In the wake of New York attorney general Eric Schneiderman’s cease-and-desist order to DraftKings and FanDuel, a major payment processing partner has requested that DFS sites exit New York immediately, LSR has learned.
The request from Vantiv was sent Tuesday afternoon to DFS operators via email, according to a source at an operator who received the request and shared it with LSR:
In light of the cease and desist order sent out by New York attorney general Eric Schneiderman related to DFS this afternoon, we must require you to immediately stop accepting players from New York. Please acknowledge the receipt of this notice and confirm you are updating all location controls to block players from this jurisdiction.
DFS sites like DraftKings generally do not handle player banking functions (deposits and withdrawals) internally.
Instead, much of that work is in the hands of payment processors and payment gateways that serve as a critical financial intermediary between players and DFS sites.
Without access to these processors and gateways, DFS sites would be effectively unable to operate.
As a result, an extended refusal to comply with this request in New York could threaten the ability of a site to handle payments in other markets, although the email does not raise that specific scenario.
Will FanDuel and DraftKings exit New York?
FanDuel and DraftKings did not respond to requests for comment.
Subsequent to LSR’s original report, the New York Times confirmed that both DraftKings and FanDuel were sent the above request by Vantiv. But both sites have signaled their intention to remain in the New York market.
Two possibilities are worth noting:
- DFS sites like DraftKings and FanDuel may have an overriding priority in New York that could cause them to delay compliance with such a request. It’s possible that processing partners could accept a temporary delay if they secured other assurances.
- DFS sites could also return to a processing partner with additional legal opinions or other elements that might mitigate the underlying decision by the processor, rendering the request moot, at least for the time being.
But barring those or similar scenarios, it’s difficult to appreciate how a DFS operator could remain in New York for any significant period of time following receipt of the request from Vantiv.
Why would processors act first?
Companies on the payments side of daily fantasy sports operate under a fundamentally different risk calculus than DFS sites:
- They generally have a larger business beyond DFS that they must prioritize over DFS.
- They are generally required to be licensed and are overseen by governments in most, if not all, states due to their role as financial institutions or “money transmitters.” That gives them additional exposure to state and federal law enforcement.
- They may have unique exposure to the UIGEA once a state law violation comes into play.
For those reasons, and a host of others, payment processors and gateways are incentivized to act far more cautiously on average than a typical DFS operator.
A similar risk assessment gap exists between DFS operators and their marketing partners in professional sports.
