A hearing on the fantasy sports case mounted by the New York Attorney General Eric Schneiderman ended inconclusively.
Daily fantasy sports sites FanDuel and DraftKings have always maintained that the services they offer don’t count as gambling because they’re contests of skill. Schneiderman defines daily fantasy sports as illegal gambling under New York state law, saying that “winning or losing depends on numerous elements of chance to a ‘material degree.’” If public officials in other states agree, it could be the end of the daily fantasy sports industry in the U.S.
FanDuel and DraftKings have cited a 2006 federal law to distinguish themselves from illegal gambling. But that law explicitly defers to state definitions of what counts as betting. In most cases, states determine the legal status of contests with cash prizes by examining whether the activity is based on skill (like playing in a bowling tournament) or chance (like pulling the arm on a slot machine). Many activities are a mix of both, of course, and states have different thresholds for how much chance is acceptable before something becomes gambling. For Schneiderman, season-long fantasy sports are tolerable in part because they involve long-term strategy over several months. Daily fantasy games can turn on a single play.
New York’s standard is in the middle of the pack, according to Daniel Wallach, a sports and gaming attorney with the firm Becker & Poliakoff. Wallach says about 10 states have said games involving any amount of chance count as gambling, while about 20 states say chance must be the “predominant factor” in the outcome.
While the legality of daily fantasy sports turns on the skill-vs.-chance question, the cases made by both advocates and critics have a fundamental contradiction. At the same time Schneiderman argues that participating in daily fantasy sports resembles playing the lottery, he complains that a small number of top players win almost all the time. He even compares the games to poker, which many academics see as heavily skill-based. Considering that Schneiderman’s letter doesn’t weigh in on allegations of cheating, it stands to reason that some players win all the time because they’re just better than everyone else.
FanDuel and DraftKings, on the other hand, describe daily fantasy as a skill-based activity when discussing legal matters. But they push back against the idea that the success of elite players makes it less likely for less-savvy users to win.
Schneiderman raises concerns that daily fantasy sports will lead to the same kinds of public-health and economic problems that illegal gambling has caused. Potential problem gamblers are likely to be lured by “the quick rate of play, the large jackpots, and the false perception that it is eminently winnable,” Schneiderman wrote. “Ultimately, it is these types of harms that our Constitution and gambling laws were intended to prevent in New York.”