New York AG Doubles Down On Investigation Into Daily Fantasy Sports Websites

With the debate over fantasy sports wagering heating up among regulators in various jurisdictions, it should come as no surprise that New York AG Eric Schneiderman upped the ante on Tuesday, issuing cease-and-desist letters to the largest daily fantasy sports wagering sites, DraftKings and FanDuel. AG Schneiderman indicated that his investigation—which was initiated on allegations of employee misconduct and the unfair use of proprietary information—had determined that the two sites violated New York law by supporting illegal gambling. The letters demand that the sites stop accepting wagers in New York. Moreover, for FanDuel, which keeps its headquarters in New York, the AG's determination might have an even greater effect on business.

The core of the AG's claims is that DraftKings' and FanDuel's business models and operations constitute illegal gambling under both the New York Constitution and New York Penal Law, which generally prohibit a person from staking or risking "something of value upon the outcome of a contest of chance or future contingent event not under his or her control or influence." The AG stressed that the sites are in full and active control of the wagering and derive most of their revenue from fees associated with placing bets. In addition, the AG argues that the sites even promote their services like a lottery.

However, there are also hints of a deceptive practices claim in the AG's allegations; namely that the sites market their product as something anyone can win, but according to the AG's investigation, only a few professional, highly sophisticated players appear to take home "the vast majority of the winnings." With this, Schneiderman may face a bit of a conundrum: if the same people win most of the time, how can the AG argue that there is not at least some...