Black Friday prosecutor Preet Bharara investigating daily fantasy sports

preet-bharara-investigating-daily-fantasy-sportsPreet Bharara, the US Attorney behind the Black Friday online poker indictments, has opened an investigation into the daily fantasy sports (DFS) industry.

Late Tuesday, the Wall Street Journal reported that Bharara, the US Attorney for the Southern District of New York (SDNY), was investigating whether DFS operators like DraftKings and FanDuel were acting in violation of federal law. The news comes one week after word spread that the US Department of Justice had turned its sights on the DFS industry.

The SDNY investigation is said to be at an early stage and senior DOJ lawyers in Washington are reportedly on the fence as to whether DFS violates federal gambling law. But a violation of New York law would be enough to invoke the federal Illegal Gambling Business Act, the same strategy that a US Attorney in Florida is reportedly employing in a separate investigation.

Attorney Daniel Wallach (@WALLACHLEGAL) pointed out the specific portion of New York’s Penal Law 225.00 on which an IGBA violation might hinge. The law prohibits profiting from “any contest, game [or] gaming scheme … in which the outcome depends in a material degree upon an element of chance, notwithstanding the skill of the contestants may also be a factor therein.”

Bharara’s involvement should send a shiver down the spines of DFS execs. Throughout the weeks-long controversy that has plagued the DFS industry, company execs have stuck by their story that DFS isn’t illegal gambling because it’s a skill game; the same argument voiced by the online poker companies Bharara indicted on Black Friday. (On the plus side, DFS operators won’t be facing charges of bank fraud.)

Whether or not subpoenas are already in the mail, Bharara’s entry into this narrative will only serve to ratchet up mainstream media coverage and political pressure to impose regulatory order on the DFS sector. If there’s a pharmacy in Boston that hasn’t yet run out of Xanax, its supplies should be exhausted by mid-Wednesday.

Prior to news of Bharara’s involvement, Lawrence Walters, an online gaming consultant in Florida, told the Washington Post that if an “aggressive” federal prosecutor felt he had a strong criminal case to make, the player funds in DFS accounts could wind up being frozen for a long time, much as they were after Black Friday (a scenario this site had previously suggested might occur).

FanDuel spokesperson Justine Sacco rejected the notion that such a scenario was likely, but attorney Jeff Ifrah wasn’t so sure, saying “most prosecutors don’t become prosecutors because they like to just slap people on the wrist.”

In addition to the criminal investigations, there are numerous Washington politicians pressing for hearings into the DFS industry and DraftKings has tapped some high-powered help to relieve some of the pressure. On Tuesday, Politico reported that DraftKings had hired Morgan Lewis lobbyists Gary Slaiman, Matt Miner and Gary Gallant. Closer to home, the Boston-based DraftKings has hired former Massachusetts attorney general Martha Coakley as a consultant.

Meanwhile, the National Collegiate Athletics Administration (NCAA) has asked DFS operators to check whether its referees played real-money fantasy contests on DFS sites. On Tuesday, the New York Times reported that NCAA had sent a letter to both DraftKings and FanDuel, cancelling a scheduled meeting with the DFS sector’s two largest operators in light of the growing number of state and federal investigations.

The NCAA had already said that it wouldn’t allow DFS advertising in connection with NCAA championships and had asked both sites to stop offering DFS contests on NCAA events. Tuesday’s letter said the NCAA believed the DFS operators’ product “should not be offered in the college space for a variety of reasons, and we do not believe a further meeting with your organizations will change that view.”

The NCAA, which has already prohibited its players from playing real-money fantasy sports, has now extended that ban to its referees and other game officials. The Times said the NCAA had provided DraftKings and FanDuel with a list of NCAA officials’ names, and that the sites had agreed to confirm whether any of the names had entered any DFS contests.