As daily fantasy sports (DFS) have continued to grow, many are questioning whether or not they should be considered gambling. DFS currently enjoy a special type of freedom that is very unusual for an industry where so much money is changing hands. This is mainly due to a loophole in the RAWA act made especially for sports leagues. At the time of writing DFS companies did not even exist, but now that companies such as FanDuel and DraftKings are on the rise countless attorneys are questioning whether this should be the case.
Now Preet Bharara, the U.S. Attorney known in the gaming industry for the Black Friday indictments, has launched an investigation into daily fantasy sports. Preet Bharara is the US Attorney for the Southern District of New York and has been known to seize domains and freeze customer assets. He also has a nearly perfect record in obtaining convictions for high profile cases. After he successfully unseated and 11 executives from the three leading online poker sites on Friday, April 15, Bharara has become known as a man who is excellent at uncovering the truth.
The main reason that he is conducting this probe of daily fantasy sports companies began because of the Ethan Haskell controversy. When a DraftKings employee took a second-place prize of $350,000 in a FanDuel contest, people began to question whether he may have had inside information. Although both companies deny this claim, it seems to have begun an insider trading scandal that is getting both companies looked into by various attorneys.
Unfortunately since this probe is coming out of New York State, the investigation could cause the state to follow suit with Nevada and ban DFS sites from accepting real money in their state. This means that unless DFS companies apply for a license as a gambling company, they will be unable to operate in New York State. Since the NFL and NBA offices are both located in New York, an action such as this could cause a major strain in the partnerships that both FanDuel and DraftKings have formed in the past year.
This would be an issue for DFS companies because right now they must insist that they are not gambling but are instead a game of skill that happens to have money involved. If any daily fantasy sports site does apply for a gambling permit, they would effectively be admitting that they are indeed a gambling company. This would mean that they would not be exempt from the RAWA act that gives them permission to operate outside of the current online gambling rules.
For now daily fantasy sports companies such as FanDuel and DraftKings will have to wait and see what happens, hoping that nothing out of the ordinary is uncovered during Bharara’s investigations. According to gaming attorney Daniel Wallach, “Bharara is the biggest threat to the [DFS] industry to date.”