Abstract

On October 4, 2015, Ethan Haskell, an employee of DraftKings, the nation’s second-largest Daily Fantasy Sports (DFS) website, won $350,000 in prize money on FanDuel, the nation’s largest DFS website. At the time, the two companies attracted attention with their seemingly incessant national advertising campaigns that blanketed the internet, television and sports-talk radio, which promised exciting entertainment and prize money resulting from playing daily fantasy leagues without season-long commitment. Haskell’s win was newsworthy, because he had access to pertinent and non-public DraftKings information that could have been used for his gain on FanDuel. This potential insider-trading scandal gave New York an opportunity to first examine, and then try to shut down the two websites as illegal gambling operations. In defense, the DFS websites claim they are games of skill and remind their critics that fantasy sports have a specific exemption under the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006.

DFS’ position has not stopped New York from aggressively pursuing the companies in court and demanding that they return $200 million as restitution to the numerous users in New York who lost money in 2015. New York claims that every DFS player is a “victim,” because over 90% of prizes are won by just 1.3% of players. Despite seemingly noble intentions, New York’s Attorney General is using paternalistic arguments to help shut down both of the billion-dollar startup companies to increase the state’s power over the decisions of free-thinking New York residents. The main test in the court system to determine whether a game is either illegal gambling (chance) or a legal game (skill) is the predominant elements test (described more fully below). This test is arbitrary and subjective. Nevertheless, courts, regulators and legislators apply and use it inconsistently.

John Stuart Mill, the nineteenth-century English philosopher, would object to New York’s outright ban of DFS because of “public health” and “safety” concerns. Instead, he would argue, correctly, that adults who are fully capable of making their own decisions should be able to do what they choose with their time and money so long as they are not infringing on anyone else’s rights or liberties. Mill’s analysis and beliefs are the most compatible with that of a free society. Rather than allow government to control their decisions, citizens should be able to decide for themselves whether DFS, as an entertaining game, is worth their investment.

Similarly, New York should have the ability to warn its citizens of the low likelihood of winning money playing DFS, and, further, the state should be able to collect tax revenue on winnings in an attempt to discourage play. However, the state should not have the right to use an arbitrary and inconsistent test to make a decision for its citizenry on an issue that has little to do with “public health” or “safety.”

Keywords

Daily Fantasy Sports, DFS, Unlawful Internet Gambling Enforcement Act, Illegal gambling, Legal game, Public health, Paternalism, Insider trading, Scripts