Fantasy Sports, Reality’s Problems

January 4, 2016

Uncategorized

By Harmandeep Toor – Thompson Rivers University JD Candidate

Fantasy sports have become a multi billion-dollar industry generating between $40-70 billion dollars of revenue per year. Due to the money flowing through fantasy sports, numerous parties have tried to break into the industry and have attempted to offer different products to capture market share. These unique perspectives on fantasy sports have not been more evident than through the influx of daily fantasy leagues. These leagues allow individuals to create a team, wager money and play against thousands with the hopes of large cash payouts. The two largest players that have arisen through this influx have been DraftKings and FanDuel.

As these leagues gained more prominence so did the voice of detractors. Many have claimed the games are rigged, with an October insider trading scandal leading credence to this theory. However, while these detractions have done little to damage the growth of daily fantasy leagues, a major setback arose on November 10th, when the New York state attorney general ordered DraftKings and FanDuel to stop accepting bets. The state attorney stated daily fantasy leagues constituted illegal gambling under state law. This begs the question as to whether the illegality of daily fantasy in one of the world’s largest market is its final curtain call or just another minor road bump.

On November 10th, the New York state attorney banned DraftKings and FanDuel from taking bets in New York City. Attorney General, Eric T. Schneiderman stated that these two parties were the leaders in a multibillion dollar industry intended to evade the law and fleece sports fans across the country. This decision is expected to have major ramifications for DraftKings and FanDuel in other states as Schneiderman has had a long history of being a consumer-protection advocate.

Fantasy sport companies have consistently stated that their games require more skill than luck thus it should not be considered gambling. This point was affirmed when in 2006 a federal law sanctioned fantasy sports and exempted them from a prohibition against processing online financial wagering. Both companies have stated that they tend to challenge this decision in court and it is up to the state to prove that chance or luck is a material factor in fantasy sports, and thus would make it gambling.

The legal ramifications if found in favour of the state could be wide reaching. However, many have argued that while New York is a major market with over 500,000 daily fantasy players according to a spokeswoman for DraftKings, this decision is unlikely to be a fatal blow for these two companies and daily fantasy as a whole. As previously stated fantasy sports were sanctioned by a federal law in 2006. The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) created an exception for fantasy sports, stating it was not to be considered betting or wagering. For fantasy sports to fall under this exemption it has to be shown that winning outcome is reflected in the skill of participants.

While the implementation of this law is left up the states, only New York has constituted fantasy sports as gambling. Thus, if the decision of the state attorney is upheld, other states will not be obligated to follow the ruling. But, if they do decide to go down a similar route as New York, there will be precedent in their favour. However, Schneiderman’s argument that the majority of winnings is concentrated within 1 percent of players accidentally opposes his point that fantasy sports is luck based and may lead to his decision being overturned.

On November 25th 2015, the first hearing was held to determine the legality of daily fantasy sports. Prior to the decision being rendered, the New York State Attorney is seeking an injunction to prevent FanDuel and DraftKings from continuing to operate. At the same time, FanDuel and DraftKings are both seeking court orders that would allow them to continue to operate while a decision is being rendered without facing additional liability.

While as previously stated a decision in favour of the state attorney will have little implications for other states, it does open the discussion as to whether fantasy sports is operating in a legal grey area. With the mounting controversy surrounding fantasy sports including the revelation that individuals were using insider information to not only gain an edge but to win, regulations similar to those of traditional gambling may need to be put in place or the exception granted to fantasy sports may need to be revoked in whole.

But currently, unless numerous changes are made at a state and federal level, this decision will do little to hurt daily fantasy sports and in particular, DraftKings and FanDuel. Fantasy sports will continue to grow, flourish and individuals will continue to partake, whether those individuals include the inhabitants of New York State or not.

 

 

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