By Paul Nicholson
January 5 – The daily fantasy sports (DFS) business that has taken the US fantasy gaming market by storm and is preparing for entries into the European football market, is facing a defining moment this week in the New York courts as to whether it will be allowed to continue.
At the centre of the dispute is whether DFS games are gambling – and as such illegal until regulated – or whether they are a game of skill relying on the gamers’ knowledge to pick winning teams.
Daily fantasy sports involves gamers receiving points based on how real-life players perform on a particular day. Gamers pick their teams by “buying” the athletes they want and staying within a maximum budget. Gamers can enter one-on-one matches for $1 or games with thousands of participants competing for seven-figure prizes.
The business has seen the rapid growth of two competing platforms in the US, FanDuel and DraftKings, who have attracted mainstream investors as well as ownership from the US major leagues. They have also become big spenders in the US ad markets with their branding impossible to avoid on US television.
New York attorney general Eric Schneiderman argues that the games are gambling and are subject to manipulation by the operators – one employee has already been sued for using insider knowledge to win a game. Schneiderman has already filed one lawsuit that saw the games suspended before a stay was granted by a New York judge to allow them to continue operating while they appealed against the decision.
Schneiderman came back again on New Year’s Eve adjusting his suit and asking for FanDuel and DraftKings to return all profits made in New York, repay customers who lost money and pay up to $5,000 in fines to every customer. It is estimated the two companies have earned more than $200 million in entry fees last year from around 600,000 customers.
The interim stay in the New York court expired January 4 and a decision is now awaited as to whether it will be further be extended for the duration of the appeal against the initial judgments that shut the games down.
Lawyers for FanDue and DraftKings have responded, and are confident of their position, saying: “Our arguments remain strong and we are confident in our appeal for four simple reasons:
1. The Attorney General has still offered no evidence that supports a preliminary injunction.
2. Daily fantasy sports contests are not gambling — their outcome is controlled by the knowledge and skill of DFS players — that’s how you win or lose.
3. The only difference between a daily and a season-long fantasy contest is how long it lasts and the Attorney General has said that season-long fantasy sports contests are lawful.
4. It is legal for skills-based contests to charge entry fees and award prizes to participating contestants. A DFS player exercises “control and influence” over whether they win a prize by their choice of a roster which is without a doubt a skills-based exercise.”
The coming days will be crucial for the DFS business and the speed of its expansion plans into European markets that are, currently, similarly unregulated. That is a situation that seems likely to change. Already in Illinois in the US the games have been outlawed.
Europe has a number of more flexible gaming markets, especially for online gaming, and both regulators, operators and the football business will be watching to see the US legal outcomes closely.
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