See no gambling, hear no gambling, speak no gambling, think no gambling: A 10473

Epic Showdowns 23451208866_cc0bc9a8e0Comments on A 10473 New York State Assembly  “Relates to the registration and regulation of interactive fantasy sports contests”

Introduced by Mr. Pretlow May 27 2016

S 6793A was brought out  in the Senate by Mr Bonacic on May 24.  It is not a “same as” version but not very different.  Comments in the body of this post concern the Assembly version. Do not write to a Senator about the Assembly version.  See the appendix when  writing a Senator.  A letter can be done that can go to either chamber.

 Epic Showdowns

Coalition Against  Gambling in New York  (CAGNY), an all volunteer nonprofit  organization, urges every member of the NY State legislature to vote against the  bill if it comes to the  floor in his or her chamber and to vote no on any larger  omnibus bill into which A 10473  or S 6793A may have been  inserted late in the session.  Seven  really good reasons:

We will return to each of these in more detail below

  1. Assumes that entering contests in fantasy sports is not gambling,  attempting an end run around the NYS constitutional prohibition on gambling.  It  is gambling and internet gambling to boot.  Only a few states allow internet gambling though all but two now allow certain forms of gambling such as casinos, card rooms or state lotteries.
  1. Considers certain video games to be “sports events” and  players to be “athletes.”    The bill would allow entry (that is betting)  in a myriad of  “Interactive Fantasy Sports Contests.”  IFSC provide a vastly  greater platform  of events around the world than the stick and ball sports to which fantasy “sports” “contests” of  the big operators in the USA have previously been confined.  It would allow Daily Fantasy eSports (DFeS) without ever mentioning that term.
  1. Consumer protection has no watchdog,  Everything is based on self-report by “registrants” [operators]  to the Gaming Commission or by “authorized players” (bettors) to registrants.
  2. The drive to be “regulated” comes from companies that expect to profit from “regulation.”  They want to create a market.   Lobbying and outright corruption go hand in hand with such forces.  Draft Kings was getting ready last September to launch its own DFeS.
  3. Revenue to the state from licensing fees and from a 15% tax on what operators hold after paying out winnings would not be even enough to cover the cost of  “regulation.”  This is explicit in the justification section of the bill memo (see below),
  4. Legalizing internet gambling in NYS would not increase tourism, would not promote “economic development,”  would not provide “support  for education”  or “property tax relief.”   The proposed legislation is a concession to special interest groups who want to resume hustling New Yorkers.
  5. Expansion of gambling, particularly to the internet, worsens social injustice.
  1. Gambling or not?

This  dishonest bill  ignores the opinion of the NYS AG, shared by other states’ AGs and other parties  (football player Joe Namath, radio host Mike Francesca) that Daily Fantasy Sports as practiced by DraftKings and FanDuel is gambling.  It  does not even acknowledge  a controversy in NYS or in any state.  The bill avoids the issue by (a) limiting use of words that remind anyone of gambling and (b) implying that the AG’s complaint about DK and FD was related only to insider trading allegations. To illustrate (a), a text analysis:

  • Term or word                         number times used in text of bill

 

“gambling”                                          0

“gaming”                                             once   § 1401   ¶ 3

“internet”                                            0

“skill”                                                  0

“betting” or “bet”                                0

“wager”                                               0

“online”                                               once   § 1401   ¶ 8

“esports”  or e-sports or eSports         0

 

(b)   Watch the subtlety (deviousness) of the justification in the  bill memo, which opens by saying that the AG’s office began in October to investigate “into whether employees of the two biggest daily fantasy sports companies, DraftKings and FanDuel, were able to gain an unfair financial advantage in daily fantasy football contests by exploiting access to non-public data” and continues   “On November 10, the Attorney General’s office issued a notice to DraftKings and FanDuel demanding that they stop accepting wagers in New York.”  It never gives the reason for the demand, namely that the AG considered the operations of DK and FD to be forms of gambling, which with certain exceptions is illegal in New York State.  The justification  pretends that the AG’s objection was to charges of  insider trading.  The AG’s main  motivation,  however,  was not insider trading nor false advertising.  It is given in the office’s memorandum   below (italics added).

