NY AG’s Latest DFS Filing: Stay Lets DraftKings, FanDuel ‘Continue Expanding Their Gambling Operations’

Posted on December 23, 2015

[toc]The New York attorney general’s office reiterated and built upon its argument that DraftKings and FanDuel are running illegal gambling operations, in its latest filing in an appeals court.

NY AG Eric Schneiderman is attempting to get an appeals court to allow the preliminary injunction granted by the state Supreme Court to take effect. It argues that a continued stay of that injunction will allow DraftKings and FanDuel to “continue expanding their gambling operations in New York.”

The background and basics of the NY DFS case

Tuesday was the deadline for the AG’s office to make any new filings as it fights against a stay of a preliminary injunction against DraftKings and FanDuel in the Appellate Division of the State Supreme Court.

Two weeks ago, a lower court granted an injunction against the two DFS operators from offering contests in New York, but a stay of that injunction was granted on the same day. That essentially meant the status quo remained for the short term; FanDuel even reentered the New York market after leaving the state earlier, and eventually began taking deposits in the state again, as well.

The next key date is Jan. 4, when a five-judge panel in the appellate division will hear both sides to determine whether the stay of the injunction will stay in place until a full hearing takes place.

A decision for the AG’s office would put the preliminary injunction back in place, and would mean DraftKings and FanDuel would have to cease operations in NY immediately. If DraftKings and FanDuel are victorious, then they could remain in New York until a full hearing can be held, likely in the next several months.

What the NY AG argued this time around

The “memorandum of law” filed by the AG’s office basically builds upon points hit on in its initial filings and arguments in the Supreme Court. Obviously, the AG’s office asked the court to deny the stay of the injunction. You can read the entire filing here.

Here’s a summary of what the filing said:

Chance vs. skill

The AG continues to advance the idea that DFS meets all the elements of gambling as laid out by the state’s constitution and penal code:

DFS players may exercise some skill in researching and predicting athletic performances, but that “skill” is no different from the research that a sports bettor or horse-racing gambler does to make better informed guesses. However much research a DFS player, sports bettor, or horse-racing gambler may do, chance remains an ineradicable element of the outcome of their wagers.

There is thus little question that DFS involves gambling under New York law. Defendants have no cognizable interest in continuing to operate illegal businesses.

And the AG continues to argue that DFS is easily identified as gambling under state law:

Contrary to the DFS operators’ arguments, no evidentiary hearing is needed to determine whether DFS is gambling because there is no factual dispute as to how the games operate.

DFS = sports betting

A common refrain in its initial arguments, the AG advances this argument:

Simply put, DFS is a new platform for an old form of gambling: sports betting.

The AG’s office continues to delineate why it believes DFS is simply a form of sports betting and is in essence a complicated parlay bet.

If a player were to make a bet based on eight offensive NFL players and one team defense, he would have just constructed a DFS roster—but that roster is fundamentally no different from a prohibited parlay bet.

And later:

DFS represents nothing more than an extension of the proposition bets and parlay bets that have long been a staple of sports bettors.

DFS, of course, is a peer-to-peer game, and not played against the house — the “house” merely takes a percentage of all entry fees — so parlay betting is not a perfect comp, in that respect.

‘Future contingent event’ and ‘control or influence’

A key part of the arguments on both sides is the definition of “a future contingent event not under [that person’s] control or influence,” as it appears in the state’s definition of gambling. The AG obviously argues that the “event” refers to the sporting events that the fantasy contests are based on.

DraftKings and FanDuel argue that fantasy players “control or influence” the actual contests in which they are playing, meaning it should not fall under the definition of gambling.

The AG’s office further developed its argument on this point of law:

The DFS operators’ argument below that the outcome of DFS games turns on fantasy players’ selections of their rosters, rather than on the performances of athletes on the field, makes no sense. No fantasy player would say that a DFS game ends once players select their fantasy line-ups, because the critical events have yet to occur: namely, the daily or weekly sports competitions that are the sole determinant of how many points every DFS roster generates.

The AG also refutes the idea that DFS is just like so-called contests of skill like marathons and spelling bees, on these grounds:

DFS games and the types of competitive events cited by the DFS operators: a participant in a competitive event has some direct influence over the outcome of the game, while a DFS player has zero influence—none at all—over the performance of third-party athletes on the field.

