanDuel lose this case, it will open a revolving door for future lawsuits in favor of DFS losers. The battle continues in other states around the US including Illinois and Nevada, leaving DFS as the leading controversial topic for the national gambling industry.

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