New York attorney general orders daily fantasy sports firms to shut down

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New York’s attorney general has ordered daily fantasy sports firms DraftKings and FanDuel to cease operations with consumers in the state, claiming their games constitute illegal gambling under New York law – the most significant blow yet in the mounting legal challenge facing what’s become a multibillion-dollar industry.

The cease-and-desist order from the state’s top attorney was first reported on Tuesday by the New York Times, citing sources with knowledge of the investigation.

The order from attorney general Eric Schneiderman comes less than one month after it was revealed that federal prosecutor Preet Bharara – the US attorney for the southern district of New York widely credited with shutting down the online poker industry in 2011 – was investigating whether the business model behind daily fantasy sports is in violation of federal law.

“Our investigation has found that, unlike traditional fantasy sports, 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 a statement. “Daily fantasy sports is neither victimless nor harmless, and 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.

“Today we have sent a clear message: not in New York and not on my watch.”

Daily fantasy sports players handpick virtual teams corresponding with real-life athletes and compete for points based on the players’ statistics. Paid competitions varying in format and waged each day cost as little as $1 to enter, but advertise prizes that can reach $2m.

Industry-leading firms DraftKings and FanDuel, each privately owned and valued at over $1bn, have long operated beyond government sanctions on sports gambling under the precept that their games involve more skill than luck, not unlike day trading.

Government scrutiny of daily fantasy sports only redoubled in October when it was revealed a DraftKings employee may have gained a competitive advantage through unfairly procured information when he turned a $25 entry fee into a $350,000 payout, an incident that was likened to insider trading and drew attention to the lack of regulation in the industry. DraftKings contracted an outside law firm to conduct an internal investigation, which found the employee did not have access to the data before setting his roster.

FanDuel hit back immediately on Tuesday afternoon, accusing Schneiderman of grandstanding in the interest of generating headlines.

“Fantasy sports is a game of skill and legal under New York State law,” the company said in a statement. “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.

DraftKings called the decision “an unfortunate example of a state government stifling innovation, technology and entrepreneurship and acting without full and fair consideration of the interests of consumers.”

Also coming down against the order was Rep. Chris Collins (R-NY), who blasted the order as an example of “government overreach”.

“New York’s attorney general once again proved that he is singularly focused on grabbing newspaper headlines,” Collins said in a statement. “In this draconian decision, Schneiderman is unilaterally denying hundreds of thousands of New Yorkers that used FanDuel and DraftKings the ability to compete in this game of skill. Instead of looking to score political points, the attorney general should be working with federal and state lawmakers to ensure laws are being followed. Instead, he’s opting for a two-minute drill.”

Earlier Tuesday, both DraftKings and FanDuel implored their users to take action and contact their elected officials in the name of preserving daily fantasy’s legality.

Further complicating matters are the uneasy relationships between daily fantasy sports companies and the sports leagues that otherwise condemn more traditional forms of gambling.”

Since 2013, DraftKings has been is the “official daily fantasy partner of Major League Baseball”, while last year FanDuel signed a four-year deal with the NBA that offered equity in exchange for promotion on NBA.com, NBA TV and the league’s other digital properties. Two of the NFL’s most visible owners, the New England Patriots’ Robert Kraft and the Dallas Cowboys’ Jerry Jones, have equity stakes in the companies.

Last month, Nevada’s state gaming control board ruled that daily fantasy sports constituted gambling under state law and would require a license to operate in the state.

Powered by Guardian.co.ukThis article was written by Bryan Armen Graham in New York, for theguardian.com on Wednesday 11th November 2015 00.19 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010