The New York State attorney general on Tuesday ordered the two biggest daily fantasy sports companies, DraftKings and FanDuel, to stop accepting bets in New York, saying that their games constituted illegal gambling under state law, according to people with knowledge of his investigation.
The cease-and-desist order by the attorney general, Eric T. Schneiderman, is a major blow to a multibillion-dollar industry that introduced sports betting to legions of young sports fans and has formed partnerships with many of the nation’s professional sports teams. Given the New York attorney general’s historic role as a consumer-protection advocate, legal experts say the action will most likely reverberate in other states where legislators and investigators are increasingly questioning whether the industry should operate unfettered by regulations that govern legalized gambling.
Fantasy sports companies contend that their games are not gambling because they involve more skill than luck and were legally sanctioned by a 2006 federal law that exempted fantasy sports from a prohibition against processing online financial wagering. That view is increasingly being challenged as fantasy sites have begun offering million-dollar prizes and bets on individual sports, such as golf, mixed martial arts and Nascar races, magnifying the element of chance and making the exemption more difficult to defend.
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Wired for Profit
In 2006, Congress tried to crack down on illegal online sports betting. Today, Internet wagering is thriving, and a new business that resembles gambling, fantasy sports, is winning millions of players and stoking controversy. The Times, with the PBS series “Frontline,” investigated illegal gambling in the Internet age.
On Tuesday afternoon, as news of the attorney general’s order began to trickle out, DraftKings sent an email to its players, saying, “Attorney General Eric Schneiderman is considering preventing New Yorkers from playing daily fantasy sports,” and added: “Hey, New York, protect your right to keep playing daily fantasy sports. Contact the attorney general today!”
Sabrina Macias, a spokeswoman for DraftKings, 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.” She said the company had 500,000 users in New York State.
In a statement, FanDuel said: “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.”
The two companies can challenge the attorney general’s order in court. According to Joseph M. Kelly, a professor of business law at the State University College at Buffalo, the state would have to prove that chance is a material factor in fantasy sports, which would make it gambling.
For much of the N.F.L. season, DraftKings and FanDuel have blanketed the airwaves with television advertising, spending more than $100 million each. Credit Justin Lane/European Pressphoto Agency
Players who bet on fantasy sports assemble their own teams of real pro athletes who compete based on their actual statistical performance in games. Mr. Schneiderman’s order does not apply to seasonal competitions or to other companies that offer fantasy games.
By concluding that daily fantasy games constitute gambling, Mr. Schneiderman also directs an uncomfortable spotlight on some professional sports leagues that oppose gambling, yet maintain financial partnerships with these daily fantasy sports sites.
A recent New York TimesNYT ref investigation reported that operators of online gambling sites had begun investing in fantasy companies and that some of DraftKings’ senior managers came from online gambling companies or were professional poker players.
Mr. Schneiderman began investigating the fantasy sites after a DraftKings employee inadvertently released internal betting data and that same week won $350,000 on the rival site, FanDuel, which is based in New York. A representative of DraftKings denied that the employee used the internal data to gain an advantage. Both fantasy companies had allowed employees to bet on rival sites, but no longer do. Mr. Schneiderman asked the two companies for a range of internal data and details on how they prevent fraud.
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Nevada regulators ruled last month that daily fantasy sports should be considered gambling, not games of skill, and ordered fantasy companies to suspend operations until they secured gaming licenses. A Florida grand jury has subpoenaed records of the fantasy sports trade group, The United States attorney in Manhattan has begun an investigation, and the F.B.I. office in Boston, where DraftKings’ offices are, has begun interviewing fantasy players.
In addition, nearly a dozen states are considering some form of fantasy sports legislation, according to Gambling Compliance, an independent service that monitors gambling legislation.
Mr. Schneiderman also found some daily fantasy ads misleading, according to the people with knowledge of his inquiry
For much of the N.F.L. season, DraftKings and FanDuel have blanketed the airwaves with television advertising, spending more than $100 million each, and consistently ranking among the top companies each week in buying airtime.
Last September, FanDuel said it was signing up 20,000 to 30,000 players every day. Major League Baseball, the N.B.A. and companies like Comcast, NBC and Google are among its investors. Nearly every N.F.L. team has a sponsorship deal with DraftKings or FanDuel, and two powerful N.F.L. owners — Jerry Jones of the Dallas Cowboys and Robert K. Kraft of the New England Patriots — have equity stakes in the companies.
The National Council on Problem Gambling said it had received reports of “severe gambling problems” in some people who play daily fantasy sports, while noting that seasonal competitions with minimal prizes “offer little risk.”
Glad I got in made my quick hundred bucks and got out.