Perhaps Just a Fantasy After All: Daily Fantasy Sports Declared Illegal Gambling in New York

November 17, 2015

On Tuesday, November 10, New York joined the states of Washington, Nevada, Iowa, Louisiana, Montana, and Arizona in classifying daily fantasy sports as illegal gambling. The New York Attorney General's office issued cease and desist letters to DraftKings and FanDuel, the two largest daily fantasy sports ("DFS") companies, ordering them to stop accepting bets from New York residents because DFS constitute illegal gambling under New York law.

The New York Attorney General's office drew a distinction between season-long fantasy sports and DFS in its cease and desist letters, apparently blessing season-long fantasy sports as not illegal gambling. Gambling consists of three basic elements: consideration, chance, and prize. Though the elements of consideration (paid entry fees) and prize (potential winnings) are present in season-long fantasy sports, the New York Attorney General's office noted that there is also a skill element. This skill element comes into play throughout the course of a season, arising in the form of adjustments to lineups, adding and dropping players, making trades, and drafting an initial team. Essentially, the player has more control over the outcome; it is not simply left to chance.

According to the New York Attorney General's office, unlike with season-long fantasy sports, DFS winnings are completely outside of a fantasy player's control and, therefore, all three elements of illegal gaming are present. The outcome depends "on the real-world performance of athletes and on numerous elements of chance," the wagers constitute consideration, and the large rewards constitute prize.

DraftKings and FanDuel continue to argue that DFS contests are games of skill as opposed to chance, and point to the Unlawful Internet Gambling Enforcement Act of 2006 that carves out an exception for fantasy sports under 31 U.S.C. § 5362(1)(E)(ix). Under this statute, however, the exception for fantasy sports exists when "[a]ll winning outcomes reflect the relative knowledge and skills of the participants ." That is not the case with DFS according to the New York Attorney General's office.

DraftKings and FanDuel requested temporary restraining orders in New York state court on Friday, November 13 to block the New York Attorney General from enforcing his decision to consider DFS illegal. DraftKings claimed that it will suffer "massive and irreparable harm" if the decision stands, given New York is home to approximately 375,000 of its about 2.5 million total players. Despite this potential harm, the New York court denied the temporary restraining order on Monday night. Today, the New York Attorney General followed up on its cease and desist letters by filing a lawsuit against DraftKings and FanDuel and seeking an injunction to keep them from operating in New York. The merits of the case will be argued in court on November 25. DFS companies will also continue to feel the heat on the federal level with the FBI and DOJ conducting investigations. Stay tuned for more developments.

If you believe you may be at risk of violating the gambling laws of the state you conduct or play games, contests, or sweepstakes in, please contact an attorney in our Advertising, Promotions & Social Media practice group to ensure you are in compliance with the applicable laws.

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