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 The New York attorney general's office on Tuesday ordered the two
companies to stop taking money from New Yorkers and declared the
games to be against state law because customers "are clearly placing
bets on events outside of their control or influence, specifically
on the real-game performance of professional athletes."
DraftKings said in its lawsuit that New York Attorney General Eric
Schneiderman was "using strong-arm tactics and defying the rule of
law," accusing him of acting as judge, jury and executioner of the
companies.
Being forced to shut down in the state could be a crippling blow for
the fast-growing, multibillion-dollar industry, as New York has more
daily fantasy sports players than any other U.S. state, according to
Eilers Research.
DraftKings accused Schneiderman of abusing his authority by
threatening to take action against the company's payment processors,
Vantiv Inc and PayPal Holdings Inc, if they did not stop working
with DraftKings.
The attorney general's declaration that daily fantasy sports is
gambling, if correct, would make it "nearly impossible" for New
York's legislature to pass a law allowing the games, said Bennett
Liebman, former New York state deputy secretary for gaming and
racing.
New York's Constitution prohibits gambling though the state has
carved out a handful of exceptions, including horse racing and the
state lottery. But each of those changes required amending the
state's Constitution, a years-long process that requires approval of
legislation by two successive legislatures, followed by a public
vote, he said.
PLAYERS, EMPLOYEES PROTEST
Earlier in the day, around a hundred protesters - a significant
number of whom work for daily fantasy sports sites - gathered
outside Schneiderman's office to protest his decision.
Jason Green, 35, visiting from Nashville for a daily fantasy sports
conference being held this weekend, came to the protest after
reading the cease and desist letters to the companies from
Schneiderman's office.
"Regulation is one thing, but this isn't regulation - just one guy
making a decision," he said. "There's a lot of misinformation out
there and hopefully we've shown that people should be allowed to
keep playing."
Green works at a video game company and enters up to twenty hockey
lineups per night, spending a few hundred dollars a week on the
games.
Modern fantasy sports started in 1980 and have mushroomed online
with participants typically creating teams that span an entire
season in major professional sports, including American football,
baseball, basketball and hockey.
Daily fantasy sports, a turbocharged version of the season-long
game, has developed over the past decade. In these, players draft
teams in games played in just one evening or over the course of a
weekend.
The companies may have painted targets on their backs through
aggressive advertising at the start of the National Football League
season that promised large winnings to participants. FanDuel has
said it planned to pay out $2 billion in cash prizes this year.
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"They got very big, very fast," Schneiderman said on Thursday at an
event, saying New York won't be the first or last state to make
daily fantasy sports illegal. "New York state regulators and
regulators in a lot of other states weren't paying attention."
The companies 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.
As the companies grew, they raised hundreds of millions of dollars,
giving both DraftKings and FanDuel valuations of more than $1
billion. Investors in the companies include Fox Sports, Major League
Baseball, the National Hockey League, KKR & Co LP, Raine Group,
Google Capital and the venture arms of Time Warner Inc and Comcast
Corp.
DraftKings also partnered with Major League Baseball to advertise in
ballparks while FanDuel signed partnerships with several NFL teams.
Daily fantasy players are not the only ones fretting about the
possible loss of the games. A cottage industry of blogs, magazines
and apps that provide advice and information to fantasy players has
sprung up and the revenue lost from daily fantasy sports sites could
hurt their bottom line.
RotoGrinders.com, for instance, is a popular blog offering tips by
"grinders," or professional daily fantasy sports players who spend
thousands per day on games. RotoGrinders also has a daily satellite
radio show on SiriusXM.
Fantasy advice is often the lead story on ESPN.com, and Matthew
Berry, the company's senior fantasy analyst, is a paid spokesman for
DraftKings. NBC Universal also saw success with their own news
website for fantasy sports, Rotoworld.
(Additional reporting by Diane Bartz in Washington)
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reserved.]
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