Fantasy sports fans in New York are angry right now, and we’re not entirely sure that we blame them. Not too long ago we talked about the so-called insider trading scandal involving DraftKings and FanDuel, and we predicted that some states would likely start pressing for stricter regulations in order to prevent similar occurrences in the future. It turns out that we were right on the money, and New York is putting a fantasy sports ban into effect that will likely have a major impact on the leaders of daily fantasy play.
It really wasn’t too difficult to see this one coming. Hindsight has its values, but our handicapping consulting services probably wouldn’t sell if we didn’t know a thing or two about looking toward the future. Predicting the fate of a major betting industry is obviously nothing like handicapping a game, but it still requires an ability to recognize trends and assess how they may unfold. So in talking about New York’s fantasy sports ban, we have every intention of exercising some foresight and attempting to assess whether or not this is the beginning of the end for unregulated fantasy sports betting.
The Events Leading to the Ban
As mentioned above, last month saw the reveal of a major scandal involving DraftKings and FanDuel. It all started when Ethan Haskell, a midlevel content manager for DraftKings, indicated that data on their bettors had been leaked; however, he assured the public that he was the only one privy to the information and that there was no security risk. This may have been the case, but what really raised eyebrows was the discovery that Haskell had made $350,000 in profits on FanDuel that week.
Basically, this turn of events gave the impression that Haskell was using betting trends he was able to see as a DraftKings employee in order to place bets on a rival daily fantasy site. And despite his claim that no one else was privy to the same betting information as him, further allegations made since then have suggested otherwise. In fact, it has been claimed that numerous DraftKings employees are making more on bets with other sites than they are making on salary. FanDuel does not appear to have had any active role in this, but the whole thing made fantasy sports betting as a whole look rather suspicious.
This is ultimately what led to New York’s fantasy sports ban. Back when the scandal first broke, there were still numerous investors keeping these sites afloat. A few had backed out, but it didn’t really seem as if the industry was in any financial trouble; however, as noted above, our prediction was that many states would begin to reassess the statutes that had outlawed traditional sports betting while allowing daily fantasy sports to operate with no regulations. New York’s fantasy sports ban may not be the last of its kind.
Of course, it didn’t happen overnight. New York spent some time assessing the issue before their fantasy sports ban was put in place. They also weren’t the only ones to enact something of a fantasy sports ban—Nevada is still allowing fantasy play, but it now has to be licensed as they consider it to be on par with gambling. The states of Arizona, Iowa, Louisiana, Montana and Washington already consider fantasy sports to be illegal. With New York now enacting a fantasy sports ban of their own, there are at least seven states in which fantasy sports sites are lacking a solid foothold.
It isn’t too surprising that New York would enact a fantasy sports ban when there were so many other states already leaning in the same direction. People had still been playing fantasy sports in those states, using the mask of online anonymity as their vehicle for doing so. Now, New York and the other six states mentioned above are putting the heat on these sites to stop allowing this practice. And based on some of the details regarding the current fantasy sports ban and its fallout, they might be quite effective.
Detailing the Fantasy Sports Ban
New York’s fantasy sports ban is, for the most part, relatively simple. Basically, the ban prohibits sites such as DraftKings and FanDuel from offering their services to New York citizens. In much the same fashion as Nevada has now decided to consider fantasy sports on par with gambling, New York has done the same thing. The catch is that online gambling is illegal in the state of New York, so online fantasy play cannot continue under such restrictions. New York Attorney General Eric Schneiderman therefore announced a ban on all fantasy sports in the state, and ordered both DraftKings and FanDuel to stop catering their services to New York citizens.
While New York may not be the only state with an active fantasy sports ban, their case is of particular interest since they are actually the state in which FanDuel is headquartered (DraftKings is based out of Boston). Adding salt to the wound is the fact that FanDuel estimates the ban to affect approximately 10% of its users. Meanwhile, as many as 7% of DraftKings users will also be affected. This is not a majority by any means, but it is certainly a decent chunk of the market. The other bans do not have this sort of affect, since fantasy sports have been illegal in many of the other six states for quite some time prior to the insider trading scandal.
Under the ban, users who live in New York are not to access these sites by any means. The New York Times conducted a bit of an experiment, however, in which they created accounts for each site and attempted to access them via proxy. In FanDuel’s case, they were unable to place a bet. In the case of DraftKings, however, they had no problem when a proxy server was used. DraftKings claims that proxy servers violate their terms of service, although they did not provide a reason as to why proxies are not banned in the first place.
Many major sites will not allow users access by proxy. Even Wikipedia will not allow edits to be made when proxy use has been detected. The difference is that such sites actually enforce their rules, whereas DraftKings simply states the rule in their terms of service. Geofencing, the practice of ensuring that geographic restrictions are met, does not appear to be a primary concern of theirs. And while geolocation can easily be spoofed, there are numerous services which specialize in geofencing. With the new fantasy sports ban, New York authorities will likely push for sanctions against DraftKings if they continue not to take any precautions against users who violate geographic restrictions.
