Notorious fantasy betting site FanDuel is in legal trouble yet again. The site is being hit with a class action lawsuit by Washington Redskins player Pierre Garcon. The suit alleges that FanDuel used the name and likeness of Garcon and other players without their permission in order to make money.

The suit claims that FanDuel makes money and promotes its daily fantasy contests “on the backs of NFL players, whose popularity and performance make the Defendant’s commercial daily fantasy football product possible.” The lawsuit argues that ads using Garcon’s likeness, as well as other football players’, appear on TV ads, Youtube spots, and infomercials. Garcon wants compensation for himself and other players who have been used in FanDuel advertising. Garcon had previously worked to promote FanDuel, but it’s unclear what sort of contract he had with the company.

FanDuel doesn’t have a licensing agreement with the NFL, the way that its main competitor DraftKings does. Observers are speculating that the only reason that DraftKings has not been hit with the same lawsuit is for this reason.

It’s unclear whether or not this lawsuit actually holds any weight. Darren Heitner wrote at Forbes about the many reasons why he believes that Garcon’s lawsuit will ultimately prove unsuccessful, including the fact that he chose to file the suit in a state, Maryland, that isn’t exactly hospitable to publicity rights lawsuits. Additionally, Heitner thinks that precedent isn’t on Garcon’s side either, and the fact that he used to actively work to promote FanDuel will be a compelling counter-argument for the company’s lawyers.

But regardless of whether or not Garcon’s suit is successful, the fact that FanDuel is receiving even more negative publicity is hard to ignore. A few weeks back FanDuel and its competitive counterpart DraftKings came under investigation by the New York Attorney General for possible insider trading-like behavior. Another lawsuit currently being waged against FanDuel and DraftKings accuses the two companies of negligence, fraud, and false advertising. Brought by Adam Johnson, and also as a class action lawsuit, the suit is based on the same revelations that sparked the New York Attorney General investigation–essentially the fact that employees of FanDuel or DraftKings had been playing, and winning lots of money, on their competitors’ sites.

Additionally, there’s a lot of controversy over how sites like FanDuel and DraftKings should be regulated. Whether or not they constitute gambling is also a hotly contested question. Some states, like Arizona and Washington, have outlawed the sites. But for the most part, it’s all a legal gray area. However, so far, these scandals and bad publicity don’t appear to have affected FanDuel or DraftKings’ profits–in fact, the opposite has happened, and both companies have seen increases. Garcon’s lawsuit, successful or not, may not be able to make a dent either.

Read More: Fantasy Sports…Ready…Set…Bet!

Anneliese Mahoney

Anneliese Mahoney is Managing Editor at Law Street and a Connecticut transplant to Washington D.C. She has a Bachelor’s degree in International Affairs from the George Washington University, and a passion for law, politics, and social issues. Contact Anneliese at amahoney@LawStreetMedia.com.

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If you’ve watched a football game on TV lately, you’ve probably seen a whole litany of ads for the two leading fantasy companies–DraftKings and FanDuel. While fantasy football has been a popular pastime for years, DraftKings and FanDuel have entered the scene relatively recently: they were founded in 2012 and 2009 respectively. But with great success and power comes great responsibility, and now both sites are under investigation by New York Attorney General Eric Schneiderman for insider-trading-like activity.

The premise of DraftKings, FanDuel, and other similar sites is simple–it takes the traditional model of a season-long fantasy competition, and condenses it into smaller contests, usually just one week or one day. Both sites offer a variety of sports to choose from, including NFL, NBA, MLB, NHL, NASCAR, and some college sports. You put up money to play, and win money if you’re successful.

Whether or not these activities should be considered gambling has been a point of contention, but the legality tends to rest on the fact that technically these are games of skill, not chance. Participants have to have background knowledge of the players they are choosing, and make informed decisions based on that knowledge. However, not all states agree with that assessment–Arizona, Iowa, Louisiana, Montana, and Washington all have deemed participating in sites like DraftKings and FanDuel illegal.

So, while these very wealthy new companies are already rife with controversy, it really comes as no surprise that a new investigation is being launched. The reason that Schneiderman is looking into DraftKings and FanDuel is because of concerns that employees at each have won big payouts on their competitors’ sites. There are allegations that these employees have access to inside information in the form of stats and algorithms and are using that information to profit by playing themselves. One particular incident sparked outrage over this possibility–mid-level DraftKings employee Ethan Haskell recently won $350,000 on FanDuel. The question is whether or not Haskell was able to win that money because he had an advantage as a DraftKings employee with access to insider information, or because he was just a skilled fantasy player.

