New York State Sues DraftKings & FanDuel Over Alleged Gambling, False Advertising

draftkingsOne week after concluding that, according to New York state law, daily fantasy sports sites DraftKings and FanDuel are unlicensed gambling operations, the state has filed lawsuits against both companies, seeking to stop them from offering their service to New Yorkers.

This morning, the office of NY attorney general Eric Schneiderman filed complaints against DraftKings [PDF] and FanDuel [PDF], alleging violations of state laws that prohibit the promotion of gambling and “repeated or persistent fraudulent conduct.”

The complaints claim that these sites run “casino-style gambling operation[s]… where bettors can wager up to $10,000 per ‘line-up’ and enter for a chance to win jackpots of more than $1 million.”

Combined, the two companies have spent nearly $100 million on advertising this year. DraftKings ads promote the site with statements like, “It’s the simplest way of winning life-changing piles of cash,” while FanDuel likes to say, “anybody can play, anybody can succeed.”

But prosecutors contend that daily fantasy is just a new wrinkle on the very old art of sports gambling, and that the fact that players are gambling on statistics instead of individual game outcomes is also nothing new.

“Bookmaking operations in jurisdictions with legal gambling like Nevada have long accepted sports proposition or ‘prop’ bets (to bet on game statistics and milestones) and parlay bets (to simultaneously bet on several, independent variables in a single wager),” read the complaints.

The state points out that, for all the distance these sites try to put between their operations and terms like “gambling” and “betting,” they also advise their users to use the same information used by traditional sports bettors.

On the DraftKings website, the company notes that “Player props are also an excellent source of information for daily fantasy owners. Props are Vegas’s best guess for a player’s production—basically their projection for him in fantasy.”

Similarly, the FanDuel site tells users that “By taking into account over-under lines, as well as money lines and player props, FanDuel players gives [sic] themselves more opportunities to win.”

To the state, this is an acknowledgement that daily fantasy is “akin to sports prop betting.”

The lawsuits note that one of the five states where daily fantasy was already barred is Washington, where the definition of gambling is identical to New York’s, which states that a contest is gambling if it depends on either a “future contingent event not under [the bettor’s] control or influence” or is a “contest of chance.”

In defending their operations, DraftKings and FanDuel have maintained they are not games of chance, but contests of skill. But in a memorandum of law [PDF] filed with these complaints, the state argues that this ignores the “future contingent event” part of the gambling definition.

It gives the example of two people playing chess and wagering each other on the outcome of their game versus two people watching that chess match and placing wagers on the results. The spectators may be making their decision based on the players’ respective skills, history, and other data, but they have no way of controlling who wins and loses.

In such a case, contends the state, “the degree of talent or knowledge a bettor displays in making a prediction is irrelevant.”

Applying this to daily fantasy, prosecutors explain that “A DFS player can try to make an informed guess of how particular athletes might perform, but no DFS player can (legally) influence how those athletes will perform.”

Once a fantasy contestant selects their lineup, “he is a spectator whose fate is determined by the combined performance of real athletes competing in real-world games,” according to the state.

The lawsuits also take issue with the sites’ “anyone can win” advertising, and point to the companies’ own data to show that the vast majority of players lose money.

In 2013 and 2014, 74% of the people who spent the most money on FanDuel lost money. During those same years, 89.3% of all DraftKings players had an overall negative return on investment on the site.

By allegedly misrepresenting that a casual player is likely to win a jackpot and that daily fantasy is not gambling, the state argues that these sites have engaged in deceptive acts and practices in violation of the state’s general business law.

UPDATE: In a statement e-mailed to Consumerist, DraftKings responds that it looks forward to “being afforded a full and fair opportunity to demonstrate why daily fantasy sports are legal under New York State law. We believe the Attorney General’s view of this issue is based on an incomplete understanding of the facts about how our business operates and a fundamental misinterpretation and misapplication of the law.”

A statement from FanDuel is still forthcoming.

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