19 Oct

State and Federal Legislators Probe Legality of US DFS Sites

Daily fantasy sports (DFS) has become embroiled in inquisition over the last few weeks. The US DOJ and FBI are probing into the DFS business, the NY Attorney General—among other US lawmakers—is scrutinizing the legality of it, and numerus class action lawsuits have been filed against both FanDuel and DraftKings, the top two DFS sites in the nation. To top it off, regulators in Nevada have declared DFS betting an official form of gambling, therefore illegal without licensed authorization in the state.

At the rate things are going, many Americans could find themselves without a legal home to wager on daily fantasy sports in the very near future.

DFS Sites Come Under Fire

The first inclination of bereavement for DFS fans and operators came in January 2015 when DraftKings was slapped with a class action lawsuit alleging false advertisement. Commercials advertised that the site would “double your first deposit, up to $600.”

However, the suit claims DraftKings failed to state that reception of the bonus required players to fulfill wagering obligations in order to release the bonus; wagering obligation that would “incur additional and substantial monetary obligations” for players. Similar lawsuits were filed in April, and as recently as August.

Allegations Heat up in October

DFS Sites DraftKings, FanDuel under investigationEarlier this month, the proverbial dung really hit the fan. On October 6, 2015, the New York Attorney General publicized an investigation into FanDuel and DraftKings based on allegations that employees had used inside information to win money from members of the sites.

In particular, a DraftKings employee had been accused of winning $350,000 from FanDuel by using insider information.

Both DFS sites took action by immediately prohibiting all of their employees from participating in daily fantasy sports. However, on October 14, the FBI got involved, initiating its own investigation into the matter.

Amidst it all, a flurry of class action suits were filed in multiple states against DraftKings and FanDuel. Allegations ranged to everything from false advertising and fraud, to negligence, racketeering and unfair practices via the use of inside information. Surprisingly, one lawsuit came from a resident of New Orleans, Louisiana, where DFS is illegal.

Nevada says No More DFS without Licensure

Possibly the most impactful event was the decision handed down by officials in Nevada last week. After in-depth scrutiny, regulators in the Silver State found daily fantasy sports to be a genuine form of gambling. Up until now, it was considered a game of skill, therefore legal without specific authorization or licensure.

Nevada announced last Tuesday that DFS sites are a form of illegal gambling in the state, unless properly licensed by the Nevada Gaming Commission. DraftKings and FanDuel immediately stopped accepting players from the state, and it’s currently unknown whether either of them intends to apply for a license to operate in Nevada.

The fallout from Nevada’s decision could be far reaching, though. Being the largest gambling state in the US by far, other states, and especially the federal government, may respect the opinion of Nevada above all else in regards to whether DFS is truly a form of gambling. If the US adopts the theory of DFS being gambling, it would instantly criminalize the activity all across America, requiring individual states to authorize and license daily fantasy sports if they wish to continue allowing residents to participate.