“The New York State Constitution has prohibited bookmaking and other forms of sports gambling since 1894. Under New York law, a wager constitutes gambling when it depends on either a (1) “future contingent event not under [the bettor’s] control or influence” or (2) “contest of chance.” So-called Daily Fantasy Sports (“DFS”) wagers fit squarely in both these definitions, though by meeting just one of the two definitions DFS would be considered gambling.  DFS is nothing more than a rebranding of sports betting. It is plainly illegal. 

  1. “Daily Fantasy Sports” becomes  “Interactive  Fantasy Sports Contests”

Since video game competitions are a booming activity around the world,  the bill would allow betting (or in DFS terms, paying to enter a contest) on a vastly greater platform  of events around the world than the stick and ball sports to which fantasy “sports” “contests” of  the big operators in the USA have been confined.  The bill is dishonest.  It uses  empty harmless-sounding terms (“interactive,”  “contests”) to hide a huge intended expansion of opportunities to “play” on the internet.  The most outrageous terminology calls video game players  “athletes”  so that competition in video games can be called a sports event.

http://www.legalsportsreport.com/4037/daily-fantasy-esports-market-overview/  Chris Grove on DFeS and the potential for growth September 18 2015.  Quoting below

“Daily fantasy eSports (DFeS) is essentially identical to the mainstream DFS product. The competition structure, lobby, promotions, and other core elements are more or less interchangeable.  The difference is that DFS players build rosters from athletes in stick-and-ball sports, while DFeS players build rosters from  athletes in eSports like Dota 2 and League of Legends.”

http://www.legalsportsreport.com/4025/draftkings-fantasy-esports/  Dustin Gowker posted Sept 18  2015 on the announcement that DK was preparing to launch its own DFes site.

http://edition.cnn.com/2016/05/29/sport/esports-revolution-revenue-audience-growth/   posted May 29  by a CNN writer describes the potential for growth.  League of Legends is a game that DK  had  its eyes on last September for  its  DFeS offering.  A quote from this is below.

“The eSports industry has been experiencing  double digit growth for several years and according to the research group Newzoo, it boasts a global community of 148 million enthusiasts. That number is projected to hit 215 million by 2019. Just one game — “League of Legends” — drew an audience of 36 million for its World Championship last year, that’s more viewers than the NBA Finals.”

  1. Consumer “ Protection”

The bill looks very consumer-protective, addressing many of the criticisms made of DK and FD, seemingly correcting those weaknesses.  For example,  it requires  that the mean and median net winnings of all players be made public and that “highly experienced players” be labelled as such.  It requires that payments be made to authorized players on time.

Loopholes abound.  Here are some

If someone becomes highly experienced in the future but was not on the registration date,  what mechanism ensures he will be labelled?  Who checks for omissions? Who checks for aliases?

Can college students on e-sports scholarships be picked for an IFSC team, or is their “sport”  a “collegiate sport” and therefore not eligible? Click here for more on athletic scholarships.

Persons under age eighteen are not supposed to be authorized. §1404 (b) (iii) says each registrant shall take all appropriate steps to confirm that  an individual opening an account is not a minor.

There is no definition of “appropriate.”  Is this an elaborate investigation  like New Jersey’s “Know Your Customer?”  Nothing is said.

Regulation, apparently on the honor system,  is based on self-report, of  registrants to “the commission”  [ the Gaming Commission without the  word Gaming] or of  “authorized players” to registrants.

The proposed  plan for voluntary self-exclusion has no supervision and no time frame.  Someone could self-exclude from one site,  then join another  tomorrow.  §1404 (d) reads enable authorized players to exclude themselves from contests  and take  reasonable  steps  to prevent such players from entering a contest  from which they have excluded themselves;

What are “reasonable” steps?  The  Upstate New York Gaming Economic Development Act of 2013 spells out more detail on self-exclusion than “reasonable steps.”

The use of scripts is prohibited.  (Section 1401 para 7)  Without these computerized routines for composing teams, sharks and minnows would be on nearly equal footing.  This would move things toward a truly fair game, closer to what seasonal fantasy sports were and are.   “Highly experienced players” (AKA sharks)  will not approve.  The use of scripts is hard to prove  though easy to suspect.   Scripts  will still be used sub rosa.  The proposed legislation says nothing about penalties.

4. Who is behind the insertion  of  eSports into  “regulation” of DFS?   The drive to  “regulate” comes from companies that expect to profit from “regulation.”  They want to create a  market much bigger than current DFS.   Lobbying and outright corruption go hand in hand with such forces.  Draft Kings was getting ready last September to launch its own Daily Fantasy eSPort (DFeS) with the video game League of Legends.

