FanDuels and DraftKings: How Is That Not Gambling?
According to the National Law Journal:
FanDuel Inc. and DraftKings Inc. are facing about 40 class actions claiming that the online daily fantasy sport sites fraudulently enticed customers into participating in illegal gambling.
Lawyers on both sides are seeking to coordinate all the federal class actions, filed in 13 states, into multidistrict litigation.
The lawsuits were brought after the New York Attorney General’s Office began investigating whether FanDuel and DraftKings were illegally promoting gambling in violation of state laws. On Nov. 10, Attorney General Eric Schneiderman sent letters to both companies to cease operations; FanDuel and DraftKings have sued to block those orders.
Now both sites are being hammered by class actions brought on behalf of their customers. Most of the lawsuits allege consumer fraud and false advertising and seek reimbursement for lost money and signup fees totaling from 25 cents up to thousands of dollars. They also accuse both companies of insider trading, alleging that consumers wouldn’t have signed up on their sites if they had known employees were participating in the contests with non-public information.
The recent scandal over the fantasy sports sites erupted after a DraftKings employee named Ethan Haskell inadvertently released internal data about a popular contest before the real National Football League games involved had started—and then went on to win $350,000 on FanDuel. Both companies have since banned their employees from participating in games.
“There’s handicapping going on inside these companies,” said Hunter Shkolnik, of New York’s Napoli Shkolnik, a plaintiffs attorney who filed a motion last month before the U.S. Judicial Panel on Multidistrict Litigation to coordinate all the lawsuits in the Southern District of New York. “It’s like the house is betting against their customers.”
31 U.S. Code § 5362 states gambling does not include (my emphasis bolded):
..participation in any fantasy or simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization (as those terms are defined in section 3701 of title 28) and that meets the following conditions:
(I) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.
(II) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.
(III) No winning outcome is based—
(aa) on the score, point-spread, or any performance or performances of any single real-world team or any combination of such teams; or
(bb) solely on any single performance of an individual athlete in any single real-world sporting or other event.
Like with most other things deemed to be vice, gambling should be legalized, taxed, and regulated. Unfortunately, it hasn’t been in many places yet, and the bottom line is that the advertising they use screams gambling. If they had told the truth, that it’s in fact a game of skill where the average participant has about a 1% chance of winning due to the presence of so called “sharks” who create algorithms that spit out thousands of possible “winning” lineups over thousands of user accounts, they may have bought themselves some time. But truth in advertising does not necessarily make for effective advertising. Better to make people think they could win a fortune on game changing plays by players you, the average joe, were savvy enough to pick. That’ll bring in billions. While it did, the question it begs is how is that not gambling?