Just a few years ago, it seemed like you couldn’t watch a sporting event without seeing advertisements for daily fantasy sports leagues like Draft Kings or Fan Duel. Before the 2015 NFL season these companies spent nearly $500 million on advertisements, but after consumer concerns arose, they cut their advertising budgets.

After multiple lawsuits against the industry, the companies are fighting for their existence amid accusations that they fall under the same legal category as traditional online gambling.

A new study from Rutgers University on gambling in New Jersey concludes that daily fantasy sports (DFS) users exhibit highly similar habits as those who engage in traditional forms of gambling. It also finds that there is a high crossover between the two activities. This is bad news for an industry that has tried to distance itself from gambling in order to win lawsuits and continue operation. The study’s authors wrote:

A majority of activities listed in this study are historically classified and widely accepted as ‘gambling,’ because they involve spending money on activities with an uncertain outcome and the possibility of winning or losing that can result in harm. However, other activities elude precise classification and are largely context and jurisdiction‐dependent.

The key distinction for these companies is whether their games are based on skill, not chance. This stems from the Unlawful Internet Gambling Enforcement Act (UIGEA) passed by Congress in 2006, which makes a distinction between the two forms of gambling and outlawed only games that require no skill.

Fan Duel, which opened in 2009, was the first major daily fantasy sports company before Draft Kings, its main competitor, opened in 2011. First, they experienced massive growth and profits before running into legal problems.

To learn more about daily fantasy sports check out Law Street’s Explainer.

These companies, and their users, must prove to the courts that they are winning massive amounts because of skill and hard work, not pure luck like traditional gambling games.

Those who argue that DFS is skill-based believe it’s clear the games aren’t random because of the overwhelming success of experienced players. While normal gambling games such as roulette or slots don’t favor someone with experience, these games show that the most winners have dedicated themselves to the craft.

While many users casually play the games, others have dedicated themselves to the game, and some manage to earn six-figure payouts in just one month.

In fact, 1 percent of players win around 91 percent of the profits from DFS  sites, according to a study by gambling expert Ed Miller. Miller argues this is evidence of a surplus of skill exhibited by the top bettors, whom he refers to as “sharks,” who feast on the “minnows,” which are novice gamblers who lose over 50 percent of their investments.

On the other hand, those who argue the game is just gambling cite evidence that knowledge of the actual sports doesn’t help win the game. Instead, it’s just about algorithms, gaming the system, and luck, they argue.

Even former Florida governor and presidential candidate Jeb Bush called it, “day trading without any of the regulation” during one debate in the 2016 campaign. The lack of oversight is yet another reason many hope for government intervention in the industry.

In recent years, the industry has faced lawsuits across America while states such as Nevada and New York barred them and defined them as gambling. In 2015 both states booted daily fantasy sports companies from their states.

But in late 2016, New York and Nevada compromised with the companies.

New York’s ban was particularly impactful because the Fan Duel headquarters is located in the Big Apple. However, Governor Andrew Cuomo later signed a law in classifying DFS as a “game of skill,” which allowed them to continue business in the state.

Meanwhile, Nevada decided that the companies need a gambling license to operate, but only one company–USFantasy–has applied and received a license as of last November, according to the Legal Sports Report. The policy means that daily fantasy sports is considered gambling in the state, allowing DFS companies to operate under the same regulation as traditional gambling. However, given the industry’s efforts to identify itself as a game of skill, many DFS companies have been unwilling to participate with a gambling classification.

In Texas, state Attorney General Ken Paxton issued an opinion last year equating DFS with illegal gambling, which prompted lawmakers to craft a bill formally classifying DFS as games of skill. State Rep. Richard Peña Raymond, a fantasy football lover himself, decided to sign onto the bill after speaking with constituents who worried about government interference, he told the Texas Tribune.

So while the Rutgers study finds that DFS users also tend to engage in traditional gambling–and are susceptible to similar gambling and drug-related problems–many states are working with these companies to continue operation.

The new study doesn’t necessarily mean that legal changes are coming down the road, but it furthers research that will help inform future decisions. The legality of DFS is a complex issue that must weigh the economic benefits of gambling for local taxes and the negative impact that it can have on individuals and their families.

Josh Schmidt

Josh Schmidt is an editorial intern and is a native of the Washington D.C Metropolitan area. He is working towards a degree in multi-platform journalism with a minor in history at nearby University of Maryland. Contact Josh at staff@LawStreetMedia.com.

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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.

The post FanDuel Sued by Washington Redskins Player Pierre Garcon appeared first on Law Street.

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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