DraftKings, FanDuel Told by New York to Cease Operations

The Fine Line Between Fantasy Sports and Sports Betting
  • It's gambling, Attorney General Schneiderman says in statement
  • Companies are given five days to respond to office's demands

DraftKings Inc. and FanDuel Inc. were ordered by New York Attorney General Eric Schneiderman to cease operations in the state, making it the biggest so far to seek a ban on the daily fantasy sports contests.

The businesses are gambling and illegal under state law, Schneiderman said in cease-and-desist letters to both companies, according to a statement Tuesday from the attorney general’s office. Both companies indicated they will continue to let customers play.

“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,” Schneiderman said in the statement.

The orders marks the biggest setback yet for the two companies, which have expanded rapidly and raised hundreds millions of dollars from investors including Time Warner Inc. and KKR & Co. on the premise that their contests are legal. Nevada has told the companies they need casino licenses to do business there. DraftKings and FanDuel also don’t accept players from Arizona, Iowa, Louisiana, Montana and Washington, according to the Legal Sports Report, which monitors the industry.

DraftKings, in a statement, disputed Schneiderman’s findings, saying it 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.”

FanDuel also issued a statement, asserting fantasy sports is legal and saying Schneiderman 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.”

In daily fantasy sports, customers pay entry fees and pick rosters of real life athletes in the hopes of winning millions of dollar in prizes.

The attorney general began his investigation on Oct. 6, according to the letter, which was signed by Kathleen McGee, chief of the Internet Bureau. After first looking into allegations that an employee of DraftKings made unfair use of proprietary information, the office began a review of the daily sports fantasy business.

Customers of both companies “are clearly placing bets on events outside of their control or influence, specifically on the real-game performance of professional athletes,” the attorney general said. The wagers represent a “contest of chance” where winning or losing depends on numerous elements of chance to a “material degree.”

DraftKings and FanDuel were told to answer within five days as to why the attorney general’s office shouldn’t begin legal proceedings.

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