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New York says FanDuel and DraftKings are illegal gambling operations

Daily fantasy services ordered to stop taking money from the state

Scott Olson/Getty Images

New York state attorney general Eric Schneiderman has hit FanDuel and DraftKings with a cease-and-desist order, demanding the two companies to stop accepting money from residents of the state, after deciding that the two daily fantasy sports sites are gambling operations. The multibillion-dollar daily fantasy industry has argued that its business is exempt from 2006 laws that ban online gambling because its weekly challenges are games of skill rather than chance, but Schneiderman's office concluded that the industry "appears to be creating the same public health and economic problems associated with gambling."

New York follows Nevada, which banned the sites

Schneiderman referred to the two companies, and the daily fantasy industry at large, in some of the strongest language yet used by regulators. "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," he said. "Today we have sent a clear message: not in New York, and not on my watch." New York follows in the footsteps of states such as Nevada, which banned the daily fantasy sites last month, saying that the enterprises constituted gambling operations and were unable to operate in the state without a proper license. Other states, including Arizona, Montana, and Iowa, have restricted the operations of FanDuel and DraftKings in their borders, and The New York Times says other states are drawing up their own legislation at the moment.

FanDuel issued a statement in response to the attorney general's order. "Fantasy sports is a game of skill and legal under New York state law," the company reiterated. "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." DraftKings also replied quickly to the decision, The New York Times says, writing to its 500,000 users in the state. "Hey, New York, protect your right to keep playing daily fantasy sports. Contact the attorney general today!" the company said in an email. DraftKings said it was disappointed Schneiderman hadn't "taken the time to meet with us or ask any questions about our business model before his opinion," but a spokesperson for the attorney general said his office had a number of meetings with the fantasy operation before the order was made.

The attorney general's office says it met with DraftKings many times

The New York attorney general began conducting his investigation into the companies after it was revealed that a DraftKings employee won $350,000 through FanDuel. While both companies argued the employee didn't have access to any data that would have helped him win the money, Schneiderman's office demanded internal data to scrutinize their workings, including the algorithms used to work out how to price athletes in their weekly challenges. FanDuel and DraftKings responded to the scandal by putting a temporary ban on their employees playing other paid-for fantasy games. Later, FanDuel went further, banning its employees from playing competitors' games, and stopping employees of other firms from putting money on its own challenges.

The decision to restrict operations in New York could mark the beginning of the end for FanDuel and DraftKings. Both companies are also under investigation by the Department of Justice and the FBI, and while they can likely live without less populous states like Iowa as potential customers, the ruling by New York could well influence other states to classify daily fantasy sports as gambling operations and make them widely illegal. That said, it will be difficult to extract the industry entirely from the wider sports industry it feeds on. In a short time, FanDuel, DraftKings, and other operations have entwined themselves with the major US sports leagues and several professional teams, organizing sponsorship deals with Major League Baseball, 15 NFL teams, and securing investment from a multitude of big-name sources — from Fox Sports to Dallas Cowboys owner Jerry Jones.