New York Delivers Devastating Blow to DraftKings, FanDuel

DraftKings logo (PRNewsFoto/DraftKings, Inc.)

Late Tuesday night, New York Attorney General Eric T. Schneiderman brought the hammer down on the growing online gambling industry when he ordered Boston-based DraftKings and New York-based FanDuel to cease-and-desist all operations in the state. Schneiderman declared the daily fantasy sports companies to be illegal gambling operations, running afoul of state and federal laws. He went even further, though, and described the companies as borderline predatory:

Daily fantasy sports is neither victimless nor harmless, and it is clear that DraftKings and FanDuel are the leaders of a massive, multi-billion-dollar scheme intended to evade the law and fleece sports fans across the country. Today we have sent a clear message: not in New York, and not on my watch.

DraftKings and FanDuel have five business days to respond to the cease-and-desist order. Schneiderman’s cease-and-desist order makes New York the seventh state where it is illegal to play daily fantasy sports. The other six states where it’s illegal are Arizona, Iowa, Louisiana, Montana, Nevada, and Washington.

This is a devastating blow to the sites, because New York, as much as we may hate to admit it in Boston, is a major trendsetter for the rest of the country. New York is well-known for having strong consumer protection laws and is seen by many as influential in this area of law. Additionally, New Yorkers make up the largest portion of daily fantasy sports players in the country. So, as you might imagine, DraftKings and FanDuel reacted to the cease-and-desist letter accordingly:

FanDuel:

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, coworkers and players across the country. The game has been played — legally — in New York for years and years, but after the Attorney General realized he could now get himself some press coverage, he decided a game that has been around for a long, long time is suddenly now not legal. We have operated openly and lawfully in New York for several years. The only thing that changed today is the Attorney General’s mind.

DraftKings:

We are very disappointed that New York Attorney General Eric Schneiderman took such hasty action today, particularly since he did not take any time to understand our business or why daily fantasy sports are clearly a game of skill. We strongly disagree with the reasoning in his opinion and will examine and vigorously pursue all legal options available to ensure our over half a million customers in New York State can continue to play the fantasy sports games they love.

We continue to see a number of other officials, including Senator Negron in Florida, Representative Zalewski in Illinois and the Federal Trade Commission, take a reasoned, informed and measured approach to the daily fantasy sports business. We hope this trend continues along with due consideration for over 56 million sports fans across the country who enjoy playing fantasy sports. We remain committed to working with all relevant authorities to ensure that our industry operates in a manner that is transparent and fair for all consumers.

New York’s actions today are an unfortunate example of a state government stifling innovation, technology and entrepreneurship and acting without full and fair consideration of the interests of consumers.

Sports Illustrated outlined the next possible steps in this legal fight, some of which could result in civil and criminal court cases.

Schneiderman will then likely file a lawsuit on behalf of the people of New York against the two companies. He would demand that the companies be (1) permanently enjoined from violating relevant New York laws; (2) ordered to pay full monetary restitution to aggrieved DFS customers; and (3) required to pay the state substantial fines. In the meantime, the two DFS companies could petition a court for an injunction that would cast doubt on Schneiderman’s interpretation of New York law. Any injunctive relief would at least delay the carrying out of the cease and desist order.

In Massachusetts, regulators have taken a more receptive approach to the growing online gambling world. State officials from the governor to the speaker have said essentially that they don’t want to ban the games, but they should probably look at them as potential sources of revenue for the state.

The office of Massachusetts Attorney General Maura Healey is currently reviewing the legality of the games in the state before making a definitive ruling on them. When reached on Wednesday, Director of Communications Cyndi Roy Gonzalez said:

As the AG has said, she believes strongly that there must be a strong legal and regulatory framework in place for this new industry. We are conducting an examination and investigation of DFSs and will present our findings which will include strong consumer protections. Our focus remains on protecting consumers, protecting minors, and addressing problem gambling.

Problem gambling? That’s interesting; does that mean the AG’s office thinks daily fantasy sports are gambling? Boston followed up with Healey’s office but has not heard back. We will add a response if and when we get one.

As far as her office’s report goes Healey has not given a deadline as to when the report will be published. The Massachusetts Gaming Commission is working on a similar white paper due out sometime before the end of the year.

Remember, all of this was set off after it was revealed that employees at DraftKings and FanDuel were playing daily fantasy sports games on competing sites.