Is daily fantasy sports legal? An analysis of the debate in Nevada, New York and Illinois - Part 2

This two part article explores the challenges to the legality of daily fantasy sports currently taking place in various states across the United States. While the legality of daily fantasy is being investigated and debated at a Federal level, the state challenges are arguably the more pressing given the speed at which they are progressing.

Part 1 of the article looked at the position in Nevada. Part 2, below, moves on to investigate New York and Illinois, before giving a brief recap of the position in other states and offering comment.

New York

Attorney General Suit

The New York Attorney General (NYAG) filed suit against FanDuel and DraftKings on November 17, 2015.¹ Earlier, the NYAG had sent cease and desist notices to the companies.² In the notices, the NYAG outlined the major points of its case against the daily fantasy operators. The letter states that the AG’s analysis of the law:

“concludes that [Daily Fantasy’s] operations constitute illegal gambling under New York law, according to which, ‘a person engages in gambling when he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence.’”³

The NYAG letter stated that:

“[daily fantasy] customers are clearly placing bets on events outside of their control or influence, specifically on the real-game performance of professional athletes,” and that each [daily Fantasy] wager represents a wager on a ‘contest of chance’ where winning or losing depends on numerous elements of chance to a ‘material degree.’”⁴

The NYAG asserted that daily fantasy operators collect “wagers” in the form of entry fees, set prize payouts, and profit from people betting (through the above-mentioned rake).⁵ In NYAG’s submission to the Supreme Court of New York, it likened daily fantasy to “prop bets,” citing an un-named daily fantasy CEO who described daily fantasy as “prop betting parlay on steroids.”⁶ In its submission, the NYAG goes on to say that daily fantasy’s prime draft method, the “salary cap draft” daily fantasy companies set odds of players performances by deterring their “salary” for the draft, which likens them to sports books.⁷

The NYAG distinguishes daily fantasy operations from “traditional” fantasy sports, reasoning “traditional fantasy sports conduct a competitive draft, compete over the course of a long season, and repeatedly adjust their teams. They play for bragging rights or side wagers, and the Internet sites that host traditional fantasy sports receive most of their revenue from administrative fees and advertising, rather than profiting principally from gambling.”⁸ According to the NYAG:

“unlike traditional fantasy sports, the sites hosting [daily fantasy sports] are in active and full control of the wagering” and “unlike traditional fantasy sports, [daily fantasy sports] is designed for instant gratification, stressing easy game play and no long-term strategy."⁹

Alleged Violations

The NYAG’s suit centers on Article 1 Section 9 of the New York Constitution, and the advertising tactics of DraftKings and FanDuel.¹⁰ Under this section, “any lottery or the sale of lottery tickets, pool-selling, book-making, or any other kind of gambling” is illegal.¹¹ The NYAG’s complaint alleges multiple violations of provisions of New York Penal Law (NYPL) art. 225, which outlines criminal punishments for gambling offenses.¹²

The NYAG also argued that DraftKings and FanDuel’s advertising practices violated New York’s consumer protection and fraudlaws. Specifically, the NYAG alleges that DraftKings and FanDuel are misrepresenting and advertising “that [they] compl[y] with applicable laws”; “the likelihood of a casual player will win a jackpot”; “the degree of skill implicated in the games”; and “that Defendant’s games are not considered gambling.”¹³

Injunctions

In the suit, the NYAG moved for a preliminary injunction pending the outcome of the case against DraftKings and FanDuel.¹⁴ FanDuel responded by moving for injunctive relief against the NYAG from taking any enforcement action against them, and a declaratory judgment that daily fantasy is not gambling.¹⁵ DraftKings petitioned the Supreme Court to determine that the NYAG’s action was “arbitrary and capricious, [and] in excess of [the NYAG’s] jurisdiction."¹⁶ As well, DraftKings made the same motions as FanDuel regarding injunctive relief and declaratory judgment.

Per the New York CPLR, to award a preliminary injunction under New York law, a court must find;

1. likelihood of success on the merits of the case;
2. irreparable harm would occur absent the grant of an injunction, and
3. balancing of the equities favors the moving parties interests.¹⁷

Initial Ruling

The New York Supreme Court ruled that an injunction against DraftKings and FanDuel was valid. Specifically, the trial court found that:

1. the NYAG established a likelihood of success based on the Courts interpretation of New York gambling law, and their classification of Daily Fantasy as a game of chance;¹⁸
2. because irreparable harm is implied for fraudulent and illegal conduct under New York Law, irreparable harm existed; and
3. because DraftKings and FanDuel operate nationally, and the injunction itself only barred their operation in New York, the balance of the equities leaned in favor of the plaintiffs.¹⁹

The Supreme Court also found that FanDuel and DraftKings did not meet the above standards for the preliminary injunctions they requested.²⁰

Appeal

In response to the Supreme Court’s ruling, DraftKings and FanDuel filed for emergency injunctive relief from the Appellate Division of the New York Supreme Court.²¹ The Appellate Division granted the stay of appeal conditioned on the fact that an appeal be perfected for the May 2016 judicial term.²²