Who’s Going To Gamble on Fantasy Sports?

November 16, 2015 at 9:07 am 1 comment

Quick cultural point. I like Adele but I think she could sing this blog and turn it into a hit. But alas, I digress.

What’s gotten my attention this morning is the brewing battle between New York’s AG, Eric Schneiderman and fantasy sports Internet providers FanDuel and DraftKings. While it may not directly impact your credit unions, I wouldn’t be surprised if you find out precisely how many gambling members you have if all the sudden their ability to access these fantasy providers with their credit cards is blocked.

You might remember that the issue of gambling over the Internet was dealt with on the federal level when Congress passed the Unlawful Internet Gambling Enforcement Act of 2006 (31 USCA Sec. 5301). The statute banned using the Internet to make a bet or wager, but it stipulated that betting does not include participation in any fantasy or simulated sports games. (31 USCA Sec. 5362).

I am sure it’s just a coincidence that two of the highest profile owners in the NFL, Jerry Jones of the Cowboys and Robert Kraft of the New England Patriots, reportedly have invested in fantasy sports companies.

So why do the Attorney Generals of Nevada and New York feel they have the right to block these companies from operating? Because the statute also stipulated that its purpose was not to preempt “any state law prohibiting gambling.” As a result, the Attorney General’s argument centers on his interpretation that fantasy sports are games of chance prohibited under both the state constitution and state law.

Here’s where it gets a little closer to home for your credit union. Actually coming up with a system for enforcing the Internet better bans was left to the regulators. When the pertinent regulations were eventually finalized, they largely left credit unions and banks off the hook provided they have policies and procedures in place for determining if any if their business accounts are involved with gambling. The entities that really have to make a tough call this morning are the credit card networks and third party processors. They are responsible for coding illegal gambling transactions. If they agree with the AG then a member using a credit card to access a fantasy site should be blocked, if they don’t then they should continue processing the transactions as if nothing has changed. FanDuel has suspended New York Business but I don’t believe DraftKings has followed suit

Put this in context. DraftKings and FanDuel are each valued at more than $1 billion. According to Bloomberg business, New York accounts for over 5% of FanDuel’s customers and over 7% of DraftKings. Losing New York would cost then at least $35 million and more importantly put their entire business model at risk.

Entry filed under: Compliance, Legal Watch, New York State, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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