Lawyer: Immediate future of daily fantasy sports in question

Robert Kraft is one of the investors in FanDuel.

Daily fantasy sports has become a hot topic in the news this week.

On Tuesday, New York Attorney General Eric Schneiderman declared that daily fantasy sports constitute illegal gambling in his state, and he sent operators DraftKings and FanDuel cease-and-desist notices.

“Daily fantasy sports is neither victimless nor harmless, and it is clear that DraftKings and FanDuel are the leaders of a massive, multibillion-dollar scheme intended to evade the law and fleece sports fans across the country,” Schneiderman said in a statement.

Daniel Wallach, a sports litigator and attorney at Becker & Poliakoff, appeared on Dean Blundell & Co. Wednesday morning to provide further context into the latest on the situation and what has become a billion-dollar industry.

Here are four things we learned from Wallach’s interview on Sportsnet 590 The Fan:

Why were the sites ordered to shut down in New York? The district attorney determined that operations of websites such as FanDuel and DraftKings constituted illegal gambling.

“Most people believed this was gambling but the question is whether or not it’s legal,” Wallach said. “[Tuesday] was the first time [they] have been accused of a formal criminal violation and this could set the stage for an indictment under federal law and jeopardize the viability of both companies.”

Which leagues are involved? Almost all of the major sports leagues in North America are involved in daily fantasy in some capacity. The NBA has a small equity stake in FanDuel while MLB and NHL have equity positions in DraftKings.

The NFL, however, is in a bit of a different position.

“Two of the NFL’s team owners — [Dallas Cowboys owner] Jerry Jones and [New England Patriots owner] Robert Kraft — own small stakes in FanDuel,” Wallach explained. “And all of them have invested in what may be considered an illegal gambling business and that opens up all these entities up for the possibility for criminal prosecution under federal law. As unlikely as that is, they’re not the targets. The targets are the operators.

“The leagues saw the money and it’s all about revenue streams and I don’t believe they did their due diligence on state law and if they did their due diligence New York was always low-hanging fruit in terms of violation of the state’s gaming laws.”

What could happen next? Wallach believes if that an indictment comes against Fan Duel or Draft Kings, their viability going forward is a significant concern.

“They could be shut down if they are convicted of violating the federal law,” said Wallach. “Mind you, no charges have been brought yet. It could be curtains for these companies. It doesn’t mean the industry will go away or these companies are dead for sure but it does place their immediate viability in question.”

Who else has taken action against FanDuel and DraftKings? Wallach said there’s been over 28 class action lawsuits filed by people who have played daily fantasy because they felt duped by insiders who had an edge on the competition.

“This is illegal gambling and we’re [daily fantasy players] entitled to our money back,” he explained. “It’s a hard argument to make but the attorney general gave a strong boost to these class action claims. There may not be any assets [on the websites] left by the time the federal government gets through.”

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