Fantasy Aces’ bankruptcy cases prompted the New York Gaming Commission to inquire about other DFS operators’ financial practices.
The New York Gaming Commission sent a letter to daily fantasy sports operators calling for them to submit proof that they segregate player funds from operational fund. Though the NYGC did not name the operators it contacted, the gaming media suggests that all DFS sites with a temporary license in New York received a letter.
The request comes on the heels of the Fantasy Aces scandal in the DFS industry. Fantasy Aces filed for bankruptcy last week and court documents show that the daily fantasy sports company owes players more than $1.3 million.
Fantasy Aces Lost New York Gaming License
At the time of the revelation, the company had a temporary license in the New York gaming market. Since its financial malfeasance became known, the Gaming Council withdrew Fantasy Aces’ temporary permit.
Gaming operators in most jurisdictions are require to segregate player funds from operating funds. The idea is to assure that the gaming site could pay out all players, if a request was made by them. Companies are supposed to maintain such standards to be considered legitimate, and thus worthy of licensing and regulation.
Protecting Authorized Players’ Funds
New York gaming laws stipulate the all permitted interactive fantasy sports operators should be able to cover player funds. Under Section 1401(1)(l) of the Racing, Pari-Mutuel Wagering and Breeding Law Section of New York’s gaming law, it says that interactive fantasy sports sites must “ensure authorized players’ funds are protected upon deposit and segregated from the operating funds of such operator or registrant and otherwise protected from corporate insolvency, financial risk, or criminal or civil actions against such operator or registrant.”
Legal Sports Report and Yogonet published a portion of a letter sent by the Gaming Commission to operators. In the published letter, the NY Gaming Commision wrote, “The Gaming Commission requests documentation that clearly illustrates the legal mechanism and internal controls associated with such a segregated account by which player funds are protected from ‘corporate insolvency, financial risk, or criminal or civil actions against such operator or registrant’“.
FullTilt Poker’s Lack of Player Funds
It is the same issue which plagued FullTilt Poker and Absolute Poker after the 2011 Black Friday scandal. The management of FullTilt Poker was supposed to keep enough funds in its account to cover their poker players’ accounts, but did not. A lack of transparency allowed FTP to hide their lack of readiness for years, while their lack of professionalism became a huge scandal after indictments were handed down and domains were seized.
At the time, one US prosecutor accused FullTilt Poker of being a “Ponzi scheme”. Eventually, PokerStars bought out FullTilt Poker and paid the bankrupt company’s bills to its player community. Absolute Poker never did pay its customers, who in many cases were stiffed considerable amounts of money.
Daily Fantasy Sports in New York
The relationship between the daily fantasy sports industry and New York’s state government have long been tension-filled. In November 2015, New York Attorney General Eric Schneiderman sent a cease-and-desist letter to the two biggest DFS sites, Boston-based DraftKings and Manhattan/Scotland-based FanDuel. Each company separately sued to keep their operations running in New York.
The New York Supreme Court rejected the DFS companies’ request to overrule Schneiderman, but did give them a temporary stay to keep operating until a court decision happened. This led to an escalating set of legal maneuveurs in which Schneiderman eventually sought over $5 billion in damages from the two companies — a move which threatened both with bankruptcy. The two sides came to an agreement that they would allow a September 2016 court battle decide the outcome, unless the New York State Legislature passed a DFS bill before the case began.
In August 2016, the legislature did exactly that. Now, Eric Schneiderman is required by law to protect DraftKings, FanDuel, and other licensed DFS sites — even arguing they are not gambling operations. For their part, DraftKings and FanDuel agreed to a merger in November 2016, due to mounting legal and lobbying costs and a significant loss of their customer base, due to bans in several U.S. states.
The actions of Fantasy Aces is certainly not going to impress New York lawmakers and regulators. Certainly, it might remind them of FullTilt Poker and Absolute Poker. DraftKings and FanDuel have major corporate sponsors and investors, so one can assume they segregate funds properly.
