What will Eric Schneiderman’s war on DraftKings and FanDuel cost big-bucks Hollywood backers of the mega daily fantasy sports sites? The New York Attorney General said today that an investigation by his office has determined that FanDuel and DraftKings are illegal and will be banned in the Empire State.
The move by Schneiderman impacts directly several big media companies that have ownership in DraftKings and FanDuel, including 21st Century Fox, Time Warner and Comcast, as well as Silicon Valley giant Google.
21st Century Fox’s Fox Networks Group had no comment on today’s developments. The company has an estimated 11% stake in DraftKings after participating in a $300M funding round this summer. “DraftKings, as part of their wider media program, committed to spend a minimum of $250 million for media placements on the Company’s properties through December 2017,” said the company’s most recent annual report. Similarly, Time Warner and Google were part of a $275 million round of funding in startup FanDuel this past summer, joining previous investors that include NBC Sports Ventures and Comcast Ventures.
Another Hollywood media giant, Disney, already grappled with the controversy surrounding the fantasy sports sites last month when DraftKing was accused of insider trading. Disney-owned ESPN, which in July signed a major deal with the site to be its exclusive daily fantasy sports partner, suspended all sponsored segments and pulled ads in light of the accusations.
Earlier today, Schneiderman sent cease and desist letters to FanDuel CEO Nigel Eccles and DraftKings CEO Jason Robins (read them here and here). “The illegality of DFS is clear from any reasonable interpretation of our laws, beginning with the New York State Constitution,” said the letter to Robins on Tuesday. “The Constitution prohibits gambling in all forms not specifically authorized.” The N.Y. A.G. gave both companies five days to reply with a reason why the state “should not initiate any proceedings.”
“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,” Schneiderman said in a statement today, telling the sites to stop taking orders from N.Y. residents. “Today we have sent a clear message: not in New York, and not on my watch.”
DraftKings and FanDuel essentially lost their Nevada privileges last month when the home of Sin City insisted they obtain a gambling license. Of course, with billions at play literally, this is far from over and could soon see a response from FanDuel and DraftKings in the courts.
(UPDATE, 5:18 PM: DraftKings, about half a million customers strong in New York, put out a statement tonight saying it will make a legal move against the N.Y. A.G.’s de facto ban. “We are very disappointed that New York Attorney General Eric Schneiderman took such hasty action today, particularly since he did not take any time to understand our business or why daily fantasy sports are clearly a game of skill,” a spokesman for the site said Tuesday. “We strongly disagree with the reasoning in his opinion and will examine and vigorously pursue all legal options available to ensure our over half a million customers in New York State can continue to play the fantasy sports games they love.” See the full statement at the bottom of this piece.)
DraftKings and FanDuel already appeared combative in the wake of Schneiderman’s announcement but, at least for now, the companies are leaving things in its clients’ hands, asking them to fight the ban. Here is an e-mail DraftKings sent to its members shortly after the ban was announced:
Attorney General Eric Schneiderman is considering preventing New Yorkers from playing daily fantasy sports. If you’re like us and you believe that daily fantasy sports is fun, entertaining, and a game of skill, click here and let him know that New York has bigger challenges than fantasy football.
Send the Attorney General a note, telling him you oppose any measure that would restrict your ability to play daily fantasy sports in New York. Fantasy sports build community — and now it’s time for our community to stand together to protect the game we love.
Make sure Attorney General Schneiderman hears from you. Tell him you support keeping daily fantasy sports accessible for all in New York. Together, we can protect #FantasyForAll.
“Fantasy sports is a game of skill and legal under New York state law,” said FanDuel on Tuesday. “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, co-workers and players across the country.” The site quickly set up an online petition to keep fantasy sports sites legal:
— FanDuel (@FanDuel) November 10, 2015
Here’s the full statement from DraftKings:
We are very disappointed that New York Attorney General Eric Schneiderman took such hasty action today, particularly since he did not take any time to understand our business or why daily fantasy sports are clearly a game of skill. We strongly disagree with the reasoning in his opinion and will examine and vigorously pursue all legal options available to ensure our over half a million customers in New York State can continue to play the fantasy sports games they love.
We continue to see a number of other officials, including Senator Negron in Florida, Representative Zalewski in Illinois and the Federal Trade Commission, take a reasoned, informed and measured approach to the daily fantasy sports business. We hope this trend continues along with due consideration for over 56 million sports fans across the country who enjoy playing fantasy sports. We remain committed to working with all relevant authorities to ensure that our industry operates in a manner that is transparent and fair for all consumers.
New York’s actions today are an unfortunate example of a state government stifling innovation, technology and entrepreneurship and acting without full and fair consideration of the interests of consumers.