By Ed Edmonds
New York Attorney General Eric Schneiderman has targeted the daily fantasy sports industry claiming that efforts to rebrand sports betting is “plainly illegal” under New York law. The media’s interest in daily fantasy sports picked up this summer when DraftKings and FanDuel launched significant advertising campaigns while an “insider trading” episode brought attention to employees betting on rival’s websites. Massachusetts Attorney General Maura Healey followed up Mr. Schneiderman’s interest with an issuance of proposed regulations and notice of public comment and hearing. Numerous lawsuits have also been filed against daily fantasy sports operators as well as Major League Baseball, the National Basketball Association, the National Hockey League, Major League Soccer, franchise owners, credit card companies and other businesses supporting or owning a share of the prominent websites.
The major team sports and owners who have invested in the two daily sports fantasy market leaders are certainly anticipating increased fan interest for their teams and leagues if they can openly bet on the fantasy version of the game. The legal battleground is over the issue of whether or not these are games of skill, and legal, or games of chance, and illegal. New York’s AG is arguing that these sites, including Yahoo’s similar daily fantasy site are illegal under New York law. The substantial investment by the major team sports is based on a 2006 federal act, the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), which considers fantasy sports as games of skill and legal. Specifically, the statute states that “the term ‘bet or wager’ . . . does not include . . . “participation in any fantasy or simulation sports game . . . (where) all winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events).”
Perhaps the real issues here are that the industry is largely unregulated, but, more importantly, states are not getting part of the revenue. New York was one of the first states in the modern lottery era to establish via state constitutional amendment a legal lottery system to raise money for education. Is Mr. Schneiderman’s real concern the impact on his state lottery instead of his concerns raised in his legal filings as noted by Joe Drape in the New York Times that FanDuel and Draft Kings maintain “close ties to the gambling industry, collected user fees from contestants in states where the sites are barred, and raised false hopes of winning when nearly 90 percent of players lost money?”
Much of my research supports the proposition that winning on the sites is difficult for the casual bettor. The biggest winners bet heavily based upon computer-modeling that arrives at the best combination of players not typically chosen by bettors without access to the data. However, many writers have noted the astronomically poor odds on playing most state-approved lottery games, including Powerball. It appears that the odds of winning many of the New York Lottery games are also a longshot. Another industry hurt by state lotteries is the horse racing industry, another area with strong New York interests.
Massachusetts AG Healey has taken an alternative approach. When elected in 2014, Ms. Healey opposed the expansion of gambling in Massachusetts, particularly casino gambling. Rather than ban the games outright, she has proposed regulations and called for public comment and a hearing on January 12, 2016. The proposed regulations would prohibit minors from playing, establish truthful advertising requirements, restrict advertising aimed at minors or school sporting events, prohibit contests based upon college or high school games, provide protections for problem gamblers, prohibit extensions of credit, prevent employees from participating, restrict sharing of non-public inside information, and establish data retention policies. As the first attorney general to put forth regulations focusing on consumer protection, her initiative will receive considerable attention. Furthermore, FanDuel and DraftKings, based in Boston, have indicted their support for this approach compared with Mr. Schneiderman’s outright attempt to shut down their businesses. One can easily predict that the sports leagues, owners, and other businesses that have been sued will prefer this approach.
The desire of Americans to gamble on sporting events is enormous. The American Gaming Association predicted nearly $100 billion will be bet on NFL and college football games this season. The vast majority of this activity, of course, is not through legal channels. NBA Commissioner Adam Silver, in a November 2014 op-ed piece for the New York Times, offered the figure of $400 billion in illegal gambling on sporting events in the United States. Fantasy games are only a part of the gambling interest, but these games do not seem to raise the same degree of concern over participants impacting the outcome. This fact plus increased fan interest would seem to be the motivation behind major sports leagues endorsing fantasy games. Outright prohibition has done little to restrict betting. The Massachusetts-proposed regulatory scheme offers an opportunity to address some of daily fantasy sports most vexing problems while permitting the growth and development of this daily form of sports betting.
Ed Edmonds is Associate Dean for Library and Information Technology and Professor of Law at Notre Dame Law School. He currently teaches Advanced Legal Research and Sports Law Seminar, and has previously taught antitrust law, criminal law, and entertainment law.
