Friday, May 25, 2018
Business

Critics say N.Y. evidence suggests fantasy sports sites consider themselves gambling enterprises

In a presentation to investors, representatives of daily fantasy sports website DraftKings pointed to one particular industry as they pitched the potential for the company's explosive growth.

Gambling.

"Global opportunity for online betting and casino market estimated at $27 (billion) now, $36B by 2018," one slide in DraftKings' presentation said. Another noted that "sports wagering" was a large potential market, with one estimate "that illegal sports wagers are as much as $380 billion annually."

As a federal Tampa grand jury investigates whether the multibillion-dollar daily fantasy sports industry amounts to illegal gambling, documents released in New York's investigation of fantasy sports portray an industry unabashed about comparing itself to the gaming industry.

The industry tried to win the case in New York by making an argument that could doom it in Florida, namely that the sites are legal in New York because they are games of skill.

But Florida law appears to bar betting on games of skill.

In 1991, then-Florida Attorney General Bob Butterworth wrote an advisory opinion concluding Florida law "prohibits the operation and participation in a fantasy sports league whereby contestants pay an entry fee for the opportunity to select actual sports players to make up a fantasy team whose actual performance statistics result in cash payments from the contestants' entry fees."

The industry "going around telling everyone you're comfortable this is a game of skill doesn't have anything to do with whether or not this is illegal gambling in Florida," said Marc Dunbar, a Tallahassee lawyer who specializes in gaming law. But the companies' arguments in New York may "have manufactured the rope that will hang them in other states."

On Friday, a New York judge ordered daily fantasy sports companies FanDuel and DraftKings to cease operating there because they are operating illegal games of chance. The judge granted an injunction sought by New York Attorney General Eric Schneiderman, though an appellate judge later issued a stay while the companies appeal.

Evidence released in New York, industry watchers say, could have far-reaching implications in Florida as state lawmakers consider legislation to permit daily fantasy sports companies and litigation challenging fantasy sports wagering plays out in the courts, to say nothing of grand jury proceedings.

Daily fantasy sports (DFS) is big business in Florida, with records showing players paid DraftKings alone $20 million in Sunshine State entry fees in 2014.

Officials at the two largest companies, FanDuel and DraftKings, did not return calls for comment. But at a Nov. 25 hearing in New York, attorneys for the companies denied they promote gambling.

John Kiernan, an attorney for FanDuel, told a judge that daily fantasy sports operate games of skill like many other activities that collect entry fees and award prizes, like bingo or a spelling bee.

"Everyone agrees that not only are they not gambling, they're a valued and recognized part of the American social fabric," he said. "That's your spelling bees, your fishing contests … your county fair competitions of all kinds, your beauty contests, marathons. … And you could go on because this is such a well-recognized component of the American scene."

• • •

On DFS websites, players pay entry fees from $1 to $10,600 to select a "team" of athletes in a variety of sports, usually baseball or football. Participants are ranked based on the real-life performance of their players.

FanDuel and DraftKings attorneys say these games involve skill. Someone ignorant of baseball, they say, won't win as much money as somebody studying box scores three hours a day.

But the New York Attorney General's Office argues the skill is no different from a poker player's calculating the odds of a hand.

"When I play DraftKings or FanDuel, I place my bet, I pick my team and then I watch TV," said Kathleen McGee, a lawyer for the New York attorney general. "The rest is up to the athlete, and all I can do is watch … perhaps while yelling at the TV."

DraftKings customer service representatives, records in New York show, have fielded messages from players trying to close their accounts with subject lines likes "Gambling addict, do not reopen"; or "Please cancel account. I have a gambling problem"; and "Gambling addiction needing disabled account."

"There's no difference between daily fantasy sports and horse racing," said Lia Nower, director of the Center for Gambling Studies at Rutgers University.

Records show a vast majority of players on the websites lose money — nearly 90 percent for DraftKings in 2013 and 2014.

• • •

New York investigators have said documents from fantasy sports companies show the companies operate in a gambling world.

In fact, FanDuel and Draft­Kings encourage participants to check the Las Vegas odds of bets on a real player's statistics or a milestone in a given game, which are called "props" bets by casinos. "Props are Vegas' best guess for a player's production — basically their projection for him in fantasy," DraftKings' website said.

DraftKings CEO Jason Robins has said in public forums that DFS companies operate in "gambling space" and that its contests are a "mashup between poker and fantasy sports," evidence in New York attorney general's case shows. He said they make money in a way "identical to a casino."

FanDuel told an early investor, documents show, that its target market is the male sports fan who "cannot gamble online legally."

"The rejection of the gambling label by the DFS sites is particularly hard to square with the overt strategy of recruiting gamblers," New York's attorney general said in court papers.

FanDuel, it said, hired a top executive of Full Tilt, an online poker company. DraftKings, meanwhile, has negotiated sponsorships with gambling events like the World Series of Poker and the Belmont Stakes.

DraftKings has embedded gambling keywords in the programming code of its website so that people using search engines who input "weekly fantasy football betting" or "fantasy golf betting," and others, are directed to its site.

In the United Kingdom, New York investigators said, Draft­Kings has been granted a license to operate as a legal online sports betting operation.

• • •

In Florida, state officials have been reluctant to investigate the fantasy sports websites. Florida Attorney General Pam Bondi's spokesman said she believes the U.S. attorney should handle the matter. The U.S. attorney does not discuss ongoing investigations, so little is known about the work being done by the grand jury.

Meanwhile, state lawmakers have introduced legislation that would license and regulate websites, though prospects for passage are uncertain. The websites would have to pay a $500,000 fee initially, then $100,000 annually.

State Rep. Matt Gaetz, R-Fort Walton, who has introduced a House bill, said in an interview that an estimated 3 million Floridians play in fantasy leagues and that the government should not meddle. He dismissed talk of gambling addictions, saying, "I think we have probably crossed the Rubicon when it comes to men being hooked on sports … I don't believe fantasy sports is hurting anyone."

Contact William R. Levesque at [email protected] Follow @Times_Levesque.

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