Federal Grand Jury Reportedly Considering Charges Against Daily Fantasy Sports Operators, FSTA Subpoenaed

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Florida DraftKings

UPDATE October 16 @ 2:30 PDT: The U.S. Attorney’s office in Tampa, Fla., has reportedly issued a subpoena to the Fantasy Sports Trade Association in an ongoing federal investigation, according to reports.

The FSTA told Legal Sports Report it had no comment on the report.

Original story follows:

Last week, Florida gaming attorney Daniel Wallach was first to report that a federal grand jury is being convened by the U.S. Attorney’s office in Tampa. The reported purpose is to consider whether as-yet-unnamed DFS operators are in violation of Florida law and the federal Illegal Gambling Business Act (IGBA).

We have requested comment but have yet to receive direct confirmation from the U.S. Attorney’s Office for the Middle District of Florida. We have corroborated Wallach’s report via a source with knowledge of the proceedings. The source requested anonymity due to the sensitive nature of the information.

“I learned of the investigation late in the day on Friday,” Wallach told Legal Sports Report. “I cannot reveal how I found out, but the information was unassailable in my opinion, especially given the recent cryptic comments made by Florida’s attorney general.”

“I had heard rumors,” Wallach continued, “of an ongoing federal criminal investigation— they had been circulating since August — and what I ultimately came to learn on Friday finally connected all the dots.”

Below is a collection of questions and answers regarding the report. Article will be updated as events warrant.

Reaction from DFS operators

Operators leaving Florida

StarsDraft — the DFS platform operated by PokerStars parent company Amaya — has stopped accepting customers from Florida for real-money play. Affected customers received the following email:

For now, we are not able to accept deposits or allow Florida users to enter contests. Florida customers will have access to login to their accounts and the ability to request withdrawals via the StarsDraft platform. As one of the most licensed online gaming operators in the world, we review each potential DFS market on a case-by-case basis. Please know this decision was not made lightly. We will continue to review the opportunity to provide StarsDraft in Florida and hope to be able to offer StarsDraft to our Florida customers with clarity and confidence in the future.

Star Fantasy Leagues also told LSR that it would be leaving the state.

Draft Ops confirmed to LSR that the site is now blocking players from Florida.

Later, both FantasyScore and FantasyDraft said announced their intention to stop operating in Florida.

StarsDraft, Star Fantasy Leagues, and Draft Ops also exited Michigan following comments in September from state gambling regulators regarding the legality of DFS under Michigan law.

Reaction from other operators

What operators are being targeted by the grand jury?

We have no details regarding which operators may be involved. In theory, any operator active in Florida could be a target.

“At this point in time, it would be improper to jump to any conclusions concerning the implications of a reported federal grand jury investigation as to whether the Illegal Gambling Business Act of 1970 has been violated by any fantasy sports operators,” Darren Heitner, a sports and entertainment lawyer and owner of HEITNER LEGAL, told LSR. “There is certainly enhanced focus on the industry at the moment, with politicians and influential attorneys seeking to explore if and/or how daily fantasy sports operations comply with existing federal and/or state laws.”

What daily fantasy sports sites operate in Florida?

Most major sites do, including DraftKings and FanDuel. FanDuel has an office in Orlando. CBS, which operates SportsLine, has offices in Fort Lauderdale.

Attorney Marc Edelman claimed that some DFS sites do not operate in Florida:

None of the 20+ sites listed in our DFS Site Standings appear to have blocked players from Florida prior to the report. Following the news, StarsDraft, Star Fantasy Leagues, and Draft Ops opted to pause operations in Florida.

DraftKings’ and FanDuel’s presence in Florida

DraftKings, FanDuel and the Fantasy Sports Trade Association began lobbying efforts in the state in August.

At the time, FSTA chairman Peter Schoenke confirmed the retention of Ballard to Legal Sports Report and outlined the reasons behind the move.

“We continue to boost the FSTA’s resources in states with a large number of fantasy sports players to ensure that residents there can continue to fully play fantasy sports,” Schoenke said. “And certainly there’s an added benefit with both CBS and FanDuel and several more fantasy sports companies having operations in the state.”