In Illinois last week  a similar bill was tabled by its sponsor for the current session because of allegations of proposed vote-buying by a FanDuel lobbyist whose hapless explanation (“corporate social responsibility goals”)  is here .

5. Revenue to New York State

Assuming “the commission” has the staff  to add regulating IFSC to its other duties, who is going to pay for the effort?    The Justification section of the bill Memo addresses the question.

“By registering and taxing interactive fantasy sports contests, this bill will also bring about a new and abundant source of revenue for New York State. Such funds will help [emphasis added] pay for the cost of regulation.”

How abundant will the funds be if they will not even cover the cost of regulation?  It they don’t, what source will?  This writer suspects that if this legislation passes not very much will be spent on enforcing regulations, and that some or most of the revenue will go  into the General Fund.  Realizing income to state coffers  by stinting on regulation of gambling is hardly a new concept but, sad-to-say, appeals to budget-makers.

Admitting  that legalizing internet gambling in New York State will not  pay for “regulating” internet gambling in New York State shows  that the  drive to legalize internet gambling in New York State is not to help all New Yorkers.  It is to help internet gambling special interests.

6. Tourism, “economic development” “support for education” “property tax relief”  CAGNY has long said that “benefits” such as the above to localities, regions or states are illusory,  really net losses when hidden costs are accounted for.  This opinion, I  admit, was was not shared by a number of  lawmakers who voted for “second passage” of the “casino amendment” in 2013 while saying “I don’t personally support casino expansion.”

Legislators who  previously voted to expand gambling in New York State because they believed the benefits to their constituents outweighed the costs can  vote their consciences against this  Interactive Fantasy Sports Contest legislation.   It  does not even pretend to offer any such economic benefits to the people of NY State.  Nor does it enjoy popular support.  A recent Siena poll showed 45% of respondents oppose legalization of Daily Fantasy Sports,  37% want it, 17% undecided.

Passage of this legislation is a handout from all New Yorkers  to corporate special interests that can’t even pretend their plans will improve the quality of our lives.

6. Social injustice Government-sanctioned predatory gambling wreaks hardship and suffering  not just on gamblers but on  their families, friends, relative, employers, employees, clients and more.  It contributes to social injustice.  The  60+ posts on this site pile up the evidence.

Permission is hereby given by the author, Stephen Q. Shafer  MD MPH,   to reproduce this text in whole or part as long as the permalink above is cited. The photo image is from flickerCC  title “Epic Showdowns” 95205711@NO2/23451208866.

Since publication on June 1 this post has been slightly revised.

Appendices

From § 1401 ¶ 8   The term  “Interactive fantasy sports contest” makes its debut in proposed legislation

18    8. “Interactive fantasy sports contest” or “contest”  shall  mean  any

19  online fantasy or simulation sports game or contest offered by an opera-

20  tor  or  registrant  in  which an authorized player manages a fantasy or

21  simulation sports team composed of athletes from an amateur  or  profes-

22  sional sports organization and which meets the following conditions:

23    (a)  the  value of any prizes and awards offered to authorized players

24  shall be established and made known to such players in  advance  of  the

25  contest, and such value shall not be determined by the number of author-

26  ized players or the amount of any entry fees paid by such players;

27    (b)  no  winning outcome shall be based on the score, point spread, or

28  performance of a single sports team, or any combination of such teams;

29    (c) no winning outcome shall be based solely on any single performance

30  of an individual athlete in a single sport or athletic event; and

31    (d) no game or contest shall be based on a prohibited sports event.

Comparing the Senate Version to the Assembly version:  The Senate version is not as sanitized as the Assembly version.  The word “gambling” is allowed, as is “gaming.”   “Internet” appears   The Senate version recaps and swallows whole  tortuous arguments by counsel for FD and DK that skill is material, making the process not gambling.  No mention  that the Attorney General has ever said a word about DFS.   The  Assembly version avoids all discussion of controversy as to whether DFS is gambling.

The Senate version offers  another gambit by DK and FD,  that since seasonal fantasy sports were carved out from the  UIGEA of 2006, Daily Fantasy Sports ( a later development) have been too.  This to me is like saying that cars with engines should be allowed into a soapbox derby as long as they have four wheels.

