DOJ Probe into DFS Continues, NFL Owners Mull Distancing

The deepening legal trouble for the US-centric daily fantasy sports (DFS) industry continued on Thursday with news that a couple of prominent National Football League team owners are rethinking their investment in the DFS industry as a Department of Justice probe into whether DFS officially constitutes “gambling” continues.

Seal of New YorkLate yesterday, the New York Post reported that a previously announced probe by the Department of Justice’s notoriously anti-gambling Southern District of New York US Attorney’s office is continuing.  According to the usual unidentified “inside source,” an opinion is expected before the end of the year, and when it comes, it won’t be good for DFS.  “The Department of Justice will move to declare daily fantasy site activity gambling,” the source reportedly told the post.

The SDNY office, headed by Preet Bharara, is already notorious in online-gambling circles for its prominent role in the “Black Friday” online-poker in 2011.  In the ongoing DFS matter, the upcoming legal battle already seems clear, particularly in the wake of a ruling earlier this week by New York State Attorney General Eric T. Schneiderman that the DFS offerings by DFS market leaders DraftKings and FanDuel appear to be illegal under New York law.

Schneiderman sent a cease-and-desist order to the two companies, who have vowed to fight to keep DFS available to its New York-based players.

One immediate consequence of the twin New York legal happenings is that major US-based pro sports franchises are being forced to reevaluate their relationships with DFS.  Most of the sports leagues themselves have an arm’s-length stance regarding DFS, but many teams across most major US pro sports have partnered up with DraftKings, FanDuel and other DFS sites in major ad deals.  At least two NFL franchise owners, Jerry Jones of the Dallas Cowboys and Robert Kraft of the New England Patriots, have acquired ownership stakes in DFS as well, but will have to divest those stakes under the NFL’s anti-gambling rules if the NY-based legal strikes against the DFS industry are upheld in court.

Meanwhile, DraftKings and FanDuel are digging in for a legal fight, one that likely represents the industry’s very survival.  DraftKings has just announced that it has retained the high-powered law firm Boies Schiller & Flexner LLP to its growing roster of legal counsel.  According to a DraftKings spokesman:

“DraftKings has added David Boies and Jonathan Schiller, who founded the law firm of Boies Schiller & Flexner LLP, a nationally recognized litigation firm, to its legal team. Together, David and Jonathan have represented the NFL in an antitrust dispute brought by the NFL Players Association, as well as the NBA players in a dispute over the negotiation of their collective bargaining agreement. Since founding BSF LLP, they have successfully represented sports franchises, regional sports networks, and major television networks in regulatory and litigation matters.

“Mr. Boies, Mr. Schiller and their team look forward to representing DraftKings, and joining their top flight legal team, which will work with the regulatory agencies, including the New York Attorney General, to resolve this dispute. A swift resolution would protect the rights of consumers and allow DraftKings players to continue to play the fantasy sports games so many people love.”

DraftKings and FanDuel, now forced to partner up in a legal sense, are trying to start up a consumer-oriented response as well.  As many as 300 people attended an impromptu rally held this morning in front of New York Attorney General Schneiderman’s office, waving posters and shouting pro-DFS chants.  Many of the protest signs carried the Twitter hashtag “#FantasyForAll”, which the sites will likely use as an online rallying flag.

However, various media reports on today’s rally indicated that the large majority of the protesters in attendance were actually employees of the two sites, many of whom were in town attending an ongoing fantasy-sports convention.  Few of the protesters were willing to identify themselves or speak on the record to media who also covered the event.

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