The CEO of daily fantasy sports operator DraftKings admitted this spring that his company didn’t always comply with the federal law that DFS operators have claimed make their sites’ operations legal.
On Thursday, ESPN.com’s David Purdum reported on a conference call held this May with members of the Fantasy Sports Trade Association (FSTA) in which DraftKings CEOJason Robins (pictured) admitted that his site offers DFS contests that contradict the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA), which bans financial institutions from processing payments for most online gambling activity but contains an exemption for fantasy sports.
DraftKings differs from rival FanDuel in that DraftKings offers DFS contests on events like golf tournaments and NASCAR races. FanDuel CEO Nigel Eccleshas publicly stated his unease with sports that involve an individual’s performance in a single event, as the UIGEA’s exemption of fantasy sports is based on its reliance on “accumulated statistical results of the performance of individuals … in multiple real-world sporting or other events.”
According to minutes of the May 19 FSTA meeting, Robins “acknowledged that golf and NASCAR do not comply with the letter of the UIGEA.” However, Robins claimed that DFS didn’t exist when UIGEA was enacted, and had UIGEA been written today, events like golf and NASCAR would be exempted because “the presence of a large field, in his view, is similar to having multiple events.”
It’s perhaps worth noting that former Congressmen Jim Leach, one of the UIGEA’s principal architects, recently stated that if UIGEA were written today, DFS wouldn’t get any exemption. It’s also worth noting that DraftKings altered its website around this same period to remove references citing UIGEA as the reason why players could rest easy regarding DFS’ legality.
The minutes also quote Robins noting that UIGEA defers to state gambling laws, and thus “the only relevant question” was whether DraftKings was violating any state laws. Robins said there was no need to “operate consistently with UIGEA” given his belief that DraftKings has done “extensive testing” that proved golf and NASCAR DFS contests were skill games and thus legal under state law.
The minutes go on to say that DraftKings’ golf and NASCAR games were determined to be non-compliant with UIGEA and thus the company was in breach of the FSTA Paid Operator Charter. Robins is quoted as saying DraftKings would propose amending the charter to eliminate members’ responsibility to comply with UIGEA.
DraftKings told ESPN that the “purported FSTA board minutes are not a verbatim transcript,” merely an “interpretation … by one non-lawyer reflecting what another non-lawyer said about a complex law.”
In October, the Wall Street Journal reported that the US Attorney’s office in Tampa, Florida had subpoenaed the minutes of the FSTA board’s meetings. The same US Attorney has reportedly convened a grand jury to investigate the legality of DFS.
While Robins’ assertions re UIGEA compliance aren’t the smoking gun federal prosecutors might need to drop indictments, it does show that Robins was quite happy to publicly cite UIGEA when doing so helped his cause, while privately dismissing its importance when it was less helpful. On Friday, DraftKings filed legal papers asserting that it “operates with careful attention to UIGEA, to its exception for qualifying fantasy sports activities, and to the laws of the various states.”
DFS operators are currently in a life or death struggle with New York Attorney General Eric Schneiderman, who last week accused DraftKings and FanDuel of being illegal gambling operators and ordered them to cease & desist their dealings with New York customers. A court hearing is set for Nov. 25 to determine whether to give Schneider the authority he needs to enforce his order.