The Senate version  is even more vague than the Assembly’s on what sorts of “interactive fantasy sports contests:  would be allowed.  Neither version mentions eSports (video gaming).

The Assembly version prohibits high school sports; the Senate’s does not.

Senate: 15% tax on gross revenue from New York players  Assembly 15% on gross revenue, residence not mentioned.

Senate version even looser than Assembly on what “compulsive participants” might do to remove themselves.  Assembly calls them “compulsive players.”

Senate version more specific about how to keep minors out.

Both versions are vapid and vague about how to prevent use of scripts.  Neither prescribes punishment.

Both versions share a unilateral assumption that Daily Fantasy Sports is not gambling,  though they get there by different paths. The Senate version parrots Mssrs Mastro and Boies, counsel for two of the big companies.  The Assembly version is a thick  whitewash.  They are asking the legislature to make an end run  around the prohibition against gambling in the state constitution. Both versions provide paper-kitten protection against being hustled and fleeced. Neither version offers any benefit, credible or not, to the vast majority of New Yorkers.  Casino expansion and Lottery expansion have been sold to New Yorker by mirages. Promoters of “Interactive Fantasy Sports Contests”  (hitherto called internet sports betting)  don’t  offer mirages to the general population.   Could it be that  campaign contributions are  a better deal ? This legislation is for special interests.

Archives about the AG’s case against FanDuel and DraftKings

http://www.nytimes.com/2015/11/11/sports/football/draftkings-fanduel-new-york-attorney-general-tells-fantasy-sites-to-stop-taking-bets-in-new-york.html?_r=1   NY Times November 11,  the day after AG announced the cease and desist letter

http://www.nydailynews.com/sports/football/fanduel-draftkings-assure-users-remain-open-article-1.2431300   NY Daily News from November 11

http://www.nydailynews.com/opinion/editorial-fantasy-meet-reality-article-1.2431796  NYDN editorial says DFS is gambling.

http://www.nydailynews.com/sports/fantasy-sports-predatory-gambling-dangerous-article-1.2431896  sidebar by Stephen Shafer in Daily News article linked to above

http://www.ag.ny.gov/pdfs/DK_MOL.pdf complaint against Draft Kings submitted Nov 17, 2015

http://www.nydailynews.com/new-york/ag-schneiderman-bad-gamble-bluff-law-article-1.2441071  op- ed by AG Schneiderman November 19

http://www.nydailynews.com/opinion/fantasyland-n-y-bets-albany-casino-article-1.2652600 Daily News  holds its great position  May 31 2016

 

Generally Recognized as Gambling: Daily Fantasy Sports

Testimony Before the Hearing on Daily Fantasy Sports held by Committees of the New York State Legislature,  8 December 2015

GamblinglosspictureMy name is Stephen Shafer. I chair Coalition Against Gambling in New York, an all-volunteer organization registered in Buffalo since 2007. Our members have different philosophies about gambling. The mainstream holds that not all gambling is bad for society or the individual. A March Madness pool where 100% of entry fees are paid out to winners, a game of cards among true friends, a bet on whether it was Yogi or Casey who made a certain remark – these actions don’t bother us. What does, and deeply, is predatory gambling – gambling in which some party profits predictably over time by preying on others. That party can be “the house” or “sharks” or both.

I think Attorney General Eric Schneiderman  is entirely right that Daily Fantasy Sports of the DraftKings and FanDuel type is gambling under New York State law; payback depends on a future contingent event that the person placing the stake cannot control. That person controls the selection of his fantasy team, but not the actual performances of the component athletes from which the outcome of the contest derives. A horseplayer uses skill to decide which horses to pick at for the trifecta, but where the horses place that day is not in her control. No one denies that is gambling.

Assuming DFS is gambling, it is certainly illegal. The State Constitution bans all gambling in New York State except (by specific amendments allowing regulated parimutuel, charitable gambling, Lottery and (as of 2013) up to seven non-Indian casinos in the future. There is no exception for any kind of betting on sports, either live action or fixed odds. There is no exception for internet gambling.

The business model of i-poker and online FS is similar to that of a casino or a state lottery:

  • Recruit people through their hopes of payoffs far greater than investments.
  • Keep their loyalty with frequent small payouts and tidings of rich payoffs to others.
  • Replace them as they burn out, go broke or jump ship.

