Attorney General Eric Schneiderman issued a cease-and-desist order to the two biggest daily online fantasy sports companies, saying their businesses amount to illegal gambling under New York state law.

Fanduel and DraftKings came under scrutiny last month when it was discovered that employees for the online fantasy giants may have used inside information to gain lucrative payouts.

Both sites banned employees from wagering on rival websites, but it gave Schneiderman an opportunity to investigate further.

Via the New York Times:

The New York State attorney general on Tuesday ordered the two biggest daily fantasy sports companies, DraftKings and FanDuel, to stop accepting bets from New York residents, saying their games constituted illegal gambling under state law.

The cease-and-desist order by the attorney general, Eric T. Schneiderman, is a major blow to a multibillion-dollar industry that introduced sports betting to legions of young sports fans and has formed partnerships with many of the nation’s professional sports teams. Given the New York attorney general’s historic role as a consumer-protection advocate, legal experts said the action would most likely reverberate in other states where legislators and investigators are increasingly questioning whether the industry should operate unfettered by regulations that govern legalized gambling.

“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,” Mr. Schneiderman said, adding, “Today we have sent a clear message: not in New York, and not on my watch.”

Schneiderman contends that traditional fantasy leagues remain legal, but that daily leagues amount to illegal gambling because chance plays more of a role.

“We believe there is a critical distinction between DFS and traditional fantasy sports, which, since their rise to popularity in the 1980s, have been enjoyed and legally played by millions of New York residents,” Schneiderman wrote.

“Typically, participants in traditional fantasy sports conduct a competitive draft, compete over the course of a long season, and repeatedly adjust their teams. They play for bragging rights or side wagers, and the Internet sites that host traditional fantasy sports receive most of their revenue from administrative fees and advertising, rather than
profiting principally from gambling. For those reasons among others, the legality of traditional fantasy sports has never been seriously questioned in New York.”

First, the length of time one conducts transactions to win a fantasy league is arbitrary at best.  Within each ‘Daily League’ – many of which span a few days – participants also conduct a competitive draft, and adjust their teams according to matchup or injury information.  So would a half-season league be legal? A two week league? Where is the cutoff?

Second, when you play fantasy football in your office pool is it for bragging rights?  Seriously?  If its is, you’re doing it wrong.

Fanduel issued a blistering statement to the Attorney General:

“This is a politician telling hundreds of thousands of New Yorkers they are not allowed to play a game they love and share with friends, family, co-workers and players across the country,” it said. “The game has been played — legally — in New York for years and years, but after the attorney general realized he could now get himself some press coverage, he decided a game that has been around for a long, long time is suddenly now not legal.”

A report from Forbes magazine in 2012 indicates that federal law allows for online wagering in fantasy sports.  Why? Because choosing players based on their on-field abilities amounts to a skill, not a game of chance.

Chris Smith at Forbes writes:

We should start by clarifying that it is currently legal to bet on fantasy sports. The Unlawful Internet Gambling and Enforcement Act of 2006 (UIGEA), which establishes the legal guidelines for online gambling, carves out a safe haven for any fantasy or simulation sports game that:

“has an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance), and, in the case of a fantasy or simulation sports game, has an outcome that is determined predominantly by accumulated statistical results of sporting events…”

In other words, fantasy sports are considered games of skill – not chance – if they can be won by successfully utilizing superior knowledge of the players involved.

The report goes on to indicate that their is legal precedence indicating fantasy sports are indeed a game of skill versus chance.