The AG also notes the difference between betting on one’s own performance, and the performance of others:

The practice commentary to the Penal Law relies on precisely this distinction to explain why the players at a chess game may stake money on the outcome of the game without engaging in illegal gambling, while the observers of that chess game necessarily engage in illegal gambling if they place a bet on the outcome: the players are direct participants with some influence over the course of the game, while the observers have no influence at all.

Entry fees are ‘bets’ or ‘wagers’?

Part of the argument put forth by DraftKings and FanDuel hinged on a federal district ruling in New Jersey, Humphrey v. Viacom, which said that entry fees for a seasonlong fantasy competition are not “bets” or “wagers.” The AG again argues that this is not applicable under NY state law, citing the lower court’s agreement on this point:

Supreme Court correctly found Humphrey unpersuasive and inapplicable. (Sup. Ct. Order at 7.) Humphrey involved season-long fantasy sports, not the daily fantasy sports contests at issue here. And the court in Humphrey was interpreting the words “bets” and “wagers” in New Jersey’s qui tam statute; it did not mention New York’s definition of gambling (which does not turn on these terms), did not consider whether fantasy sports contests turned on future contingent events, and expressly disclaimed any evaluation of whether fantasy sports is “a game of skill or chance.”

Differences between seasonlong and DFS

The AG’s office has only targeted DFS, while saying seasonlong fantasy is legal. DraftKings and FanDuel hammered away at this argument in earlier filings and in oral argument. But the AG’s office says that “argument makes a mountain out of a molehill.”

The “concession” that the DFS operators find so compelling is a single paragraph in the Attorney General’s cease-and-desist letter. … Any fair reading of that paragraph demonstrates that the Attorney General’s distinction between daily fantasy sports and traditional, season-long fantasy sports rested on the different ways that these activities handled money.

And then:

Season-long fantasy sports traditionally did not involve massive monetary payouts like the ones offered by FanDuel and DraftKings, but instead offered players “bragging rights,” which are not monetary at all…; or “side wagers,” which are private bets between players that the Penal Law does not prohibit…”

Of course, there are some seasonlong operators that do rake contests and profit from running them, though it’s still not clear that this will be a compelling argument to the appellate court.

DraftKings and FanDuel don’t suffer ‘harm’ if injunction granted

Preliminary injunctions are usually granted if the plaintiff can successfully argue that it is likely to prevail on the merits in a full hearing, and if it can demonstrate that the “balance of harms” favors the plaintiff. The AG argues that the continued harm from allowing unfettered DFS in the state is bad for the citizenry of New York:

Like other forms of gambling, DFS causes substantial harm to the public and undermines New York’s longstanding public policy against gambling. These harms are real, not theoretical: in particular, DFS has caused serious harm to gambling addicts, who have found the readily accessible nature of DFS games irresistible.

DraftKings, FanDuel, and other opponents of the AG action would argue that’s a specious argument, given all the forms of gambling that are readily available throughout the state, like the lottery, horse racing and casinos. (Of course, the state currently has no internet wagering, currently.) All of those forms of gambling are licensed and expressly legal in the state, as well.

There is a hat tip to the idea that online gaming is not allowed in the state, later in the filing:

As a form of Internet gambling, DFS is an easy and too-accessible alternative for individuals who previously sought out online casino-type games, such as poker, that are now banned by federal and state laws.

(It’s important to note that online poker is not expressly banned by federal law; the law actually allows states to legalize and regulate casino and poker games on an intrastate basis, something that has been done in New Jersey, Nevada and Delaware.)

On the flip side, the AG argues that the DFS sites will not suffer irreparable harm:

By contrast, FanDuel and DraftKings will suffer no irreparable harm if a stay is denied. Supreme Court’s preliminary injunction halts only their operations in New York, which constitute only single-digit percentages of their nation-wide business. Indeed, FanDuel voluntarily stopped accepting bets in New York when this litigation was filed, without suffering any serious harm to its overall business—only to immediately resume operations once a single justice of this Court granted an interim stay.

That is perhaps a bit up for debate, as well, as New York is by some reports the largest state for DFS in terms of users and money spent on entry fees.

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Dustin Gouker

Dustin Gouker has been a sports journalist for more than 15 years, working as a reporter, editor and designer -- including stops at The Washington Post and the D.C. Examiner.

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