NY AG Reaches Settlement With DFS Sites
Naruscope
Legal Sports Report

FanDuel, DraftKings Reach Settlement With New York Attorney General

Eric Schneiderman NY AG
FanDuel and DraftKings have reached a settlement with the office of the New York attorney general Eric Schneiderman following a months-long legal saga.

The news came via an announcement by the NY AG’s office. A press conference was held on Monday as well, and can be viewed here.

The settlement agreements can be seen here and here.

The settlement will see the sites stop operating in New York until September, pending legislation that would otherwise allow them to.

September is when the primary appeal regarding the legality of DFS in New York is scheduled to be heard.

More on the FanDuel, DraftKings settlements

As part of the settlements, DraftKings and FanDuel will stop allowing players to enter contests effective today. That will stay in place until the outcome of appeals court hearing in September.

Other conditions of the settlements:

  • If the New York legislature legalizes DFS before June 30 — the planned adjournment of the Senate and Assembly — then all lawsuits between the NYAG and DraftKings and FanDuel will be dropped, except for the former’s false advertising claims.
  • If the NYAG wins his appeal, then all lawsuits and future appeals will be dropped by DraftKings and FanDuel. The AG will also stop pursuit of all claims outside of the aforementioned advertising claims.
  • The sites are to “process requests for users who have an address in the State of New York to withdraw their account balances within seven (7) days of receiving such requests.”

Dueling legislative solutions in New York

With the DFS question effectively on hiatus on the court side, attention now turns to the New York legislature.

New York has a wide array of daily fantasy sports bills in play. Among the group, there’s really only one that bears watching: S 6793, sponsored by Sen. John Bonacic.

Bonacic heads the Racing and Gaming Committee in the Senate, a committee that would likely be a chokepoint for any other legislative effort.

The Senator has also been the driving force behind bills to bring regulated online poker to New York.

Bonacic recently attempted to attach DFS regulation to the Senate’s budget framework, a move the Senator said was intended to send “a message to the court that we’re prepared in the state of New York to allow daily fantasy sports to continue — providing it’s monitored, it’s regulated and there are consumer protections.”

Bonacic offered the following statement on Monday after the settlements were announced:

“Previously, I stated that regulation of interactive fantasy sports was one of my budget priorities.  The announcement of the settlement today between the Attorney General and two of the largest fantasy sports operators brings this issue to the forefront and I look forward to working with my colleagues in the Senate and Assembly, and the Governor, to see it addressed during the budget process.”

Here is a look at the main provisions of S 6793:

  • The bill creates the Fantasy Sports Contests Division within the Financial Frauds And Consumer Protection Unit to promulgate regulations and license operators.
  • DFS sites that had already been operating in the state before Nov. 10 (the state’s AG issued cease and desist letters to DraftKings and FanDuel on that date) may continue to do so while their registration is considered.
  • Licensed operators must pay a one-time fee of $500,000. That fee can be applied, in whole or in part, against an operator’s tax obligation for a 36-month period after receiving its license.
  • Operators are taxed at a rate of 15% on gross revenue generated by players in New York.
  • minimum age of 18 is established for players.
  • DFS may not involve any contests involving collegiate sporting events or horse races.
  • DFS is exempted from the part of the NY penal code dealing with gambling.

Frequently asked questions about New York and DFS

Today’s settlements have a wide range of impacts for DraftKings, FanDuel, and the daily fantasy sports sites.

Can New York players still play on FanDuel and DraftKings?

It appears that all players will be shut out of the two sites starting Monday. The settlement agreements reference an “effective date” of March 21. In the FanDuel settlement:

Beginning on the Effective Date, FanDuel shall block people located in New York (based on geoblocking and/or IP address) from entering FanDuel’s DFS contests involving an entry fee or payment of any kind (“Paid Contests”), using the same platform FanDuel uses for IP intelligence for blocking users from other states in which it has undertaken not to permit people to participate in paid contests (“Closed States”).

New York law on this matter would not apply to New York residents when they are located outside of the state. So, residents who are outside of New York’s borders could play at the two sites when located in a state where DFS is legal.

Does this affect DFS court cases in other states?

The news in New York comes only a few weeks after FanDuel reached an agreement with the attorney general in Texas. DraftKings was not a part of that settlement and opted to litigate the question. Whether DraftKings will now stop pursuit of its case in Texas in the wake of this news is unknown.

LegalSportsReport understands that similar settlement talks may be underway in Illinois.

What will the leagues do about DFS?

Three major professional sports leagues — the NBA, the NHL and Major League Baseball — have equity in either DraftKings or FanDuel, and also have their headquarters in New York.

Given past chatter and supportive statements from the likes of NBA Commissioner Adam Silver, it would not appear that the leagues would end their relationships with the sites. Given that there still is not a final determination of the sites’ legality and the possibility of a legislative solution, common sense dictates the leagues, DraftKings and FanDuel will continue doing business.

Will this impact DFS and team sponsorship deals?

DFS sites have a major footprint with pro sports franchises in New York, as either DraftKings or FanDuel has sponsorship deals with most of the professional franchises in the state.

  • New York Giants (DraftKings)
  • New York Jets (FanDuel)
  • Buffalo Bills (FanDuel)
  • Brooklyn Nets (FanDuel)
  • New York Knicks (DraftKings)
  • New York Rangers (DraftKings)
  • New York Mets (DraftKings)
  • New York Yankees (DraftKings)

DraftKings also has a deal with Madison Square Garden, with a fantasy sports lounge inside; Draft Ops had a similar deal with Barclays Center in Brooklyn.

