New York Ruling and a Look at the Biggest Issues in Daily Fantasy Sports

Several hours after the New York Supreme Court Justice, Manuel Mendez allowed for Attorney General Eric Schneiderman’s requested preliminary injunction to pass on Friday morning, a state appeals court halted the decision. Doing so is termed a “stay” and overrules Mendez’s request temporarily.

If Mendez’ request had gone through it would have stopped daily fantasy sports operators from allowing New York customers to bet or deposit money. However, because of the ruling for a stay, New York citizens can happily go on playing on their favorite DFS website. DraftKings did not stop offering their services to New York citizens, whereas FanDuel will have to reinstate them.

Although this decision made by the New York appellate court could be temporary as it is only a short-term resolution that requires further proceedings, there are many other components of the legality of daily fantasy sports in Newe York. Below are some of the biggest issues that are occurring in the daily fantasy sports world.

Other States that are Investigating Daily Fantasy Sports

Similarly to New York, several other states have put daily fantasy sports under investigation. The most prominent of which is Nevada, who deemed DFS to be a form of gambling that requires a state-issued license to operate. Currently, offering services to Nevada residents is illegal unless companies have the appropriate license, which none of them do. The two biggest DFS companies, FanDuel, and DraftKings, as well as a slew of smaller DFS operators, pulled out of Nevada after the state made this decision.

There are also other investigations into DFS held in Washington state, Tennessee, and South Dakota. Additionally, there is pending legislation that would markedly allow for DFS and regulate the industry in Pennsylvania, Florida, and Pennsylvania among other states.

More Federal Probes in DFS Future?

There are several members of Congress, including Senators John McCain and Harry Reid, who wish to hold hearings about the legality of DFS, as well as traditional sports gambling, but nothing has officially been scheduled. However, the topic is sure to be reviewed by Congress at some point with the amount of talk about the lack of oversight, legal ambiguity, and complete hypocrisy.

Besides Congress, the Senator of Connecticut Richard Blumenthal and the Senator of New Jersey Robert Menendez have both asked the Federal Trade Commission to investigate whether or not DFS is in violation of consumer protections. On top of this, the Treasury Department has also shown interest in all types of sports wagering. They are investigating whether sports betting offered on behalf of third parties is considered a criminal activity.

Impact of Class-Action Lawsuits on the DFS Industry

Since the start of October, there have been a plethora of private class-action lawsuits aimed at daily fantasy sports operators. Two of these lawsuits, one in Florida and one in New York, also is targeting individual company executives, investor media companies, payment processors, equity-holding sports leagues, and even people who have found success on these sites.

In all likelihood, some of these lawsuits will be clumped together in one proceeding, especially as many of them overlap significantly. It is also likely that DraftKings and FanDuel will argue that most of the lawsuits should not be allowed to proceed because they have arbitration clauses within their operators’ terms and conditions.

The claims of the plaintiffs vary widely from case to case. The allegations include false advertising, civil conspiracy, fraud, negligence, unjust enrichment, illegal gambling and more. One of the most well-known lawsuits was filed by Pierre Garcon, an NFL player, against FanDuel. His lawyer stated in October:

“FanDuel has exploited Plaintiff's name and likeness without his consent to promote its daily fantasy football gaming product.”

Does the New Jersey Sports Betting Lawsuit Include DFS?

The New Jersey case has mainly been focused on Governor Chris Christie and his attempt to move Nevada-type sports betting into the state, despite substantial opposition from the NFL, NCAA, NHL, MLB, and NBA. That being said, a federal appellate court did bring up fantasy sports during the discussion.

The court of appeal stated on the matter:

“We note, however, the legal difference between paying fees to participate in fantasy leagues and single-game wagering as contemplated by [New Jersey's] Wagering Law.”

Previous Rulings on DFS Legality

In 2007, a New Jersey federal judge issued a decision, which will have future impacts on fantasy sports and has already been brought up in the New York case with Mendez. In the Humphrey v. Viacom case, the judge came up with a rather long list of factors that support fantasy sports’ legality. He stated:

“As a matter of law, the entry fees for Defendants' fantasy sports leagues are not ‘bets' or ‘wagers,' because (1) the entry fees are paid unconditionally; (2) the prizes offered to fantasy sports contestants are for amounts certain and are guaranteed to be awarded; and (3) Defendants do not compete for prizes. Defendants are neutral parties in the fantasy sports games — they do not compete for prizes and are indifferent as to who wins the prizes.”

What do Sports Leagues Have to Say?

There are many sports leagues like the NHL, MLB, NBA, and MLS that own an equity stake in a daily fantasy sports company. Because of this, in most cases leagues wish to separate fantasy sports from traditional sports gambling on both integrity and legal grounds. NBA executive, Michael Bass wrote a letter to the New York Times stating:

“There is no evidence that the growth in fantasy's popularity, or the evolution of its format to include daily and weekly games, has threatened the integrity of sports or led to other social ills.”

What Do New Yorkers Think About DFS?

A recent poll indicates that two-thirds of New Yorkers side with Attorney General Eric Schneiderman that DFS games are a type of gambling and should, therefore, be deemed illegal in the state of New York. The Siena College Poll was taken from 822 registered voters and found that 66 percent agree with the Attorney General while only 34 percent think that DFS is a skill-based and legal game.

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