In response to the scandal, both companies banned their employees from playing on each others’ sites, and issued a joint statement, which read in part:

Nothing is more important to DraftKings and FanDuel than the integrity of the games we offer to our customers. Both companies have strong policies in place to ensure that employees do not misuse any information at their disposal and strictly limit access to company data to only those employees who require it to do their jobs. Employees with access to this data are rigorously monitored by internal fraud control teams, and we have no evidence that anyone has misused it.

However, it will now be up to the Attorney General’s investigation to determine whether or not that’s true. Schneiderman will be attempting to determine “the prospect that employees of daily fantasy football sites have won lucrative payouts based on inside information not available to the public.” He also added: “I don’t have comments on the specifics of that matter at this time. But fraud is fraud and we’ll investigate it wherever we find it.” So, if he finds it, both DraftKings and FanDuel may be in serious trouble.

Anneliese Mahoney

Anneliese Mahoney is Managing Editor at Law Street and a Connecticut transplant to Washington D.C. She has a Bachelor’s degree in International Affairs from the George Washington University, and a passion for law, politics, and social issues. Contact Anneliese at amahoney@LawStreetMedia.com.

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The NFL regular season is coming to a close, and with it, a plethora of fantasy-football dreams. Typically, friends draft a team of their favorite stars before the start of the season and depending on their team’s performance, a fantasy dueler can win bragging rights or bets made within the group. Except today, what started as a competition among friends has evolved into a multi-million dollar enterprise. Websites like DraftKings and FanDuel have capitalized on this competition by changing the fantasy landscape. These sites hold weekly competitions allowing users to choose players weekly for a fee. Although this option bypasses the heartache of seeing a number one draft pick go down with a season-ending injury, this type of competition raises some interesting concerns. Instead of bragging rights, friends can compete for millions of dollars against thousands of players across the globe by depositing cash for a particular contest. This sounds wonderful on paper, except it also sounds like gambling, too. Read on and find out whether you should cosign your fantasy involvement.

 What’s the latest news in the fantasy world?

Like the fantasy pro, I’ve endured the pleasure and heartbreak that fantasy football conjures. For instance, two weeks ago week I won $500. Nevertheless, the excitement that a touchdown catch enlivens is comparable to blackjack. The rush in seeing the craps table explode with shouts of hope and trembles of fear is similar to the anxiety of watching the player that you almost drafted “go-off” for three touchdowns. Although there are plenty of gambling outlets for duelers like myself to feast on, discouragement kicked in after reading this article about the Denver Broncos signing a partnership with Draftkings. Let’s face it, it wouldn’t be fair if the number one offense was in cahoots with the fantasy source. Although it’s doubtful that Peyton Manning gets a call during the game to throw an interception, these competitions craft an accessible outlet for fantasy football, which inadvertently targets kids and young adults to compete/bet/win. That worry grew after researching the inner-workings of these one-day fantasy events.

As my fellow New York Law School alum Andrew Blancato correctly noted in his article about fantasy sports gambling, the Unlawful Internet Gambling Enforcement Act (UIGEA) outlaws online sports gambling. The fine distinction is based on skill and chance. But when did this all begin? Years ago, fantasy sports was limited to drafting teams before the season and hoping your team excelled in their respective positions. Today a user can bet online anywhere from 25 cents to upward of a thousand dollars on his team’s weekly performance. When did Football Sunday transform into caring more about the points a player scored, rather than the outcome of the game itself?

Image courtesy of Evangelos Siozos

When did fantasy become financial?

In July 2009, Nigel Eccles and Tom Griffiths altered the fantasy sports arena by launching their newly minted one-day fantasy competitions. Eccles, the CEO of FanDuel, based his idea on a simple premise: Letting people pick professional athletes daily and bypassing the debilitating effects of injury risks associated with season-long tournaments. Instead of one bite at the apple, these businesses capitalize on multiple game-day bites.

In 2010, Allen Tippy explained the phenomena that recently started interrupting your favorite TV or radio show with a 30 second advertisement.  “Fantasy is the steak,” Mr. Lowitz says. “We just want to be the mashed potatoes on the side.” After gorging on the traditional fantasy platter, Tippy made the change to one-day fantasy competitions.

I search out the weak players…I played in the same traditional fantasy baseball league with a group of lawyers from Mobile, Alabama for about 15 years.

That’s right. The success of one-day fantasy sports is semi-driven by the fantasy fanatics, those who play and switch their line-ups with 30 seconds to spare before the game begins. In fact, by employing these modern tactics, a one-a-day dueler can exploit an opponent’s weakness by staying alert of all injuries and penalties that keep a player sidelined. Interestingly, this awareness sounds just like skill, except in one-a-days there are a few caveats.