Result:  some, far from all, of the internet  “players” become problem gamblers and addicted gamblers. They damage, even wreck, not only their own lives but those of all around them, the hidden victims of predatory gambling – spouses, children, parents, in-laws, siblings, employers, employees, clients, neighbors. With  “land-based” casinos and state lotteries, half the revenue (sometimes more than half) comes from problem and addicted gamblers, maybe 12-15% of customers. Their net losses are drained from someone else by deception or bullying or crime. These gamblers need help; so, in greater measure because there are far more of them, do those they are ripping off. My organization has great respect for clinicians and peers who help problem gamblers day to day. Our focus, however, is to stop expansion of predatory gambling. That’s why we hold that DFS and all forms of so-called i-gaming are illegal and should stay that way. That’s why we support the AG’s stance.

There are differences between the model for i-poker and online DFS on the one hand and that for casinos and government-run lotteries on the other. In the first group, “players” pay real attention to the action.   Some win more consistently than others through preparation (e.g. scripts in DFS) and mental probability calculations as in i-poker. This is called skill, though it can verge on insider trading in DFS. In the second group, no decision-making is needed beyond which card to buy or slot machine to go to.

In i-poker and DFS newcomers have no idea how they will fare. They don’t know how their skills stack up to those of other players, most of whom are strangers; moreover, chance has a big role. The game board changes day to day, hour to hour. They are really less well-informed about their chances of success than slot players who know they can expect long-term about 88-93 cents back for every $ invested.

In i-poker and online DFS there are two types of predator: the house, or operator, which takes a  percentage of the pot (“the rake”) or of pooled wagers (which DFS calls “entry fees”);  and the elite stratum of well-prepared pros or near-pros who pocket most of the money laid out  by everyone. In the typical casino or state Lottery setup – a slot machine – the house is the only predator, setting its expected payout % as it sees fit under regulation.

Operations with player predators (“sharks”) need prey (“ fish”) to contribute to the betting pool or join the poker game. Heavy advertisement with upfront incentives is the way to get new fish. Fish may know a lot about their sports, but few can match the preparations of the sharks.   Some fish will fall into the cycle of chasing losses that spells problem gambling. If there are indeed 500,000 DFS participants in New York State , then it is likely there are, or will be soon, at least 20,000 problem gamblers and addicted gamblers among them.

I surmise that the distribution of players’ net losses and net wins is different from that of a casino or Lottery. In the latter, the small fraction of users who are the most “involved” – that is, invest the most time and money– provide the lion’s share of gamblers’ net losses (= house’s net win). In DFS, the biggest investors are the few sharks, who divide among themselves as their winnings nearly all the pooled bets. The investments of problem gamblers and addicted gamblers are perhaps not as over-represented in the winners’ pot as they are (> = 50%) in the gross gaming revenue of a casino or a state Lottery. In that sense the AG’s action in ordering a shutdown of DFS is consumer protection as well as an effort to prevent the cultivation of problem gamblers.

Why don’t we see many problem gamblers or members of their circles here today?  Why do most complaints voiced to the media re DFS relate to how the player was cheated or had winnings withheld, not how he was suckered into layers of debt and despair?

  • Most problem gamblers and addicted gamblers are in denial at any given moment.
  • The culture of recovery says “Don’t make the casino/game/track or whatever responsible for your gambling problem. You take responsibility.” This keeps current and recovering problem gamblers from taking a public stand against gambling.
  • The many victims of state-sponsored predatory gambling who are not gamblers themselves (collateral casualties) need not be “gambling-neutral,” but are often too ashamed or guilty to speak out against the casino or the operator.

Thus DFS and other longer-established forms of internet gambling not legal in most states, like i-poker, have great potential for harm that reaches beyond the ostensible victims, beyond the problem gamblers themselves. This is why they are illegal.

To legalize illegal activities and “regulate” them is not a solution. It gives government a conflict of interest. Tight regulation lowers profit margins and hence government’s share.

When DFS have been unequivocally recognized in NYS courts as gambling and therefore incontestably illegal, the legislature should not cure these companies by legalization and regulation. Thank you.

Post script: the operations of Fan Duel and Draft Kings in New York State have not ceased since the AG called for that to happen.  They  continue  while the case is on appeal.  A decision appears unlikely before the end of 2016.

Permission is hereby granted to reproduce any part of this piece as long as the permalink above is cited.

