DraftKings and FanDuel fight in court for right to operate in New York

At the beginning of the NFL Season, DraftKings and FanDuel were able to gain popularity through their advertisements. They were conveniently shown during NFL games, which had participants winning large cash payouts of up to millions of dollars in asingle week.

The prizes are so big that they can be compared to winnings received in casinos. A major scandal has now erupted with the two since October. This was due to reports of insider trading between employees of DraftKings and FanDuel.

Information available to them that was not for the public’s eye gave them an unfair advantage to win money every week. An employee from DraftKings released information relevant to week three of the NFL before any of the games started. This allowed him to win $300,000 on FanDuel during the same week off of a $25 entry fee.

“The single greatest threat to the daily fantasy sports industry is the misuse of insider information,” Daniel Wallach, a sports and gambling lawyer at Becker & Poliakoff in Fort Lauderdale, Fla. said. “It could imperil this nascent industry unless real, immediate and meaningful safeguards are put in place. If the industry is unwilling to undertake these reforms voluntarily, it will be imposed on them involuntarily as part of a regulatory framework.”

Other fantasy sports are now under watch as well to see who has access to private data that should not. Some believe only those who need it to do their job should have access to the data.

Following the opening of an investigation by the FBI on whether or not these two sites constituted illegal gambling, both companies banned their employees from playing.

They also released a joint statement saying, “Nothing is more important than the integrity of the games we offer. Both companies have strong policies in place to ensure that employees do not misuse information at their disposal and strictly limit access to company data to only those employees who require it to do their jobs.” Following a cease and desist order from New York Attorney General Eric Schneiderman, FanDuel had to prevent New Yorkers from joining the site. DraftKings is still letting New Yorkers play until the trial is over.

Both companies, hoping to stay a part of New York, argued that their fantasy football is not a form of illegal gambling. They vowed to prove this point at a hearing held in New York’s Supreme Court on Wednesday, Nov. 25.

Eighty people packed into a small courtroom with more in the hallway to hear the ruling Justice Manuel Mendez was going to make. Kathleen McGee, New York assistant attorney general, opened the hearing by saying DraftKing’s and FanDuel’s competitions involve too much chance and not enough skill. She said, “Winning or losing is not in the hands of the contestant. Because the outcomes of daily fantasy games involve the outcomes of sporting events, the presence of an element of chance puts them in the category of illegal gambling under New York law. Fantasy operators contend that the law requires games to have only some element of skill to be deemed legal.” Instead, an NFL player’s contributions to the team on a weekly basis determined how much money the gambler won or lost.

Schneiderman has been looking to halt DraftKings and FanDuel in New York, which has caused an upset between the two competitors. New York has more fantasy sports competitors than any other state, accounting for 12.8 percent of all daily fantasy sports players, while 9.7 percent live in California and 6.7 percent live in Illinois.

A lawyer for DraftKings said, “Getting shut down in New York would be a disaster for the company, its employees and its investors.”

John Kiernan, FanDuel’s lawyer, argued McGee’s statement saying there needs to be chance for there to be skills. He said, “Just because factors like weather or a bad call can impact a game, it does not mean the games’ results are not largely influenced by the contestants’ skills. If the existence of chance makes a contest a game of chance under the law, there would be no such thing as a contest of law.”

Before Mendez ruled, he spent Wednesday’s hearing eager to hear what distinguishes fantasy sports betting on websites such as CBS Sports or Yahoo.

He spent most of the time listening to the arguments of FanDuel and DraftKings rather than asking questions. He only had two things to ask.

One of them was directed towards McGee. It pertained to the relationship between average fantasy sports and the two companies under scrutiny. “What’s the difference?,” asked Mendez.  “You are still relying on someone else to play the game.”

He was eager to hear what Schneiderman’s office had to say about this stance. McGee responded by saying it was because those sites did not require entry fees nor did they give out prizes.

Sometimes, they are just played for bragging rights where the winner can say, “I know more about sports than you.” It can also be argued that there is no difference between any fantasy sports betting. David Boies, DraftKings’ lawyer, said, “The daily contests were no more reliant on chance than their seasonal counterparts, as both are dependent on how players perform on the field.”

Mendez has stated that he will rule on the case very soon.