New York attorney general amends lawsuit against daily fantasy sites

ByDarren Rovell ESPN logo
Friday, January 1, 2016

The fight to stay in business in New York got a bit uglier for daily fantasy companies DraftKings and FanDuel right before the ball dropped in Times Square on Thursday night.

That's when New York attorney general Eric Schneiderman filed an amended lawsuit against the two companies, this time asking for them to give back all the money they made in New York State, to give it back to those who lost money and to pay a fine of up to $5,000 per case.

Restitution of funds had never been a part of Schneiderman's previous case and could be a huge blow to both companies, who took in more than $200 million in entry fees in 2015 from at least 600,000 customers in the state.

David Boies, counsel to DraftKings and Chairman of Boies, Schiller & Flexner LLP, said in a statement that Schneiderman's new filing "reveals that the Attorney General's office still does not understand fantasy sports."

"Like the NYAG original complaint, it is based on the fundamental misunderstanding of fantasy sports competitions," Boies said. "Originally, the NYAG claimed that daily fantasy sports were illegal gambling because they were games of chance. That was disproven. Now, the NYAG complains that DFS contests are so much contests of skill that some advertising is misleading because, the NYAG says, certain ads imply that DFS contests are games of chance. This claim, too, is baseless."

Representatives for FanDuel did not immediately respond to requests for comment.

Schneiderman's team was granted a temporary injunction on Dec. 11 to stop DraftKings and FanDuel from operating in New York, but hours later, an appellate court reversed the decision. The two sides are set to argue before an appellate panel on Jan. 4 to decide whether the fantasy companies can continue to operate in New York as the case proceeds to the trial stage, but Thursday's filing significantly raises the stakes should the case get to trial.

In the amended complaint, Schneiderman -- who has maintained that the two companies are operating an illegal gambling operation within New York -- focused more on what he calls the deceptive advertising practices of the companies. Specifically, he refers to deposit bonuses that instead, he says, were a "convoluted scheme."

DraftKings, for example, offered a $600 deposit bonus that, Schneiderman said, would yield the customer only $24 back. The full $600 would unlock only after the customer had spent at least $15,000 on the site. FanDuel had a $200 bonus that Schneiderman claims would initially yield only $8 and would fully unlock only when the customer spent at least $5,000.

This type of incentive advertising, long used by Las Vegas casinos, was the subject of lawsuits in the daily fantasy world long before Schneiderman filed his initial lawsuit in November.

Schneiderman also says that both sites, in their ads, displayed gross winning totals, which didn't reflect the reality of customers' net losses. The new complaint cites that only 11.7 percent of DraftKings customers had a net positive return in 2013 and 2014.

DraftKings and FanDuel have argued that they are not illegal gambling operations within the state because they technically do not accept wagers and, unlike bookies, their success doesn't rely on any particular outcome. Both companies take at least 9 percent of the money put in, which nationally amounted to more than $3 billion in 2015, before using the rest to award the winnings.

DraftKings and FanDuel have also argued that daily fantasy is a game of skill rather than chance, though that argument is less applicable in New York because the law requires there to be only an element of chance for it to be considered a game of chance.

New York isn't the only battleground in which DraftKings and FanDuel are fighting.

Both companies left Nevada after the Nevada Gaming Commission said that what they did was in fact gambling and required licenses to operate in the state. Last week, Illinois attorney general Lisa Madigan declared their practices illegal gambling and said they must leave the state. The two filed lawsuits for the right to stay in business.