The Internet Law Resource Center™ is the complete information solution for practitioners in cyberlaw. Follow the latest developments on ICANN’s gTLD program, keyword advertising, online privacy,...
March 21 — DraftKings Inc. and FanDuel Inc. will stop allowing New York-based consumers to participate in their online daily fantasy sports contests under two virtually identical settlements with New York state, Attorney General Eric T. Schneiderman announced March 21.
Schneiderman brought enforcement actions against each company in November 2015, saying the companies were violating the state's anti-gambling laws. The settlement places all litigation on hold through June 30 to give the state legislature time to pass a comprehensive regulatory scheme. If no legislation passes, the litigation will resume in September.
The settlement is a “big win” for DraftKings and FanDuel, David O. Klein, managing partner at gaming and Internet law firm Klein Moynihan Turco in New York, told Bloomberg BNA March 21. It paves the way for the companies to return to the New York market in the long term, likely with application and registration fees that would provide a barrier to entry for smaller companies.
“We may end up with a duopoly, and then this all works for them if the industry is profitable going forward,” Klein said.
But Schneiderman also got “complete capitulation” from the companies, Daniel Wallach, a shareholder with Becker & Poliakoff in Ft. Lauderdale, Fla. who specializes in sports and gaming law, told Bloomberg BNA March 21. “The New York attorney general got everything he asked for in the cease and desist letters,” Wallach said.
For Schneiderman, regulation would likely provide sought-after consumer protections in areas such as segregating player funds, excluding minors and insiders from participation and allowing problem gamblers to self-restrict their own participation.
False advertising and consumer fraud claims against the companies are unaffected by the settlement.
“We will continue to work with state lawmakers to enact fantasy sports legislation so that New Yorkers can play the fantasy games they love,” DraftKings said in a statement.
“We are proud to be one of New York's largest startup companies, and while it is disheartening for us to restrict access to paid contests in our home state, we believe this is in the best interest of our company, the fantasy industry and our players while we continue to pursue legal clarity in New York,” a FanDuel spokesperson said in a statement.
Five bills that would legalize and regulate daily fantasy sports are currently pending in the New York legislature. The settlement is an indication that the companies have a strong sense that one of those bills will pass, Wallach said.
“DraftKings and FanDuel certainly must believe that legislation is very likely,” Wallach said. “Otherwise they wouldn't have agreed to this deal.”
A number of prominent New York lawmakers support legalizing daily fantasy sports, Wallach said, including state Sen. John Bonacic (R), who chairs the senate's Racing, Gaming and Wagering Committee. Bonacic has sponsored a bill, S. 6793, that would require companies to pay a one-time $500,000 registration fee and would provide basic consumer protections.
After announcing an investigation in October, Schneiderman sent both companies cease and desist letters in November, ordering them to stop accepting contest entries from New York-based customers. The websites each responded with lawsuits seeking a declaration that their contests aren't gambling under New York law . Schneiderman brought enforcement actions against each company in response .
At a consolidated Dec. 11 hearing, Judge Manuel J. Mendez issued a preliminary injunction against both companies from operating in the state, but an appellate court put the order on hold later that day . Both sides have briefed the appellate court on whether it should maintain or overturn the injunction. The settlement stipulates putting the appellate proceedings on hold until September unless legislation passes in the meantime.
At a March 21 press conference, Schneiderman said he expects other daily fantasy sports operators to take heed of the settlement and act accordingly. “We're hopeful that the other daily fantasy sites will stop doing business in New York as well,” Schneiderman said.
Yahoo Inc. is the most prominent other company in the daily fantasy sports market.
Schneiderman also said he doesn't expect New York consumers to have difficulty withdrawing any funds they currently have in DraftKings or FanDuel accounts.
“Anyone who's already made a bet, they're not going to lose their money,” Schneiderman said.
The settlement only addresses claims that daily fantasy sports contests are illegal in New York. Additional claims involving false advertising or consumer fraud theories will go forward in the courts unaffected.
But those claims carry much less potential risk for the websites, Wallach said. Although Schneiderman could still win a damages award, Schneiderman can't seek disgorgement and restitution of every dollar risked in an online contest, as he sought under the illegal gambling theory. Disgorgement of that magnitude could have been an “existential threat” to the companies, Wallach said.
Consumers are separately pursuing damages claims against the companies in at least 80 class actions recently consolidated in federal court in Massachusetts .
To contact the reporter on this story: Joseph Wright in Washington at email@example.com
To contact the editor responsible for this story: Alexis Kramer at firstname.lastname@example.org
The DraftKings settlement agreement can be found at http://www.ag.ny.gov/pdfs/NYAG-DraftKings-3.21.2016-Agreement-Final-Executed.pdf.
The FanDuel settlement agreement can be found at http://www.ag.ny.gov/pdfs/NYAG-FanDuel-3.21.2016%20Agreement-Final-Executed.pdf.
The text of S. 6793 can be found at https://www.nysenate.gov/legislation/bills/2015/s6793.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)