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#FootballFriday: Fantasy Football Shutdown

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This week Greenland Apparel dives into the world of fantasy football as states move to shut down industry giants including DraftKings and FanDuel in response to increased scrutiny. Welcome to Greenland Apparel’s #FootballFriday.

The fantasy football industry exploded in controversy when reports surfaced recently that some employees were regularly playing, and winning, on competing websites. On September 27, 2015, an employee at DraftKings won $350,000.00 in contests sponsored by FanDuel. The employee had access to data that could have helped him gain an advantage over the average player. DraftKings has denied this.

Nevada, home to the largest casinos in the United States, has ordered daily fantasy companies out of the state, namely industry giants DraftKings Inc. and FanDuel Inc., unless they obtain gambling licenses. Because daily fantasy sports involves wagering on the collective performance of individuals participating in sporting events, it must adhere to regulations that govern sports pools in Nevada. According to A.G. Burnett, chairman of the Nevada Gaming Control Board, “Daily fantasy sports constitutes gambling under Nevada law,” and must be governed as such. Both companies have since ceased operations in Nevada as a result of this decision.

FanDuel said that the decision “stymies innovation and ignores the fact that fantasy sports is a skill-based entertainment product loved and played by millions of sports fans.” DraftKings called the move an “exclusionary approach against the increasingly popular fantasy sports industry”. The American Gaming Association, which represents casinos, praised the decision.

While the battle plays out on a larger scale, states are also fighting companies that have seemed to side-step standard gambling laws. Five states – Arizona, Iowa, Louisiana, Montana and Washington – have made the online practices illegal. Kansas, going against the rising tide of decisions being made against the online companies, legalized fantasy sports earlier this year.

Gambling industry supporters have recently begun pushing for more regulations in the fantasy sports industry, which until recently has been operating unmonitored. Companies that support fantasy sports gambling say they qualify for an exemption in the 2006 federal law that prohibited financial companies from transferring money to online gambling sites. In most cases, online gambling sites have been shut down. DraftKings and FanDuel, however, did not become popular until just recently.

New Yorl Attorney General Eric Schneiderman shut down fantasy football sites on Tuesday saying, “Our investigation has found that, unlike traditional fantasy sports, daily fantasy sports companies are engaged in illegal gambling under New York law, causing the same kinds of social and economic harms as other forms of illegal gambling, and misleading New York consumers. Daily fantasy sports is neither victimless nor harmless, and it is clear that DraftKings and FanDuel are the leaders of a massive, multi-billion-dollar scheme intended to evade the law and fleece sports fans across the country. Today we have sent a clear message: not in New York, and not on my watch.”

The question really comes down to whether or not DraftKings and FanDuel – which charge customers an entry fee to draft fantasy players sports teams to compete against other customers’ fantasy squads for a chance a large prizes – have violated federal laws in any way.

In a letter to DraftKings, Schneiderman argues “customers are clearly placing bets on events outside of their control or influence, specifically on the real-game performance of professional athletes. Further, each DraftKings wager represents a wager on a ‘contest of chance’ where winning or losing depends on numerous elements of chance to a ‘material degree.’”

Professional sports leagues are walking a fine line. The National Basketball Association said it expects fantasy sports companies to act within the law. The National Football League and the NFL players Association declined to comment. Officials from Major League Baseball deferred making a statement until they review the Attorney General’s order.

Since these disputes surfaced, both DraftKings and FanDuel have banned their employees from competing in daily fantasy contests on other sites. Is that enough to quiet the Gaming Commission? You tell us.

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