A New York judge on Monday denied temporary restraining orders from DraftKings and FanDuel to continue running their respective daily fantasy sports operations in the state, according to a report from Reuters. The decision creates the possibility that both companies, which let players wage real money on imaginary sporting outcomes, will be forced to close up shop in the state until a court decides whether they constitute illegal online gambling.
DraftKings and FanDuel collectively control 90 percent of the multi-billion dollar daily fantasy market now under intense regulatory scrutiny. Both companies are scrambling in New York after Attorney General Eric Schneiderman last week sent out cease and desist letters seeking bans on their businesses, which has resulted in vendors refusing to work with the sites. Both daily fantasy sites filed a lawsuit against Schneiderman on Friday to contest his order.
Is daily fantasy sports a skill-based activity?
The ongoing controversy began in October when news organizations and lawmaking bodies began closer examinations of DraftKings and FanDuel. The spark was an insider trading scandal that highlighted the lack of regulatory oversight in the industry, which has taken in hundreds of millions in investment from sports leagues and media conglomerates. Daily fantasy sports advocates consider the activity legal through a loophole in the Unlawful Internet Gambling Enforcement Act of 2006 — the US law that banned online poker — that exempts games of skill. The classification of daily fantasy sports as skill-based is now critical to the survival of both companies.
Schneiderman's main criticism of daily fantasy sports is that he feels it's both chance-based and preys on a majority of its customers, with 91 percent of winnings going to 1.3 percent of players, according to a study this year by McKinsey & Company. DraftKings and FanDuel say that statistic is evidence that daily fantasy sports is in fact skill-based. New York Supreme Court Judge Manuel Mendez will hear arguments on the shutdown request on November 25th.
New York is only one of a handful of emerging battlegrounds for daily fantasy sports. Nevada was the first state to challenge the companies last month, but did so by saying they could operate so long as they applied for betting pool licenses with the Nevada Gaming Control Board. Both New York and Massachusetts then opened inquiries regarding daily fantasy sports' lack of consumer protection and fraud prevention measures. Now the result in New York could have far-reaching effects on daily fantasy sports' viability as a business in states without well-defining gambling rules.