Friday, January 8, 2016

New York’s Fantasy Fraud

The NFL season ended poorly for New York football fans, and state Attorney General Eric Schneiderman is piling on with new fraud charges in his blitz against fantasy sports sites DraftKings and FanDuel. Daily fantasy sports have been operating legally in New York and most states for nearly a decade and attracted such investors as Fox Sports, Turner Sports, KKR and the Kraft Group. This has made them a rich political target.

In November Mr. Schneiderman charged DraftKings and FanDuel with running illegal gambling operations and ordered them to shut down in the Empire State. According to the AG, fantasy sports are a game of chance rather than skill, an important legal distinction used to define gambling. But fantasy sports involve as much skill as, say, Scrabble or fantasy season competitions hosted by ESPN.
Players form teams with salary caps from athletes whose pay approximates their value, so Cam Newton would be more expensive than Johnny Manziel. They pay entry fees to compete against players nationwide with prizes ranging from a couple of bucks to seven figures. The best players win most of the time, though rookies can take home small-dollar prizes.

Neither the New York legislature nor state gaming commission has defined fantasy sports as gambling, which makes the AG’s case a long shot. This may explain why Mr. Schneiderman late on New Year’s Eve amended his suit with charges of fraud and false advertising.
The gubernatorial wannabe cites fantasy ads that say “taking home your share is simple: just pick your sport, pick your players, and pick up your cash” and “anybody can play, anybody can succeed.” If this is false advertising, then the New York lottery—which claims it is “making more New Yorkers rich than any other game”—is a Bigger Con.

Mr. Schneiderman says the sites prey on vulnerable young males by promising instant gratification and “no commitment,” though the ads are less deceptive than promotions for body-building supplements or workout programs. He contradicts his case that fantasy sports are illegal gambling by arguing that the sites misrepresent “the degree of skill implicated in the games.”
The amended lawsuit demands that the sites compensate players for their losses (i.e., entry fees) and pay civil penalties that could run in the billions. Nearly 60 class-action lawsuits based on similar claims are being consolidated this month in federal court, which should pre-empt the AG’s charges. His real goal may be to frighten away anyone who does business with the fantasy sites.
Protecting government’s gambling market share seems to be a Democratic priority these days. Shortly before Christmas, Illinois AG Lisa Madigan issued an opinion that fantasy sports as well as “all games of chance or skill, when played for money, are illegal gambling in Illinois, unless excepted” and should be outlawed, which is at least more legally consistent than Mr. Schneiderman’s singling out daily competitions.

A New York appellate court is now considering whether to allow DraftKings and FanDuel to operate in the state while Mr. Schneiderman’s case plays out. Letting the AG’s ruling stand pending a court review would merely reward his prosecutorial unsportsmanlike conduct.

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