Daily Fantasy Sports Is Internet Gambling and Illegal

220px-TheprocessionofthetrojanhorseintroybygiovannidomenicotiepoloOn Nov 10 2015  NYS Attorney General Eric Schneiderman  announced that his had issued  a cease and desist order to  Fan Duel and Draft Kings, the two largest operator of Daily Fantasy Sports.  He gave them five days to voluntarily close, which they did not do. The November 10 order  got  much  notice in the NY papers, with an editorial in the NY Times essentially supporting it,  though talking about “strict regulation.”   The Daily News had a 2-page news article      and an  editorial saying that the AG is correct, plus  an op-ed. The news article had a sidebar by the writer of this post..  The Post had a front page article, though their editorial took issue with  the AG’s action.

The Times article on Nov 11 provoked a flood of comments, most angry at the decision.    Dissenters generally used one or more  of four basic  arguments (1) skill is involved; so, it’s not gambling  (2) the NYS lottery holds a much higher proportion  of users’  losses  than do DFS operators,  yet the AG does not try to enjoin it  (3)  no one is being hurt by participation (4) the AG wants to get money for the state by imposing regulation.

My comments on these comments:

“Skill”  certainly determines success, but relatively  few participants have that skill,  It lets them  exploit the vast majority.  As the AG memo below says, this is still gambling.  Take a few minutes to watch TV satirist John Oliver on this.  A recent lawsuit in Alabama gives a another useful perspective on gambling.

The NYS Lottery is an abomination,  but it is technically legal with enough seniority in that status that even I can’t fault the AG for not now going after every aspect of it.  The floridly illegal aspects, like hybrid table games with physical dice,  I do wish he would challenge.

Full-blown cases of gambling addiction already spawned by DFS are not numerous, are still largely hearsay to my ears. It is still early.  Yet  the exploitation of  “fish”  (less expert participants) by “sharks”  with their computer routines is no less predatory than the behavior of a casino or a state lottery.  It’s just that in DFS there are two types of predator,  not one.  Besides the operator there are the sharks. The ad blitz of the last few months is meant to recruit  millions of fish by deceptive advertising.

To the fourth argument   I would reply that  the AG has not proposed to regulate DFS.  He has said they are illegal and should stop operating in NYS.  Devising regulations to legalize is not his job.  His motivation is to protect New York’s people from being exploited by illegal gambling and to enforce existing regulations.  It is up to  the legislature to regulate.

Daily Fantasy Sports herniated through a loophole in the 2006 Unlawful Internet Gambling Enforcement Act and should be surgically reduced.  It is  a strong bridge to two activities that are at this time illegal in New York State and in most jurisdictions in this country: internet gambling not on sports, such as i-poker or internet casino “games” and betting on sports.  The bridge could reach  further,  to the gambling entrepreneurs’ promised land of legalized internet betting on sports.  DFS should not be “regulated.”  It should stay illegal.

Below is a forwarded message from the AG to the public and press,  a strong summary.

If you read this post, please send a comment to the AG to counter the pickets and telephone chains of complaint his office has been dealing with from DFS partisans.

Click here for a link to the AG’s office

Below is a press release from the AG dated November 17.  On Nov 19 Mr.  Schneiderman had an op-ed in the Daily News that complements the press release.  Either is a great source for writing a letter to the editor of a paper near to you.

News from Attorney General Eric T. Schneiderman

FOR IMMEDIATE RELEASE
November 17, 2015

New York City Press Office / 212-416-8060
Albany Press Office / 518-776-2427
nyag.pressoffice@ag.ny.gov
Twitter: AGSchneiderman

A.G. SCHNEIDERMAN SEEKS PRELIMINARY INJUNCTION AGAINST FANDUEL AND DRAFTKINGS

NEW YORK—Attorney General Eric Schneiderman filed an enforcement action this morning in New York State Supreme Court in the County of New York, seeking a preliminary injunction against DraftKings and FanDuel.  The Attorney General’s suit details alleged violations of law by DraftKings and FanDuel.

The Attorney General’s memorandum of law and complaint against DraftKings can be found here and here. A copy of the memorandum of law and complaint against FanDuel can be found here and here.