For example, unlike traditional gambling site, there is a higher commission taken out by the one-day fantasy servicer. Further, what separates a winner from the host of losers requires beating 60 percent of them to make a profit. Eccles calls it “fantasy for the ADD generation.” Mr. Eccles hits it on the nose, considering FanDuel paid out roughly $500 million this year alone.

After FanDuel captured 70 percent of the daily fantasy sports market, DraftKings snatched the remaining 25-30 percent. Fast forward four years: these simple startups have catapulted to infamy and success. In fact, the Fantasy Sports Trade Association acknowledged that about $1.7 billion is spent each year on fantasy sports in the U.S. and Canada. Couple this with an infinite pool of investors and big-name endorsers and one is left to wonder if any regulatory measures have been taken to ensure fair play.

So…is this even legal?

In 2006, Congress passed the UIGEA, which basically outlawed any online sports gambling that relied strictly on chance instead of skill. Whether or not fantasy sports are chance- or skill-related is a question for Socrates; however, what has been done since 2006 is quite startling, especially considering the mammoth explosion of this business. Vice Sports explained it best:

The debate over the legality of DFS revolves around the definition of skill versus chance. DFS games fall somewhere in between pure games of skill (chess, checkers) and pure games of chance (lottery, bingo). Picking a winning lineup involves a level of skill, intelligence, and talent that can be improved but also, Peyton Manning could tear his ACL in warm-ups and sorry, bro, your lineup is done.

Great, so playing fantasy sports involves both a touch of skill and a dash of luck. Easy, done. But some questions still linger. For example, since 2006, the marketing landscape changed, technology evolved, and fifth graders were given cell phones. So, what exactly is going on?

On December 2, 2014, lawyers lodged formal complaints against FanDuel in Florida Federal Court. The allegations included claims of deceptive practices by misleading customers, which tiptoes the line into fraudulent territory. Basically, FanDuel targeted customers through its promise to double any money deposited into its website. Yet, its “double your deposit” promotion didn’t double its customers’ deposits upon joining. Instead, if a user deposited $200, her money was entered into a formula, which requires a contestant to spend $5,000 in order to receive the initial $200 promised payback. This wasn’t the only lawsuit targeting the fantasy giants.

That’s when I was introduced to Christopher Langone, who filed pleadings in Illinois Federal Court to challenge the winnings of Patrick Kaiser, a FanDuel enthusiast. Months later, Langone filed another action against DraftDay.com and bypassed any jurisdiction issues by filing in San Antonio, Texas, DraftDay’s state of incorporation. What initially seemed like a theoretical query based on whether fantasy sports involved more skill than chance, created a battle of mythical proportions, perfect for the great professors who teach me.

What is being done?

In short, nothing yet. Some Federal Courts have reacted, using the judiciary power bestowed upon them to influence states to strike down fantasy football in Montana, Louisiana, Washington, Iowa, Arizona, and Puerto Rico. Or take Florida for example, where state law technically bans the “fantasy phenomenon,” and makes playing it a misdemeanor. But other than political riffraff and textualist toils over what chance and skill really are, the main concern for fantasy-player welfare has dissipated. As Mike Florio puts it,

In what would be a bizarre twist on point shaving, coaches and players could in theory be bribed to ensure that certain players will generate significant production, or that certain players will be shut down. Getting to coaches and assistant coaches who control the offensive game plan would be the most efficient approach. It also would help to grease defenders who would be inclined to slip on an invisible banana peel, springing a specific player for a touchdown or two. Or four.

Florio’s concerns express the same disbelief I have. Further, his article was written in July, way before Peyton endorsed Draftkings and Tom Brady joined DailyMVP.

Fanduel pays out 1 million dollars in prizes per day. Join my 1-day league http://t.co/oTvV4dzNZE

— Vince Wilfork (@wilfork75) August 23, 2014

With more and more players signing onto these fantasy startups, maybe it’s time to start paying attention to the inconspicuous tweets of NFL players. It’s not that Wilfork would miss a tackle to spring a runner 50 yards, it’s that he might be tempted to do so in order to capitalize on the same organization paying him to tweet.

Conclusion

Greed takes many forms. After witnessing the fall of the real estate market, we all saw the destructive nature of our fellow man. Like much of the law, Congress has slowly reacted to recent changes in technology. Today, kids and adults have online access at their fingertips. Although this doesn’t fit the bill as a pressing concern, it could become so. Anyone can click to verify that they are 18 years old in order to play on these sites. Further, not an iota of regulatory action has been taken since 2006. Although it is too early for the unforeseen consequences to materialize, it might already be too late to ensure that they don’t. Alas, chance and skill can only get a fantasy dueler so far. My hope is that there’s no one whispering in the players’ ears to strike that balance.

