New York sues DraftKings, FanDuel for Player Losses

New York Attorney General Eric Schneiderman has asked DraftKings and FanDuel to return all the money that their residents lost on the two sites in 2015. Schneiderman’s lawsuit further requests that DraftKings/FanDuel pay a fine of up to $5,000 for every player who lost.

Last year, the daily fantasy sports (DFS) sites collected $200 million in entry fees from approximately 600,000 New Yorkers. Under Schneiderman’s request, a significant portion of this money would be returned to players as per the lawsuit.

David Boies, an attorney for DraftKings, calls the lawsuit “baseless” and believes that it “reveals that the attorney general’s office still does not understand fantasy sports.”

Schneiderman has been battling DraftKings and FanDuel in court, stating that both companies are operating illegally in New York. The attorney general earned a temporary victory on Dec. 11, when FanDuel and DraftKings were ordered to quit operating in the state. However, this injunction was overturned until the case can be decided later this month.

The latest lawsuit filed by Schneiderman claims that the DFS industry uses deceptive bonus practices to lure players in. Specifically, they promise hundreds of dollars in deposit bonuses, but only after players have wagered thousands of dollars on the sites (AP reports that Las Vegas casinos legally do this).

He also accuses the sites of misrepresenting players’ chances of winning, citing data from 2013 and 2014 that shows only 11.7 percent of DraftKings made a profit.

2015 has been the most-controversial year for the DFS industry, beginning with Nevada banning these unlicensed gaming sites. DraftKings and FanDuel have complied with Nevada’s demands because the Silver State features a state-regulated online gaming industry.

However, the matter is much less clear in New York, which doesn’t currently regulate internet gaming. DraftKings and FanDuel are also challenging an order from Illinois Attorney General Lisa Madigan, who wants both companies out of her state.

One argument that the DFS industry continually uses is that they’re a skill-based game, meaning the activity is not pure gambling. That said, skilled players can win profits by studying games and outperforming opponents. However, certain states are arguing that there’s enough gambling involved in DFS that it should not be legal without regulation.

New York and Illinois are among the states that have expressed interest in regulating DFS so they can reap the tax benefits. So it’s likely that they’re waging legal battles with DraftKings and FanDuel to clear the way for their own markets.