Attorney General Orders FanDuel, DraftKings, Out of New York

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A shot of chairs draped with Draft Kings covers prior to a game between the Los Angeles Lakers and Sacramento Kings on Oct. 30, 2015. (Photo by Rocky Widner/NBAE via Getty Images)

November 10, 2015

The attorney general of New York issued a cease-and-desist order on Tuesday to the nation’s two largest daily fantasy sports companies, saying that the betting that takes place on their sites represents a violation of the state’s online gambling laws.

In a letter issued to both sites, DraftKings and FanDuel, Attorney General Eric Schneiderman ordered the companies to stop accepting “wagers” from New York residents, writing that a review of the industry by his office has found “that DraftKings’/FanDuel’s operations constitute illegal gambling under New York law.”

The order is the latest blow to the multibillion dollar daily fantasy sports industry, which became the focus of an insider trading investigation by Schneiderman’s office after employees from both companies were found placing bets on each others’ sites using information not generally available to the public.

In a statement provided to The New York Times, FanDuel responded to the order, saying, “Fantasy sports is a game of skill and legal under New York state law. This is a politician telling hundreds of thousands of New Yorkers they are not allowed to play a game they love and share with friends, family, co-workers and players across the country.”

A spokeswoman for DraftKings separately said, “We’re disappointed he hasn’t taken the time to meet with us or ask any questions about our business model before his opinion.”

The cease-and-desist order comes at a time of booming success for the daily fantasy sports industry. Television ads for DraftKings and FanDuel have become ubiquitous during NFL games on Sundays, and just last month, the two sites had their best weekend ever, generating an eye-popping $43.6 million in entry fees. The industry as a whole is expecting to earn around $2.6 billion this year just in entry fees. By 2020, that figure is projected to swell to $14.4 billion.

But success has also brought heightened scrutiny from prosecutors and regulators. Nine days after the New York attorney general opened his inquiry into the sites last month, the Nevada Gaming Control Board issued a public notice declaring daily fantasy sports to be a form of gambling. The ruling forced DraftKings and FanDuel out of the nation’s gambling capital until they can either successfully challenge the ruling or acquire the necessary licenses to return.

At the national level, the FBI and the Justice Department are said to have opened a probe into whether the business model of daily fantasy-sports sites violate federal law. The Unlawful Internet Gambling Enforcement Act of 2006 outlawed online poker and sports betting, but a loophole in the law cleared a path for the type of daily fantasy sports games that according to critics, increasingly resemble the exact same kind of online gambling that Congress set out to ban.

The industry has aggressively fought back against such criticism, defending daily fantasy sports as a game of skill, not gambling.

“Our product is all about entertainment value,” Matt King, chief financial officer for FanDuel, told FRONTLINE in the below video — part of an investigation with The New York Times into online gambling coming in the winter of 2016.

The sites have acknowledged, though, that new regulation could be on the way. In an October letter to its users, FanDuel CEO Nigel Eccles wrote that, “In any disruptive fast-growing industry, important questions are often raised about how the industry should operate.” The industry “needs strong, common sense, enforceable consumer protection requirements,” said Eccles.

In all, nearly a dozen states are currently considering some form of legislation around fantasy sports betting.


Jason M. Breslow

Jason M. Breslow, Former Digital Editor

Twitter:

@jbrezlow

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