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 DraftKings called the cease and desist order issued by New York
Attorney General Eric Schneiderman on Tuesday "hasty and uninformed"
and said it was prepared to mount a legal challenge so the company
could continue operating in the state.
"We will pursue this fight to the fullest to ensure that New York
fantasy sports fans do not need to stop playing," DraftKings said in
a statement on Wednesday.
FanDuel also said it plans a legal challenge.
In addition, DraftKings and FanDuel began mobilizing hundreds of
thousands of their users in New York state, asking them to send
Schneiderman emails voicing support for the games. FanDuel said they
have more than 600,000 players in the state; DraftKings said there
were more than 500,000 daily fantasy players there.
The two companies, which have five business days to respond to the
order issued by Schneiderman on Tuesday, have continued to take
money from customers in the state, they said.
In the games, fans pay to compete for daily cash prizes based on
imaginary teams assembled from rosters of real players, which
accumulate points based on how those players perform in actual
games. This has enabled fans to spend money on the games with a
frequency that critics say is akin to sports betting.
Schneiderman's order does not apply to season-long fantasy sports
contests.
The order is the latest to threaten the fast-growing, multi-billion
dollar daily fantasy sports industry. The two companies have become
the subject of congressional inquiries and a ban in Nevada after
spending hundreds of millions of dollars on television advertising
in 2015.
They have been at the center of controversy since early October when
a DraftKings employee won $350,000 from a $25 entry in an American
football contest on the rival FanDuel site. The two companies then
banned their employees from playing, but local and federal
authorities began to investigate whether the fantasy sites offered
games of chance, which were essentially gambling.
Schneiderman said they were in violation of state law against
illegal gambling because customers "are clearly placing bets on
events outside of their control or influence."
BIG-TIME BACKERS
DraftKings and FanDuel are private companies with valuations of more
then a billion dollars.
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High-profile investors poured money into both this year.
DraftKings raised $300 million from investors including Fox Sports,
Major League Baseball, the National Hockey League, the Madison
Square Garden Company, the Raine Group and Wellington Management.
Around the same time, FanDuel raised $275 million from investors
such as private equity firm KKR & Co LP <KKR.N>, Google Capital and
the venture arms of Time Warner Inc <TWX.N> and Comcast Corp
<CMCSA.O>.
DraftKings and FanDuel have both hired former New York prosecutors
for advice as scrutiny by regulators and law enforcement agencies
intensifies.
FanDuel’s lawyer, Sharon Cohen Levin, previously headed the money
laundering and asset forfeiture unit at the U.S. Attorney’s Office
for the Southern District of New York. She was not immediately
available for comment. Avi Weitzman, who represents DraftKings,
spent seven years in the same office. Weitzman declined to comment.
Both companies have hired lobbyists in Washington.
FanDuel hired Steptoe & Johnson and spent $20,000 on lobbying, the
company said in its first lobbying disclosure filed in late October.
DraftKings hired Morgan, Lewis and Bockius and reported spending
$10,000 for the quarter, the company said in its lobbying disclosure
filing.
(Additional reporting by Suzanne Barlyn in New York and Diane Bartz
in Washington)
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