The state of New York on Tuesday followed in Nevada’s footsteps when its attorney general determined that the two leading daily fantasy sports companies are gambling operations, but the fallout of that decision seems notably more intense than it has been in the Silver State.
When the Nevada Gaming Control Board announced last month that daily fantasy sports companies needed a gambling license to do business in Nevada, both FanDuel Inc. and DraftKings Inc. promptly said they would suspend their operations in the state. Aside from launching heated verbal criticisms and circulating a petition opposing the gaming board’s decision, neither company appears to have put up much of a fight in Nevada since then.
However, after the New York attorney general sent those same companies a “cease and desist” notice this week telling them their product was gambling and they needed to stop "illegally accepting wagers” in New York, their reaction was a bit different.
As they did in Nevada, both companies decried the New York notice, asserting that their product is not gambling. But they may also legally fight the decision in New York, a state where one of them is headquartered and both have a major presence.
DraftKings said on Tuesday that it was disappointed in the “hasty action” taken by New York Attorney General Eric Schneiderman and vowed to “examine and vigorously pursue all legal options available” to keep daily fantasy sports available in New York. Then on Wednesday, DraftKings suggested that it might use certain legal tools to prevent it from suffering the same fate it did in Nevada.
“Fortunately, there is a process by which DraftKings can challenge it in a court of law in an effort to prevent us from having to cease operations in the state of New York,” a statement from DraftKings said. “We intend to pursue this fight to the fullest to ensure that New York fantasy sports fans can continue to play the games they love.”
FanDuel may also make a legal challenge in New York, according to Reuters.
So why such a stronger reaction in New York than Nevada?
For starters, a report from Eilers Research earlier this year indicated that New York has more daily fantasy sports players than any other state. And according to ESPN, FanDuel is headquartered in New York and just opened a 40,000-square foot office there, while Boston-based DraftKings also has a new 21,000-square-foot satellite office in Manhattan.
The law in New York and Nevada also differs in important ways.
“Obviously, they both deal with the same general topic, but they go apples to oranges after that,” said Chris Grove, publisher of Legal Sports Report, a website that monitors the daily fantasy sports industry.
For example, Schneiderman’s notices to FanDuel and DraftKings stressed the role of chance in their products as justification for why they were considered gambling. Citing New York law, Schneiderman told the companies that each wager placed with them “represents a wager on a ‘contest of chance’ where winning or losing depends on numerous elements of chance to a ‘material degree.’” Similarly, the New York Times reported that, if challenged in court, the state of New York would have to prove chance to be a material factor.
That gets to the heart of a central contention from FanDuel and DraftKings: that daily fantasy sports is a game of skill, not chance, and therefore does not qualify as gambling.
Nevada officials, however, have made it clear that the degree of skill versus chance involved in daily fantasy sports does not matter to them. A recent memorandum from the state attorney general’s office — which backed up the gaming board’s stance on daily fantasy sports — states that “the determination of whether an activity constitutes a gambling game or a sports pool under Nevada law does not require analysis of the level of skill involved.”
That became “crystal clear,” according to the attorney general’s memo, when the state Legislature this year passed Senate Bill 9, which directed regulators to encourage the development of new casino games that incorporate more elements of skill. SB9 makes distinctions among games of skill, games of chance and hybrid games “while recognizing that all three are gambling games,” the attorney general’s memo said.
The daily fantasy sports drama has also produced some contrasting reactions from federal politicians representing New York and Nevada.
Rep. Chris Collins of New York said in a statement this week that Schneiderman had made a “draconian decision” that was “unilaterally denying hundreds of thousands of New Yorkers … the ability to compete in this game of skill.” Senate Minority Leader Harry Reid, on the other hand, said in a late October statement that daily fantasy sports is “the only unregulated gambling operation in the country.”
Moving forward, FanDuel and DraftKings do have an immediate opening to change the situation in New York: According to various media reports, they still have a few days to convince Schneiderman that they are operating in the state lawfully.