Will promotion of DFS via these teams would continue in a market where users can no longer play? DraftKings indicated to LSR that these deals “will not be impacted by the settlement.”

How big of a blow is losing the NY DFS market?

It’s a major setback in terms of revenue and liquidity for both FanDuel and DraftKings. New York is believed to be the largest state in terms of both revenue and users for the two sites.

Fortunately, it comes at one of the slowest times of year for the sites, and offers at least a possibility that they could be operational again in time for NFL season, with a legislative solution or a positive court ruling.

Will other sites still operate in New York?

Some smaller DFS operators had already pulled out of New York, but many stayed in, using DraftKings’ and FanDuel’s cases as legal cover.

It would be hard to believe any DFS operator will stay open in New York for very long in the wake of the settlements.

The NYAG has consistently differentiated season-long fantasy and DFS, so it would appear that those operators would likely be staying in the market.

Timeline of the DFS saga in New York

Statements from NYAG on DFS

Schneiderman offered the following statement before the press conference:

“I’m pleased to announced that both FanDuel and DraftKings will stop taking bets in New York State, consistent with New York State law and the cease-and-desist orders my office issued at the outset of this matter. As I’ve said from the start, my job is to enforce the law, and starting today, DraftKings and FanDuel will abide by it. Today’s agreement also creates an expedited path to resolve this litigation should that law change or upon a decision by the appellate division. Regardless, our key claims against the companies for false advertising and consumer fraud are not affected by the agreement and will continue.”

In a press conference in the afternoon, Schneiderman indicated that negotiations regarding a possible settlement have been “off and on” in the months since his initial cease and desist orders.

On the timing of why the settlements occurred now, Schneiderman offered no insight.

“The agreement we’ve entered into today preserves the appeal and provides that the issue of the legality of daily fantasy sports will either be resolved in Albany, or we will return to court,” Schneiderman said in the press conference.

Statement from FanDuel

FanDuel made the following statement via a company spokesperson:

“We are announcing that as of today, FanDuel will cease offering paid contests in the state of New York per the terms of a settlement reached with the Attorney General on certain aspects of the ongoing litigation. 

New York is a critical state for FanDuel.  FanDuel is headquartered in Manhattan, where we employ more than 170 young smart, passionate fans who are committed to innovating and providing the best fantasy experience possible.  We are proud to be one of New York’s largest startup companies, and while it is disheartening for us to restrict access to paid contests in our home state, we believe this is in the best interest of our company, the fantasy industry and our players while we continue to pursue legal clarity in New York.”

FanDuel also emailed users:

We are announcing that as of today, FanDuel will cease offering paid contests in the state of New York per the terms of a settlement reached with the Attorney General on certain aspects of the ongoing litigation.

New York is a critical state for FanDuel. FanDuel is headquartered in Manhattan, where we employ more than 170 young, smart, passionate fans who are committed to innovating and providing the best fantasy experience possible. We are proud to be one of New York’s largest startup companies, and while it is disheartening for us to restrict access to paid contests in our home state, we believe this is in the best interest of our company, the fantasy industry and our players while we continue to pursue legal clarity in New York.

This means the following for you:

– New York is a restricted state and users located in the state will not be able to deposit funds or enter paid contests.

– Users can withdraw their funds at anytime, as has always been the case.

– All contests that are already live and active will continue as planned.

– Please visit here to contact your government officials about fantasy sports and make sure your voice is heard.

Thank you for your continued support.

FanDuel

Statement from DraftKings

DraftKings offered this statement:

Effective today, as part of a settlement reached with the Attorney General’s office, DraftKings will stop offering paid daily fantasy sports contests in New York State.

We are an industry leader in technology, innovation and consumer protections, and we are grateful to the hundreds of thousands of New Yorkers who have enjoyed playing fantasy sports on DraftKings for the last 4 years. We will continue to work with state lawmakers to enact fantasy sports legislation so that New Yorkers can play the fantasy games they love.

DraftKings sent the following email to users:

We are writing to let you know that, effective today, as part of a settlement reached with the Attorney General’s office, DraftKings will stop offering paid fantasy sports contests in New York State.

We understand that this news may be disappointing and we know that you are as passionate as we are about playing fantasy sports in NY. We will continue to work with state lawmakers to enact fantasy sports legislation, as we believe this to be the best path forward for New Yorkers to play the fantasy games they love.

In the meantime, here is what this change means for your account:

Effective March 21, 2016 players located in New York will no longer be able to participate in paid fantasy contests on DraftKings. All accounts will be restricted for paid contest entry and deposit while located in the state of New York. If your account has withdrawable funds, your account will only retain login and withdrawal capabilities on DraftKings.

Your balance remains available for withdrawal at any time, but should you wish to maintain your account balance, DraftKings will continue to hold your funds securely.

All paid contest entries that have not yet started will be refunded to your account.

Existing tickets and DraftKings dollars will be converted to cash and credited to your account.

To make your voice heard, please click here to contact your government officials regarding fantasy sports. If you have any additional questions please feel free to email us at support@draftkings.com.

Thank you for being part of the DraftKings community.

Sincerely,
DraftKings

Image credit: a katz / Shutterstock.com

Sign Up For The Grove Report – US Online Gambling Industry Insights Delivered To Your Inbox:
Chris Grove
- Chris is the publisher of LegalSportsReport.com and OnlinePokerReport.com. Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.