Déjà Vu, All Over Again: Preet Bharara Investigating Legality Of Daily Fantasy Sports Sites

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SDNY Courthouse

Preet Bharara, the U.S. Attorney behind the Black Friday indictments that permanently altered the landscape of the global online gambling industry, has turned his attention to daily fantasy sports.

That’s per a report from the Wall Street Journal, citing “people familiar with the matter.” Excerpt:

U.S. Attorney Preet Bharara’s office in the Southern District of New York is investigating whether the business model behind daily fantasy-sports firms like DraftKings Inc. and FanDuel Inc. violates federal law, some of the people said.

The investigation is at an early stage, they added, and even as New York prosecutors try to build their case, senior Justice Department lawyers in Washington are undecided on whether daily fantasy-sports betting violates federal gambling statutes.

What we know

Very little at this point.

What we suspect

Black Friday parallels: What fits, and what doesn’t

There are obvious and legitimate parallels:

But also critical points of divergence:

The likely impacts

The law in play

An educated guess suggests that a case would probably revolve around some combination of violations of New York state law and IGBA. There is a lesser probability of the UIGEA coming into the mix.

The long arm of the IGBA

The Illegal Gambling Business Act is arguably one of the most powerful tools at the disposal of the SDNY in this situation.

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.

Somewhat alarmingly for those behind the operators, IGBA appears to target not only those conducting the gambling, but also anyone who “finances, manages, supervises, directs, or owns” the illegal gambling business.

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

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.

What New York law says about gambling

The basic test for whether an activity qualifies as gambling under New York state law appears to be the “material degree” test.

Simply put, that means it doesn’t matter if skill dominates chance in outcomes – chance only needs to play a material role in the outcome.

Here are the relevant definitions from Sec 225.00:

1. “Contest of chance” means any contest, game, gaming scheme or gaming device in which the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein.

2. “Gambling” A person engages in gambling when he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome.

Where the UIGEA fits in

There’s no guarantee that the UIGEA will enter the picture.

But if it does, we may see the industry split into two camps – one that has followed a strict interpretation of the UIGEA safe harbor requirements, and one that has offered sports that appear to test the tensile strength of the UIGEA safe harbor.

What to watch for in the days ahead

Who is Preet Bharara?

Preet Bharara is the U.S. Attorney for the Southern District of New York (SDNY). He was appointed to the position by President Barack Obama in 2009 and the United States Senate unanimously confirmed his appointment in August of that year.

Bharara’s cases typically involve insider trading, terrorism, and political corruption. He is noted for being aggressive (even with judges), and is especially known for being a winner. An 85-win streak in insider trader cases was broken last year.

Unsurprisingly given his stomping grounds, Bharara goes after the money. According to Fast Company, between November of 2013 and January of 2014, Bharara’s office brought in over $3 billion in settlements working with an operating budget of $50 million.

Better than any hedge fund you’ve ever heard of,” Bharara told Fast Company.

Some examples:

In a talk given to New York University law students earlier this month – at which the dean of the law school held up a copy of the NY Post with the headline “The Preet Is On” – Bharara spoke to the issue of public corruption.

“If you are able to make a neighborhood safer for people by getting rid of a gang problem, and the next day, people feel more comfortable letting their kids go play in the park because you’ve put away people who were terrorizing their neighborhood, that’s great,” he said.

“The same principal [sic] extends to every context. If you haven’t done something to try to make the problem better, then it’s not a great situation. And that’s true also of public corruption,” Bharara remarked.

The curious case of Amaya

It’s worth noting that Amaya’s timing – pulling StarsDraft out of all but 4 states just one day prior to this news – is now looking incredibly (perhaps to some unbelievably) fortuitous.

Amaya’s entrance into the DFS market may have played some role in changing the way that U.S. officials – including the U.S. Department of Justice, who continue to monitor the terms of the settlement reached by the Department with PokerStars in 2012 – intersected with the industry.

Prior to Amaya, there were no DFS major operators with direct ties to other regulated online gambling products. In fact, most of the daily fantasy industry had functionally no interplay with the gambling regulatory apparatus in the United States.


FanDuel, FantasyDraft, Star Fantasy Leagues, StarsDraft, and Yahoo did not respond to requests for comment.

A DraftKings spokesperson said the company couldn’t comment on any possible investigative matters, but offered the following statement:

We strongly believe the games on our site – and daily fantasy sports in general – are legal.

We recognize our responsibility to the millions of fans who are captivated by the excitement and interactive nature of daily fantasy sports to make sure they can continue to play the game they love.  Ensuring a level and fair playing field for all players is a fundamental tenet of our company, and we are committed to working with all relevant authorities to ensure that our industry operates in a manner that is completely transparent and fair for all consumers.

We are seeing a number of state regulators and other authorities taking a reasoned and measured approach to the daily fantasy sports business and hope that trend continues along with due consideration for the interests of sports fans across the country who love to play these games.

Image credit: Jannis Tobias Werner / Shutterstock.com