Thursday, November 12, 2015

FanDuel -Jerry Jones and Robert Kraft Headed to The Big House? (and we're not talking about Michigan)

What's It About? 

FanDuel and Draft Kings plan to continue business in New York, despite a warning from NY State AG Eric Schneiderman that wagers on fantasy sports are illegal gambling in NY.  FanDuel has responded to Schneiderman with a barrage of TV ads in which CEO Nigel Eccles argues that fantasy sports are a game of skill not chance and a veiled threat that Schneiderman, a politician with ambitions for higher office, is making a serious mistake tampering with the liberties of New Yorkers.

Who's right?  

Legally, Schneiderman. Gambling in NY includes betting on the outcome of a future contingent event not under the bettor's control or influence. Yes, it takes skill to select the right QB, RB, WR, Defense, etc. to assemble a winning fantasy entry.  It also takes skill to pick the right horses when you bet a trifecta at Saratoga. Both are still gambling, despite the element of skill, because the bettor does not influence the outcome, whether it's the statistical performance of the selected football players or the  order of finish of the race horses.

Ethically, both sides have some major issues, but on balance Schneiderman wins again.  Fantasy sports betting targets the  audience of young males who are most likely to become gambling addicts.  The free starter cash featured in the ads is the first taste.  The ads focus on big winners, but the amounts returned as winnings are a shockingly low percentage of the amounts wagered, well under half  the return a gambler might expect at a casino or racetrack.  In short, FanDuel and Draft Kings are making a fast fortune catering to addicted chumps; pretty seedy - despite the glitzy owners roster that includes Jones, Kraft, ESPN, Disney, Fox, Google and three major sports leagues.

NY's position on gambling is a model of hypocrisy.  The state operates a heavily advertised lottery that also offers a fairly low payout compared to revenues received (although still far better than Fantasy)  It supports legal gambling on horse racing at the track and via OTB. It already offers the Racino (horse racing plus slots and other gambling machines) at several locations and casino gambling is available at some native American sites, with full scale casino gambling on the way for several new sites. Still, the State directs some of its gambling revenues to worthy causes (including help for compulsive gamblers) and manages the payout ratio, while the Fantasy sports sites are simply pocketing a much higher percentage of the amounts wagered as profits, with no social benefit whatsoever.  So, even if NY's position is partially just protecting it's own monopoly, it is a less rapacious predator than the fantasy sites.

Politically, we'll see.  The chumps who bet on fantasy sports don't realize they are chumps and they will get mad if they lose their opportunity to lose their shirts, but they probably aren't in the highest voting demographic.  FanDuel and Draft Kings can and will spend a lot on ads and lobbying if they see any chance to preserve their business. Schneiderman is one year into  his second term without much name recognition and may be ready to take some risks to raise his profile in the hope of seeking higher office.

What's Next?

FanDuel and Draft Kings can operate with no direct presence in NY, but they need to collect from NY bettors.  Banks and others involved in the payment system will likely shut off payments rather than risk facing criminal charges for aiding and abetting.  Then we have a short term battle of temporary restraining orders and preliminary injections.   If the courts back Schneiderman in the short term battle, but Draft King and Fan Duel find a way to keep taking New Yorker's money, it could get exciting.   If the board members (who do have a NY presence and ties to some of those glitzy owners) are active in the business, Schneiderman might set off some real fireworks by going after them with criminal charges.