The following are excerpts of the memorandum of law filed by the Office of the Attorney General:

  • The New York State Constitution has prohibited bookmaking and other forms of sports gambling since 1894. Under New York law, a wager constitutes gambling when it depends on either a (1) “future contingent event not under [the bettor’s] control or influence” or (2) “contest of chance.” So-called Daily Fantasy Sports (“DFS”) wagers fit squarely in both these definitions, though by meeting just one of the two definitions DFS would be considered gambling.  DFS is nothing more than a rebranding of sports betting. It is plainly illegal.
  • Yet FanDuel and DraftKings insist that DFS is not gambling because it involves skill. But this argument fails for two clear reasons. First, this view overlooks the explicit prohibition against wagering on future contingent events, a statutory test that requires no judgment of the relative importance of skill and chance—they are irrelevant to the question. Second, the key factor establishing a game of skill is not the presence of skill, but the absence of a material element of chance. Here, chance plays just as much of a role (if not more) than it does in games like poker and blackjack. A few good players in a poker tournament may rise to the top based on their skill; but the game is still gambling.  So is DFS.
  • FanDuel and DraftKings’ current denials about DFS constituting gambling are belied by how the sites depicted themselves in the past and how they portray themselves behind closed doors.  FanDuel’s DFS contests were designed by a veteran of the legal online betting industry in the United Kingdom, Nigel Eccles.  The company admitted to an early investor that its target market is male sports fans who “cannot gamble online legally.”
  • DraftKings depicts itself to investors in a similar fashion. For example, in one investor presentation, DraftKings pitched itself to a prospective investor by noting the “Global opportunity for online betting,” pointing to the massive revenue of the “global online poker market,” and making direct comparisons throughout the presentation to poker and sports wagering.
  • The CEO of DraftKings previously spoke openly about DraftKings as a gambling company.  He called DFS a “mash[-]up between poker and fantasy sports,” suggested that DraftKings operates in the “gambling space,” and  described its revenue model as “identical to a casino.”
  • The rejection of the gambling label by the DFS sites is particularly hard to square with the overt strategy of recruiting gamblers. For FanDuel, this has meant hiring a former top executive from Full Tilt, the online poker company, and affiliating with gambling industry stalwarts like “Vegas Insider” and BetVega, a sports betting and handicapping website. For DraftKings, this has meant aligning itself closely and negotiating sponsorships with other gambling ventures, like the World Series of Poker and the Belmont Stakes.
  • DraftKings has also embedded gambling keywords into the programming code for its website. Some of these keywords include “‘fantasy golf betting,’’ “weekly fantasy basketball betting,” ‘‘weekly fantasy hockey betting,” “weekly fantasy football betting,” “weekly fantasy college football betting,” “weekly fantasy college basketball betting,” “Fantasy College Football Betting,” “daily fantasy basketball betting,” and “Fantasy College Basketball Betting.” This increases the likelihood that search engines, like Google, will send users looking for gambling straight to the DraftKings site.
  • FanDuel’s advertisements commonly showcase testimonials from ostensibly ordinary DFS players (g.,“Zack from Fairfield, California”), and play up the ease of playing and of winning huge cash prizes…The reality is that like poker, blackjack, and horseracing, a small percentage of professional gamblers use research, software, and large bankrolls to extract a disproportionate share of DFS jackpots. With poker and DFS, professional players, known as “sharks,” profit at the expense of casual players, known as “minnows.” The numbers show that the vast majority of players are net losers, losing far more money playing on the sites than they win. DraftKings data show that 89.3% of DFS players had an overall negative return on investment across 2013 and 2014.
  • While irresponsibly denying their status as gambling companies, the DFS Sites pose precisely the same risks to New York residents that New York’s anti-gambling laws were intended to avoid. Experts in gambling addiction and other compulsive behaviors have identified DFS as a serious and growing threat to people at risk for, or already struggling with, gambling-related illnesses.
  • Jeffrey L. Derevensky, Director of the International Centre for Youth Gambling Problems and High-Risk Behavior at McGill University, notes that, among other things, false or misleading representations of the skill involved in DFS “can lead players to a preoccupation with DFS, chasing of losses, and developing symptoms and behaviors associated with a gambling disorder.”

The illustration reproduces  a painting by Tiepolo with a timeless theme.  The opinions expressed in this post, aside from the quote by the AG’s office, are entirely those of the editor, Stephen Q. Shafer and do not necessarily reflect those of any or all other members of Coalition Against Gambling in New York.  Permission to reproduce in full or in part is hereby granted on condition that the permalink above is cited.