According to the Miami Herald, 10 lobbyists are retained in the state by DraftKings and FanDuel, with some of those also representing the FSTA. Also from the Herald:

While the Fantasy Sports Trade Association is new to Tallahassee, they are already wise to the money game, donating $10,000 each in the last two weeks to four of the biggest players in the state’s discussion on gambling. That group gave checks to political action committees run by House Speaker Steve Crisafulli and the chairman of the House Regulatory Affairs Committee, Jose Felix Diaz, R-Miami. In addition, PACs run by Rep. Matt Gaetz, chairman of the Finance and Tax Committee, and Sen. Jack Latvala, chairman of the Senate Appropriations committee handling economic development issues, also got donations.

Right now, there is no actual legislation dealing with daily fantasy sports on the table.

What is the IGBA?

The Illegal Gambling Business Act (IGBA) is a federal law enacted in 1970 as part of a broader suite of laws designed to target gambling operations connected to organized crime. You can read the entire text here.

IGBA requires three conditions to be met in order for a violation to be triggered:

(1) “illegal gambling business” means a gambling business which—

(i) is a violation of the law of a State or political subdivision in which it is conducted;

(ii) involves five or more persons who conduct, finance, manage, supervise, direct, or own all or part of such business; and

(iii) has been or remains in substantially continuous operation for a period in excess of thirty days or has a gross revenue of $2,000 in any single day.

Read more on IGBA and how it might apply to DFS from attorney and SI.com writer Michael McCann here.

Has IGBA been used against online gaming companies before?

IGBA was among the charges asserted by federal officials in the Black Friday indictments leveled against online poker sites in April 2011.

For a bit more color on the IGBA charge as it was applied to offshore online poker sites and how the sites responded to the charge, see PokerStars’ motion to dismiss from 2012.

Followers of poker will likely also remember United States v. DiCristina, in which the defendant argued that poker is a game of skill as a defense against IGBA-related charges.

That argument ultimately proved unpersuasive, as the circuit court overturned a lower court’s ruling, saying that the amount of skill in a game is immaterial to application of the IGBA. The Supreme Court declined to hear another appeal.

What does Florida law say about DFS?

As I’ve written in the past, the legality of daily fantasy sports is not a matter of settled law. It is a matter involving intense ambiguity and debate, one that shifts dramatically from state to state.

Florida is no exception. Answering the question isn’t as easy as pointing to a law that says “yes it is” or “no it isn’t.”

Florida Gaming lawyer Marc Dunbar believes it is clearly illegal to operate in Florida. Several lawyers that follow the gaming space believe the state is, at best, a gray area for DFS operators.

“Florida has always represented an elevated level of risk for the DFS industry, even if operators refused to acknowledge it (until now). Unlike most states, where legality turns on the skill vs. chance question, Florida’s statute plainly encompasses skill-based contests,” Dan Wallach told LSR.

“The key question under Section 849.14 is whether there is a “stake,” “bet” or “wager,” and, under the 1991 Attorney General’s opinion (and subsequent opinions), the answer would appear to be “yes” in the DFS context if there is any correlation between entry fees and prizes awarded. Then add Florida’s current political climate into the mix (including the debate over gambling expansion) and you have the right environment for a prosecution. The industry should have seen this coming.”

“If I were asked to write a legal opinion letter, I would have to tell a client to stay out of Florida or to understand that I would need to disclose the risk,” Marc Edelman told Legal Sports Report.

Here’s a look at what’s in play under Florida state law:

Relevant statute: 849.14

Here is the text of the law that might be applied to DFS:

849.14 Unlawful to bet on result of trial or contest of skill, etc.Whoever stakes, bets or wagers any money or other thing of value upon the result of any trial or contest of skill, speed or power or endurance of human or beast, or whoever receives in any manner whatsoever any money or other thing of value staked, bet or wagered, or offered for the purpose of being staked, bet or wagered, by or for any other person upon any such result, or whoever knowingly becomes the custodian or depositary of any money or other thing of value so staked, bet, or wagered upon any such result, or whoever aids, or assists, or abets in any manner in any of such acts all of which are hereby forbidden, shall be guilty of a misdemeanor of the second degree, punishable as provided in s. 775.082 or s. 775.083.