Response to the Ban in New York
As one might have presumed, response to New York’s fantasy sports ban has been overwhelmingly negative. Many fantasy sports fans are unhappy that a practice which has always been legal in their state has suddenly become unavailable to them. In fact, many users even held a protest against the ban, suggesting that Attorney General Schneiderman is abusing his power and that he “should focus on real problems.”
Many of the protesters were users of either FanDuel or DraftKings, although some were simply fantasy sports fans in general. Many of the protesters were also employees of these sites, who fear that stricter enforcement of anti-fantasy regulation may put their jobs at risk. Fantasy Sports for All, an advocacy group focusing on the rights of fantasy sports bettors, was the key organizer of the protest. Not only did about 300 people show up to protest the fantasy sports ban, but Schneiderman’s office was also contacted by more than 10,000 fantasy sports fans who are unhappy with his recent actions.
The negative response to the fantasy sports ban did not stop there. Both DraftKings and FanDuel are also suing the Attorney General’s office in an attempt to have the ban reversed. So far, it’s hard to tell whether or not they are going to get their way. Their first move was to request a temporary restraining order, which would have allowed them to continue taking bets in New York. This was denied. Their next order of business was to request an emergency hearing. This has been granted, with the hearing set for next Wednesday.
In the meantime, DraftKings has announced that they plan to continue their New York operations until the matter has been resolved in court (FanDuel, on the other hand, is no longer accepting deposits from New York-based users). DraftKings is confident that they will win, stating that their TRO was only denied because it was not necessary in light of the decision to grant an emergency hearing. The purpose of the hearing is to determine whether or not DraftKings and FanDuel are entitled to a preliminary injunction. In layman’s terms, the result of the hearing will decide whether or not they are allowed to continue allowing access to fantasy sports players in New York while their case is tried in court. Since lawsuits such as this can often take more than a year to decide, they will lose a large chunk of their business over the next several months if the injunction is not granted.
If one thing is to be certain, it’s that we can count on numerous reactions from the press as the matter continues to generate publicity. Shane Mclendon of Movie TV Tech Geeks has already gone as far as to compare Schneiderman to Vito Corleone and DFS sites to Moe Greene and Virgil Sollozzo. While it’s clear that Mclendon probably needs to re-watch The Godfather (Greene and Sollozzo aren’t exactly innocent casualties), what’s far clearer is that the negative responses to the fantasy sports ban will not cease until the matter is settled. The only question is whether or not things might get worse for fantasy sports sites before they get better.
Is This the End for Fantasy Sports?
If DraftKings and FanDuel fail in getting their preliminary injunction, it may be a sign that the judge is leaning against them as the case goes to trial. This will only enact a fantasy sports ban in one more state, but that does not mean New York will be the last state to seek action against DFS sites. In fact, New York may end up setting the bar for other states who are questioning whether or not fantasy sports should be allowed to continue operating without regulation.
True, the public outcry seems to suggest that a number of people are supporting fantasy sports in this particular battle. But what does that really mean? We previously stated that growing favoritism toward traditional sports betting might be good news for Chris Christie, who had been pushing to legalize sports betting in his state. However, sports betting is still outlawed in New Jersey, as the court did not find the law to be on Christie’s side. DraftKings and FanDuel now find themselves in a similar position. While the public outcry against New York’s ban may be comforting to them, it will ultimately have no bearing on the judge’s decision.
That said, Newton’s third law appears to be in place here. While New York is reacting to the insider trading scandal with a fantasy sports ban, there appears to be an equal and opposite reaction in Washington. Despite the fact that Washington was one of the original states to ban fantasy sports betting, the Washington State Gambling Commission is now hearing arguments to decriminalize the practice in their state. They are mostly looking at full-season fantasy sports rather than the more profitable DFS, but they may legalize both if it can be proven that fantasy sports is a game of skill rather than one of chance.
We have talked about the “game of skill” angle before, both in terms of betting the NFL and in terms of why there should be no stigma on traditional sports betting. It’s a compelling argument, especially in states that sell entirely chance-based lottery tickets to any adult who chooses to throw their money at them.
Some are saying that there is more luck involved in DFS than in full-season fantasy sports. “[C]ritics say the luck component is huge [in DFS],” writes Geoff Baker of the Seattle Times, “because on-field sports performance fluctuates far more from game to game than it does over an entire season.” We disagree. If you have read our beginners’ guide to sports betting, you know just how deeply the stats can be assessed when handicapping a single game. Any fantasy sports bettor who puts that much work into assessing their players should be insulted to hear their successes attributed to good fortune rather than rigorous stat-taking.
In short, we don’t think that this is the end of fantasy sports. In New York, maybe. Only time will tell. But as a whole, the industry should continue to thrive. Sites like DraftKings and FanDuel may be seeing the dawn of stricter regulations, but they won’t be shutting down anytime soon.