New York AG looks to destroy two legitimate businesses

Two daily fantasy sports websites - FanDuel and DraftKings - are under withering assault by the New York state attorney general who accuses the companies of deceptive practices and running an illegal gambling operation.

Attorney General Eric Schneiderman has amended a lawsuit that sought to bar the companies from doing business in New York to include demands that the corporations return all profits made in the state and reimburse the approximately 600,000 players in New York who lost money on the sites. The AG also wants the court to impose a $5,000 fine for each violation of general business law.

Associated Press:

Both sides are set to argue Monday before an appellate panel as to whether the companies may continue to operate in New York as the case proceeds to a trial stage.

In the new filing, the attorney general zeroed in on user bonuses that he believes are deceptive, saying they offer hundreds of dollars in bonuses that would unlock only after users spent thousands on the site (that type of incentive advertising is a common practice in Las Vegas casinos).

Schneiderman also has argued that the companies, which both have aggressive advertising campaigns, misrepresent the chances of winning. In 2013 and 2014, only 11.7 percent of DraftKings users made money, according to the complaint.

Both Boston-based DraftKings and New York-based FanDuel have argued that daily fantasy is a game of skill, not chance, and insist that their operations are legal because they technically don't accept wagers and because their success doesn't rely on any particular result.

The two sites have come under scrutiny in other states. They stopped operating in Nevada after the state's gaming commission declared what they did was gambling and would require licenses. Last month, Illinois Attorney General Lisa Madigan moved to block the sites from operating in that state. Both have countersued.

The companies combined to take in more than $3 billion in 2015 and have established partnerships with some of titans of the sports world including ESPN, the NFL and Major League Baseball. 

Needless to say, if the AG wins, there won't be much left of either company. But is the AG right? Is what the two sites offer a form of gambling?

The NFL doesn't think so. Nor does Major League Baseball, ESPN, or any of their other major corporate partners. In truth, there is some skill involved in picking the right combination of players whose performance determine a player's winnings - or losses. A player can examine everything from recent performances  to how he has fared in the past against the team he is playing. 

But there is a certain skill level for poker too. The bottom line is that skill isn't necessary to play fantasy sports. Whether that makes it a form of gambling is open to interpretation.

Another, more troubling issue is the deceptive advertising. There the AG may have a serious case to pursue. Watching the endless TV commercials, there is no hint of how the bonus system really works, nor do those players who win big give us any idea about how much they invested to win that money. A player could "win" $50,000 after having spent considerably more. 

But both FanDuel and DraftKings are legitimate businesses who the NY AG is looking to shut down. It is troubling that the state wishes to seize the profits of a company engaged in legal commerce. But the same principle that governs any legal gambling should be maintained for those who lost money on the sites; if you're dumb enough to bet against the house, you should accept responsibility for your stupidity and move on.

So should Mr. Schneiderman.

 

Two daily fantasy sports websites - FanDuel and DraftKings - are under withering assault by the New York state attorney general who accuses the companies of deceptive practices and running an illegal gambling operation.

Attorney General Eric Schneiderman has amended a lawsuit that sought to bar the companies from doing business in New York to include demands that the corporations return all profits made in the state and reimburse the approximately 600,000 players in New York who lost money on the sites. The AG also wants the court to impose a $5,000 fine for each violation of general business law.

Associated Press:

Both sides are set to argue Monday before an appellate panel as to whether the companies may continue to operate in New York as the case proceeds to a trial stage.

In the new filing, the attorney general zeroed in on user bonuses that he believes are deceptive, saying they offer hundreds of dollars in bonuses that would unlock only after users spent thousands on the site (that type of incentive advertising is a common practice in Las Vegas casinos).

Schneiderman also has argued that the companies, which both have aggressive advertising campaigns, misrepresent the chances of winning. In 2013 and 2014, only 11.7 percent of DraftKings users made money, according to the complaint.

Both Boston-based DraftKings and New York-based FanDuel have argued that daily fantasy is a game of skill, not chance, and insist that their operations are legal because they technically don't accept wagers and because their success doesn't rely on any particular result.

The two sites have come under scrutiny in other states. They stopped operating in Nevada after the state's gaming commission declared what they did was gambling and would require licenses. Last month, Illinois Attorney General Lisa Madigan moved to block the sites from operating in that state. Both have countersued.

The companies combined to take in more than $3 billion in 2015 and have established partnerships with some of titans of the sports world including ESPN, the NFL and Major League Baseball. 

Needless to say, if the AG wins, there won't be much left of either company. But is the AG right? Is what the two sites offer a form of gambling?

The NFL doesn't think so. Nor does Major League Baseball, ESPN, or any of their other major corporate partners. In truth, there is some skill involved in picking the right combination of players whose performance determine a player's winnings - or losses. A player can examine everything from recent performances  to how he has fared in the past against the team he is playing. 

But there is a certain skill level for poker too. The bottom line is that skill isn't necessary to play fantasy sports. Whether that makes it a form of gambling is open to interpretation.

Another, more troubling issue is the deceptive advertising. There the AG may have a serious case to pursue. Watching the endless TV commercials, there is no hint of how the bonus system really works, nor do those players who win big give us any idea about how much they invested to win that money. A player could "win" $50,000 after having spent considerably more. 

But both FanDuel and DraftKings are legitimate businesses who the NY AG is looking to shut down. It is troubling that the state wishes to seize the profits of a company engaged in legal commerce. But the same principle that governs any legal gambling should be maintained for those who lost money on the sites; if you're dumb enough to bet against the house, you should accept responsibility for your stupidity and move on.

So should Mr. Schneiderman.