Wallach broke down the issue of Florida’s DFS legality in a blog post earlier this year. Florida is not a “skill vs. chance” state like most; the above statute addresses contests of skill. At issue is whether stakes, bets, or wagers cover daily fantasy sports. That brings us to the opinion of the attorney general’s office.

Attorney general opinion

The legality of fantasy sports in Florida appears to hinge largely on an opinion from the attorney general’s office in the 1990s. From Wallach’s blog:

While there are there no Florida statutory provisions that directly address the legality of fantasy sports, the Florida Attorney General has weighed in on this issue, albeit, more than 20 years ago. On January 8, 1991, then-Attorney General Robert A. Butterworth issued an advisory opinion concluding that Section 849.14, Florida Statutes “prohibits the operation and participation in a fantasy sports league whereby contestants pay an entry fee for the opportunity to select actual professional sports players to make up a fantasy team whose actual performance statistics result in cash payments from the contestants’ entry fees to the contestant with the best fantasy team.”

Edelman, in a much earlier paper on the legality of DFS in Florida, agreed with Wallach’s take:

Third, fantasy host sites face greater risk of gambling liability in the states of Florida and Louisiana because, in these states, their attorneys general have already issued advisory opinions cautioning against certain fantasy games.” In Florida, former Attorney General Robert A. Butterworth published an advisory opinion in January 1991 that concluded it was illegal to “participat[e] in a {draft-based} fantasy sports league whereby contestants pay a fee for the opportunity to select actual professional sports players.”

The use of a 1991 opinion in deciphering the legality of DFS might sound strange, but Wallach breaks down why it matters: “Although not binding on a court, an attorney general’s opinion ‘is entitled to careful consideration and generally should be regarded as highly persuasive.’ ”

“The most interesting result that may come out of enhanced scrutiny in my home state of Florida is a new guide as to what types of operations are and are not deemed legal within the state,” Heitner said. “Many of the largest daily fantasy sports and more traditional fantasy sports operators provide their services to users based within Florida’s borders.

Interestingly, FanDuel CEO Nigel Eccles weighed in on the legality of DFS in Florida in a RotoGrinders thread a year ago. From his post:

With regards Florida, that opinion comes from 1991. I don’t believe the laws have changed in Florida since then but the AG certainly has. Note, that Sportsline was founded in Florida in the mid-90’s and CBS has its fantasy sports operations in Florida to this very day.

How does DFS fit into the broader gaming picture in Florida?

All of the nationwide scrutiny of DFS comes as the state of Florida was already taking a closer look at gambling. Currently, Florida allows tribal casinos and horse racing.

The state’s five-year gambling compact with the Seminole Tribe is expiring, meaning just about everything to do with gambling is under the microscope and up for debate. And according to the Miami Herald, that might include DFS:

“They are promoting a product that looks a lot like sports betting,” said Sen. Rob Bradley, a North Florida Republican and lead negotiator on gambling issues in the Florida Senate.

Combined with lobbying by the DFS industry in the state, it seems reasonable to assume we might see legislation soon. Paraphrasing Bradley, the Herald said it was “too early to tell how that conversation will go,” referring to how the legislature might handle DFS.

What does a grand jury do?

A grand jury is a legal body that is brought together to investigate possible criminal wrongdoing, and if criminal charges should be brought. In this case, the grand jury in question is a federal one, and would consist of 16 to 23 jurors.

Just starting a grand jury does not imply that any wrongdoing has actually taken place.

“Convening a grand jury is certainly one way for a federal prosecutor to gather factual evidence necessary to reach a decision on whether federal law has been broken,” attorney Jeff Ifrah, founder of Ifrah Law, told Legal Sports Report.

“In this particular case, the issue appears to be more of a legal question rather than a factual one, in which case you might expect the use of subpoenas or a series of meetings with the industry, rather than witness testimony and document analysis.”

Grand jury proceedings take place in secret, so we likely won’t find out what or who has been investigated, unless there are charges brought. Grand juries are not a fast process, so even if it’s going on now, we probably won’t hear charges for months, if charges are brought at all.