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Biggest issues for daily fantasy after New York rulings

Hours after New York Supreme Court Justice Manuel J. Mendez granted Attorney General Eric Schneiderman's request for a preliminary injunction in a dense 12-page ruling released Friday morning, a state appeals court stopped it, according to multiple reports. The decision by the appeals court -- called a "stay" -- effectively overrules Mendez on a temporary basis. Mendez's ruling had prevented daily fantasy sports (DFS) operators from "accepting entry fees, wagers or bets from New York consumers."

Now, given the stay, DFS in New York seemingly is returned to the status quo as of immediately before Mendez's ruling. DraftKings was offering its contests to New York residents before Friday; FanDuel was not.

Although Friday's decision by the New York appellate court represents a short-term resolution in New York -- more legal proceedings are to come -- there are a number of other moving parts in the daily fantasy sports legal realm.

Chalk examines seven of the biggest issues in the dynamic DFS world below.

Are other states investigating too?

Like New York, a number of other states are investigating the legality of DFS under state law. Most notably, Nevada labeled DFS as a gambling activity requiring a state-issued license. "Offering DFS in Nevada is illegal without the appropriate license," Nevada's top gaming regulator, A.G. Burnett, wrote in an October memo.

Both DraftKings and FanDuel, as well as a host of smaller operators, ceased doing business with Nevada residents after the state's decision. Other investigations are ongoing, including probes in South Dakota, Washington state and Tennessee. There is pending legislation to explicitly legalize DFS through regulation in Pennsylvania, Illinois, Florida and New York, among others.


What are the prospects for more federal probes?

A few members of Congress, including Sens. Harry Reid and John McCain, have expressed interest in holding hearings about DFS and traditional sports gambling, but nothing has been scheduled.

"The legal ambiguity, lack of oversight and systematic hypocrisy make this issue ripe for Congressional review," wrote U.S. Rep. Frank Pallone of New Jersey in an Oct. 12 letter to the editor in The New York Times.

Multiple reports indicate that Justice Department probes in New York City, Boston, and Tampa, Florida, are ongoing, but details are scant.

"We'll decline to speculate on the legality of specific online sites," said Department of Justice spokesman Peter Carr in a statement to Chalk last month.

Beyond Congress and the DOJ, Sens. Richard Blumenthal of Connecticut and Robert Menendez of New Jersey asked the Federal Trade Commission to investigate DFS on consumer protection grounds in October. In addition, the Treasury Department has shown an increased interest in sports wagering.

"It has come to the attention of the Financial Crimes Enforcement Network ('FinCEN') and its law enforcement and regulatory colleagues that increases in sports betting conducted on behalf of third parties are facilitating criminal activity," wrote FinCEN Associate Director Jamal El-Hindi in a Dec. 24, 2014, letter obtained by Chalk.

Neither the FTC nor the Treasury Department has announced any DFS-specific inquiry.


What impact will all the class-action lawsuits have?

Since early October, dozens of private class-action lawsuits have targeted DFS operators. Two lawsuits -- one in New York and one in Florida -- also named individual company executives, successful fantasy players, investor media companies, payment processors and certain equity-holding sports leagues, such as the NBA and MLB, as additional defendants. All the lawsuits are at very preliminary stages and have yet to result in any meaningful decisions by a judge or jury. Although attention-grabbing, many of the cases are duplicative and have yet to be served upon individual defendants.

Some of the lawsuits likely will be consolidated into a single proceeding, especially the ones that overlap considerably. FanDuel and DraftKings probably will argue that many of the lawsuits are barred because of the presence of mandatory arbitration clauses in the DFS operators' terms and conditions.

The claims made by the plaintiffs in the cases are varied. Some of the allegations pertain to false advertising, recovery of wagering losses, civil conspiracy, negligence, fraud, unjust enrichment, misuse of inside information and illegal gambling under various laws.

One of the most notable class-action suits was filed by NFL player Pierre Garcon against FanDuel.

