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New York Shuts Down Daily Fantasy Sports Giants DraftKings and FanDuel

Adam Banner - Friday, December 11, 2015

A lot of law is a matter of semantics, and that seems to be the case with multi-billion dollar companies DraftKings and FanDuel, two daily fantasy sports websites that are able to operate through a loophole that allows the exchange of money in fantasy sports leagues. The fine line here is whether participants are paying for participation in skill-based games or whether they are gambling on fantasy leagues.

Some speculate that the popularity--and profitability--of these sites indicate that online fantasy sports gambling is one step closer to becoming legal. Others note that the shutdown of these sites in Nevada, and now New York, show that FanDuel and DraftKings are losing their precarious position, and lawmakers aren't buying their "skill-based games, not gambling" schtick.

In fact, when Nevada shut down DraftKings and FanDuel in October, requiring them to obtain gaming licenses to continue in the state, it was done in part based on comments the DraftKings CEO made which seemed to deviate from it's stance that the site was not a betting website. Deadspin quoted DraftKings CEO Jason Robins as comparing his company to a casino: "The concept is almost identical to a casino.. specifically Poker. We make money when people win pots." 

He further likened DraftKings to gambling when he said that the site's concept is "a mashup between poker and fantasy sports. Basically, you pick a team, deposit your wager, and if your team wins, you get the pot."

Casino, wager, bet, pot . . . these terms all seem to indicate gambling rather than skill-based, pay-to-play fantasy sports.

The Nevada ultimatum puts DraftKings and FanDuel in a tough spot. If they cease operating in that state, they stand to lose significant profits. However, if they apply for a license from the Nevada Gaming Commission in order to continue operations, they are basically admitting that they are gambling sites, and thus, operating outside the scope of the law.

And now New York has ordered a shutdown of these sites after a judge granted an injunction after hearing arguments to determine "whether daily fantasy sports games amounted to illegal games of chance or lawful ones involving skill."

New York is perhaps the biggest market for these fantasy sports sites, and a shutdown in that state could result in the loss of millions of dollars for the companies. Of course, when the issue goes to trial for a final determination regarding the legality of the sites, DraftKings and FanDuel will likely fight hard to show that they are operating legal skill games rather than illegal online gambling.

It will be a difficult battle, given the DraftKings comments using gambling terminology and likening the site to a casino. Further hurting their case may be evidence noted by the Chief Deputy of the Gaming Division at Nevada Office of the Attorney General that DraftKings  "has complied with basic UK gambling regulations, as the site had obtained licenses for UK operations in August for 'pool betting’ and 'gambling software.'"

It's hard to prove your site isn't used for gambling when you call payments "wagers" and "bets" and when you take out gambling licenses for international operations.

It will be interesting to see how this plays out--whether the multibillion dollar daily fantasy sports sites will continue to operate as skill-based games, or whether they will fail to prove the legality of their sites and be forced to shut down as illegal gaming sites.






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