Report says DOJ to declare DFS gambling; DraftKings lawyers up, cuts NBA spending

doj-daily-fantasy-sportsThe US Department of Justice is planning to declare daily fantasy sports to be a gambling activity, according to media reports.

Late Thursday, the New York Post quoted a Washington, DC source saying that the DOJ, which reportedly launched an investigation of the DFS industry last month, would “move to declare daily fantasy site activity gambling.” The source claimed the DOJ was “expected to take some action” on the DFS issue before year’s end.

Preet Bharara, the US Attorney for the Southern District of New York who led the 2011 Black Friday online poker indictments, was said to have opened an investigation into the DFS industry last month.

The Post report came shortly after DFS operator DraftKings announced it had hired high-priced attorneys David Boies and Johnathan Schiller, who founded the firm of Boies, Schiller & Flexner, to fight the cease & desist order issued to DraftKings and rival FanDuel this week by New York Attorney General Eric Schneiderman, who formally accused the companies of being illegal gambling operators.

Meanwhile, DraftKings has reportedly asked its National Basketball Association team partners to allow it to scale back its promised financial commitments.

On Thursday, Bloomberg Business reported that DraftKings had asked an undisclosed number of its of eight NBA partners to defer 10% of the money it’s obligated to pay under the marketing deals the company signed over the past year or so.

In addition to reducing its exposure on arena scoreboards, DraftKings has reportedly asked its NBA partners to reduce the number of times its arena signs and banners make it onto televised broadcasts of NBA games. DraftKings declined to comment on Bloomberg’s report, saying only that it had “good relations and are in good standing with all our partner teams.”

Assuming the reports are true, DraftKings’ strategy appears twofold. First, the company may have belatedly realized that there is actually such a thing as bad publicity.

Second, DraftKings may be attempting to preserve its cash reserves. While the expected savings from its NBA pullback are likely modest, payment processors are threatening to stop handling transactions between DraftKings and its hundreds of thousands of New York players, meaning the company could be facing some lean times. The company had planned to raise additional venture capital funds but the Post claimed this effort was put on hold after Schneiderman struck.

DraftKing’s New York woes could force a pair of NFL team owners to sell their investment stakes in the company. The Post also quoted a source saying that the NFL was “reviewing the entire fantasy sports situation.” The source said the negative publicity surrounding DFS was “becoming a priority that is being discussed at the highest levels.”

Dallas Cowboys owner Jerry Jones and New England Patriots owner Robert Kraft each have an ownership stake in DraftKings and their stakes could come under scrutiny at the next NFL owners’ meeting on Dec. 2.

The NFL prohibits its owners and players from participating in or facilitating gambling, as evidenced by the NFL preventing Cowboys QB Tony Romo from attending the inaugural National Football Fantasy Convention in Las Vegas this summer.

The NFL has always attempted to walk the razor’s edge when it comes to sports betting. While the league’s popularity is largely driven by betting, it hypocritically continues to fight efforts by states like New Jersey to expand legal sports betting’s footprint and remains the only major North American pro sports league yet to sign a marketing partnership with a DFS operator.

The NFL’s anti-betting jones was on full display on Thursday, as a press release was issued trumpeting the launch of ringit! Pro, a new in-play NFL social betting app. The app is a co-venture of mobile gaming technology firm iPro and the US division of sports data provider Sportradar, which recently received the blessing of NBA team owners Mark Cuban, Ted Leonsis and Michael Jordan, who took a $45m stake in Sportradar.

iPro stressed that the app was currently limited to wagering with virtual money. However, it made its longer term ambitions clear by stating that the app would eventually feature “both fantasy play and full sports betting for cash (in territories where authorized).”

Several hours later, that quote was scrubbed from the press release after the NFL raised holy hell. The NFL, which struck an exclusive data deal with Sportradar US in April, told ESPN’s Outside the Lines program that iPro’s announcement “was done without our knowledge or consent.” The NFL said it would be speaking to Sportradar because real-money betting ‘is not permitted in our agreement.”

Sportradar US subsequently issued a revised statement that said it would only be providing NFL data for a “social game where no money exchanges hands.” iPro marketing boss Tom Goedde maintains that the company still intends to offer a real-money version of ringit! Pro in betting-friendly markets but hedged on which provider would be providing NFL data.