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The news was broken today by the New York Times. New York attorney general Eric Schneiderman ordered the two sites — not all DFS operators — to “stop accepting bets from New York residents.”
More from the NYT:
“It is clear that DraftKings and FanDuel are the leaders of a massive, multibillion-dollar scheme intended to evade the law and fleece sports fans across the country,” Mr. Schneiderman said, adding, “Today we have sent a clear message: not in New York, and not on my watch.”
The NYT story also includes the full text of the “cease and desist” letters the AG’s office sent to both DraftKings and FanDuel. Here is an excerpt:
Our review concludes that FanDuel’s operations constitute illegal gambling under New York law, according to which, “a person engages in gambling when he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence.” FanDuel’s customers are clearly placing bets on events outside of their control or influence, specifically on the real-game performance of professional athletes. Further, each FanDuel wager represents a wager on a “contest of chance” where winning or losing depends on numerous elements of chance to a “material degree.”
The investigation into DraftKings and FanDuel had not been a secret. In October, Scheiderman made it known he was conducting a probe and had sent a series of questions to the two companies. He also aggressively called them gambling companies in an interview shortly thereafter.
The reaction from the DFS operators was swift:
DraftKings tells me it is not leaving the New York market and plans to fight today's ruling by the attorney general.
— David Payne Purdum (@DavidPurdum) November 11, 2015
A FanDuel spokesperson confirmed it would not leave the New York market, either.
Official statement from DraftKings, via a spokesperson:
“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.”
Earlier in the day, DraftKings had sent a message to users in New York to contact the state attorney general’s office, and indicated that an unfavorable ruling was on the way.
The NY Attorney General is considering blocking New York players from being able to access and play on any Daily Fantasy Site.
How quickly the potential ruling would come at the time was unknown.
FanDuel offered this statement to ESPN.com:
“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.”
There is plenty of meat to the letter, beyond the cease and desist order:
One of the central points of the NY AG’s action is his office believe DFS constitutes a game of chance under state law, and is not a game of skill — at least from a legal perspective. He references the state law’s definition of a contest of chance in the state penal code:
“Contest of chance” means any contest, game, gaming scheme or gaming device in which the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein.
FanDuel and DraftKings will assert their contests do not have a “material degree” of chance in any argument they put forth. The gambling laws cited later in the letter would not be triggered, if DFS contests are not deemed a game of skill by the courts, in a legal challenge mounted by the sites.
The AG’s letters to FanDuel and DraftKings indicate that his office believes the sites are allegedly in violation of several parts of the state penal code, as well as the state constitution. From the letters:
The unlawful and illegal conduct under consideration by our Office includes, but is not limited to, the following:
(a) Running a book-making or other kind of gambling business in violation of Article I, Section 9 of the New York State Constitution;
(b) Knowingly advancing and profiting from unlawful gambling activity by receiving and accepting in any one day, more than five bets totaling more than five thousand dollars in violation of New York Penal Law § 225.10;
(c) Knowingly advancing or profiting from unlawful gambling activity in violation of New York Penal Law § 225.05;
(d) With knowledge of the contents thereof, possessing any writing, paper, instrument or article of a kind commonly used in the operation or promotion of a bookmaking scheme or enterprise and constituting, reflecting or representing more than five bets totaling more than five thousand dollars in violation of New York Penal Law § 225.20;
(e) With knowledge of the contents thereof, possessing any writing, paper, instrument or article of a kind commonly used in the operation or promotion of a bookmaking scheme or enterprise in violation of New York Penal Law § 225.15;
(f) Misrepresenting that FanDuel complies with applicable laws; misrepresenting the likelihood that an ordinary player will win a jackpot; misrepresenting the degree of skill implicated in the games; and misrepresenting that FanDuel’s games are not considered gambling, in violation of Executive Law § 63(12) and GBL §§ 349 and 350; and
(g) Conducting or transacting its business in a persistently fraudulent and illegal manner in violation of BCL § 1303.
The letter also references DFS and problem gambling, an issue that has increasingly been gaining traction in some jurisdictions:
Finally, during the course of our investigation, the New York Attorney General has been deeply concerned to learn from health and gambling experts that DFS appears to be creating the same public health and economic problems associated with gambling, particularly for populations prone to gambling addiction and individuals who are unprepared to sustain losses, lured by the promise of easy money. Certain structural aspects of DFS make it especially dangerous, including the quick rate of play, the large jackpots, and the false perception that it is eminently winnable. Ultimately, it is these types of harms that our Constitution and gambling laws were intended to prevent in New York.