"FanDuel has exploited Plaintiff's name and likeness without his consent to promote its daily fantasy football gaming product," wrote Garcon's lawyers in an Oct. 30 legal complaint.


Is there anything in the New Jersey sports betting lawsuit relevant to DFS?

Although the New Jersey case has been centered on Gov. Chris Christie's attempt to allow Nevada-style sports betting in the Garden State -- a move opposed by the NCAA, NFL, NBA, NHL and MLB -- a federal appellate court did touch on fantasy games in a 2013 footnote.

"We note, however, the legal difference between paying fees to participate in fantasy leagues and single-game wagering as contemplated by [New Jersey's] Wagering Law," wrote the U.S. Court of Appeals for the 3rd Circuit. Throughout the case, Christie and his co-defendants have argued that the five sports organizations exhibit "unclean hands" on the DFS issue.

A full hearing in the ongoing New Jersey litigation is scheduled for Feb. 17, 2016.


Has any prior case ruled on the legality of fantasy sports?

In 2007, a federal judge in New Jersey issued a decision that will be much-discussed in the coming months and has already been debated before Mendez in the New York case. In Humphrey v. Viacom, the judge made a number of statements supporting the legality of certain forms of fantasy sports.

"As a matter of law, the entry fees for Defendants' fantasy sports leagues are not 'bets' or 'wagers,' because (1) the entry fees are paid unconditionally; (2) the prizes offered to fantasy sports contestants are for amounts certain and are guaranteed to be awarded; and (3) Defendants do not compete for prizes," wrote Judge Dennis M. Cavanaugh on June 20, 2007. "Defendants are neutral parties in the fantasy sports games -- they do not compete for prizes and are indifferent as to who wins the prizes."


What role do the sports leagues have in all of this?

Certain sports leagues -- the NBA, NHL, MLB and Major League Soccer included -- own equity stakes in daily fantasy companies. Recently unsealed deposition transcripts from the New Jersey litigation reveal league executives consistently differentiating fantasy games from traditional sports gambling on both legal and integrity grounds.

"Fantasy sports are not illegal," said MLB executive Thomas Ostertag in a Nov. 6, 2012, deposition. "There's no threat to our sport from fantasy games, none whatsoever."

NHL commissioner Gary Bettman and NFL commissioner Roger Goodell articulated similar positions in separate 2012 depositions.

"[F]antasy sports is a game; it's not like betting or gambling," Bettman said.

"We don't look at fantasy sports as gambling," Goodell said.

NBA executive Richard W. Buchanan described the legal nature of fantasy sports in context.

"Fantasy is a legal activity, it grew up in a -- you know, as a social way of connecting fans who were interested in a deeper connection to sports," said Buchanan on Nov. 15, 2012. "It's something that's relatively small. It's not a big part of what we do."

The positions articulated in the now-unsealed 2012 depositions are consistent among sports leagues today.

"There is no evidence that the growth in fantasy's popularity, or the evolution of its format to include daily and weekly games, has threatened the integrity of sports or led to other social ills," wrote NBA executive Michael Bass in an Oct. 11, 2015, New York Times letter to the editor.

In comments at a New York conference on Thursday, former NBA commissioner David Stern agreed.

"The current issues around [DFS] are ridiculous," said Stern, as first reported by USA Today. "It's clearly a game of skill."


Does any of this play a role in Pete Rose's application for reinstatement?

Baseball commissioner Rob Manfred has promised to rule on Rose's reinstatement request by the end of the year. In an unexpected twist, DraftKings attorney David Boies filed court papers in the New York case that touched on Rose's situation.

"Pete Rose is alleged to have 'gambled' by betting on his own team to win, although such a wager would clearly not be gambling under New York law," Boies wrote in a Nov. 23 legal filing.

Major League Baseball is an equity owner of DraftKings, but there is no evidence that Boies' position regarding Rose represents the official position of MLB or of Manfred. Likewise, there are no reports of Rose's amending his application for reinstatement after Boies' novel legal argument.