Resources

Primary

 Denver Broncos: Draft Kings, Broncos, Sign Partnership

Additional 

Law Street Media: Fantasy Sports: Good Fun or Illegal Gambling?

Wall Street Journal: Everyday fantasies

Boston: Single-Day Fantasy Sports

Vice Sports: The Daily Fantasy Sports Takeover

Forbes: Fanduel sued in court

Fox News; Gaming laws could pose risk for fantasy football craze

NBC: NFL Paying attention to Influence of high-stakes fantasy football leagues 

Evangelos Siozios

Evangelos Siozios is a student at New York Law School focusing on family law and real estate transactions. He is a 2012 Baruch Honors College Graduate whose interests include writing, exercising, and solving TV mysteries. Contact Evangelos at staff@LawStreetMedia.com.

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Fantasy football players received an early Christmas present this week, as leagues throughout the country crowned new champions following week 15 of the NFL season. For most, that present was the gift that keeps on giving: cold, hard cash. Anybody who has played in a fantasy league will tell you that these winnings are the result of hours of research, informed speculation, and hard work…or at least hard television-watching. Even those of you who don’t understand fantasy sports have still probably noticed the growing popularity of fantasy leagues. So with millions of dollars being legally exchanged this week for fantasy winnings, it’s time to re-visit the age old question: why are fantasy sports legal while most sportsbooks–places where gamblers can wager on sports–remain illegal?

The answer to this question lies in a small, perhaps capricious distinction between chance and skill. In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) which essentially outlawed online sports gambling. The law excluded most fantasy sports leagues, exempting bets with:

An outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance), and, in the case of a fantasy or simulation sports game, has an outcome that is determined predominantly by accumulated statistical results of sporting events, including any non-participant’s individual performances in such sporting events…

Essentially, the government created a naughty-or-nice list. If you place bets based on skill, you’re nice. If you place bets based on chance, it’s coal city for you.

Exploiting this distinction has made fantasy winners happy, and fantasy businessmen even happier. FanDuel, which specializes in daily fantasy sports matches, is projecting $40 million in 2014 revenue. Boston-based DraftKings has raised over $75 million in investments since it was founded in 2012. Clearly, the industry heads of “skill” based sports wagers are at the top of the nice list, but the ambiguous language Congress has utilized may leave room on the list for others.

Most sportsbooks typically offer their clients bets on a particular team’s outcome in a particular game. Arguably, the results of these games are determined based on home-field advantage, strength of the opponent, and the collective performance of the team. Some larger sportsbooks offer player-props, which are estimations of how a particular player will do either in a particular game, or over the course of a season. For example, if a gambler banks on Detroit Lions wide receiver Calvin Johnson to catch more than 1.5 touchdowns in a specific game, he reaps a monetary reward. Sound familiar?

To New Jersey attorney Charles Humphrey, it sounded like a fantasy sports wager. That’s why in 2006, Humphrey filed an action in federal court arguing that fantasy leagues and sportsbooks were essentially the same, and that ESPN was breaking gambling laws by collecting fantasy entry fees. The District Court of New Jersey ruled against Humphrey, but chose not to tread into the murky waters of the UIGEA’s skill/chance distinction when relying on the law.

Few others have opined on whether player props are skill-based and technically legal under the UIGEA. That’s probably because it’s political. Some casinos with money and clout have set their sights higher than online player props, attempting instead to push through live-action sportsbooks in places like Monmouth, New Jersey. And seeking to compete online with the aforementioned FanDuel and DraftKings is also probably more difficult than it appears. Beyond deep pockets, those two companies belong to the Fantasy Sports Trade Association (FSTA). The FSTA is no stranger to lobbying and legal action, and although they typically argue in favor of the sports-wagering industry, don’t bet on them siding with a start-up company looking to specialize in prop bets and take a piece of their pie. After all, some of the biggest opponents of the online expansion of gambling happen to be other gamblers.

Regardless of hurdles, the valuation of a professional athlete’s performance is highly lucrative, and part of an industry that is getting bigger and bigger. It’s only a matter of time before some brave company offers player prop bets under the guise of a fantasy league. To prepare, Congress should rewrite the UIGEA’s skill/chance distinction, because the current list of who’s naughty and who’s nice doesn’t make much sense…even if you check twice.

Andrew Blancato

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