NY AG Forces DraftKings, Fan Duel To Shut Down

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Steve Ambrose Contributor
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New York Attorney General Eric Schneiderman issued a cease-and-desist order on Nov. 10 to the most well-known daily fantasy sports organizations: DraftKings and FanDuel. The order will immediately force both companies, who Schneiderman called “neither victimless nor harmless,” to stop accepting bets within the state.

Schneiderman said in a statement that “unlike traditional fantasy sports, daily fantasy sports companies are engaged in illegal gambling under New York law, causing the same kinds of social and economic harms as other forms of illegal gambling, and misleading New York consumers.”

The initial investigation began on Oct. 21.

According to Schneiderman, that investigation revealed both DraftKings and FanDuel used “deceptive advertising,” specifically in locations more likely to have gambling problems, “to lure consumers into an unregulated online gambling operation.”

He also accuses the companies of running a scheme where the vast majority of winnings go to “a small subset of experienced, highly sophisticated players” that make up only 1 percent of all participants.

A DraftKings representative said in a statement:

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.

Daily fantasy sports companies have been under the microscope since it was discovered on Oct. 4 that a DraftKings employee won over $300,000 by allegedly using inside information. (RELATED: US Prosecutor Exploring Gambling Violations For Companies Like DraftKings)

There has been an ongoing debate over whether FanDuel and DraftKings are allowed to operate without following federal gambling statutes. The companies operate by allowing participants to pay an entry fee to draft teams in games played in just one day. The participants then compete against other entrants or against a group in a multi-player contest. (RELATED: Dem Congressman Declares War On Fun, Calls For Hearing On Fantasy Football)

Bloomberg reported on Nov. 10 that “FanDuel and DraftKings have cited a 2006 federal law to distinguish themselves from illegal gambling. But that law explicitly defers to state definitions of what counts as betting.”

The distinction rests on whether the game is one of skill or chance.

“In most cases, states determine the legal status of contests with cash prizes,” the Bloomberg article stated “by examining whether the activity is based on skill (like playing in a bowling tournament) or chance (like pulling the arm on a slot machine). Many activities are a mix of both, of course, and states have different thresholds for how much chance is acceptable before something becomes gambling.”

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