New York Attorney General says DFS is gambling, operators must cease & desist

new-york-attorney-general-daily-fantasy-sports-gamblingNew York’s attorney general has ordered daily fantasy sports operators to stop doing business in the state after concluding that they are illegal gambling businesses.

New York AG Eric Schneiderman (pictured) announced last month that he had opened an inquiry into the data leak scandal at DFS operator DraftKings that kicked off the current DFS regulatory panic. On Tuesday, Schneiderman sent both DraftKings and rival FanDuel cease and desist orders on the grounds that they are violating the state’s gambling laws.

The New York Times quoted Schneiderman saying DraftKings and FanDuel were “the leaders of a massive, multibillion-dollar scheme intended to evade the law and fleece sports fans across the country. Today we have sent a clear message: not in New York, and not on my watch.”

New York gambling laws prohibit any contest in which the outcome is dependent to a “material degree” on the element of chance, a fairly low standard. Schneiderman said his investigation had determined that DFS players were “clearly placing bets on events outside their control of influence, specifically on the real game performance of professional athletes.”

A violation of state law would provide the necessary predicate for charges under the federal Illegal Gambling Business Act (IGBA), as Lawrence DiCristina discovered to his chagrin after being caught running an illegal poker game in New York a few years back.

Schneiderman’s missive marks the second US state in as many months to arrive at the conclusion that DFS is gambling, following the opinion issued in October by the Nevada Gaming Control Board. Preet Bharara, the US Attorney for the Southern District of New York of ‘Black Friday‘ fame, is currently conducting his own DFS investigation as to whether the operators are violating federal law.

Schneiderman gave the companies five days to reply with their reasons why he shouldn’t take things to the next legal level. The companies have the option of challenging Schneiderman’s ruling in court and both DraftKings and FanDuel have since announced that they intend to accept Schneiderman’s challenge. Given the size of New York’s DFS market, the companies probably have little choice but to bluff it out.

FanDuel issued a statement calling Schneiderman “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.”

A DraftKings spokesperson said the company was disappointed that Schneiderman “hasn’t taken the time to meet with us or ask any questions about our business model before his opinion.” Schneiderman’s spokesman rejected this allegation, telling the Times that Schneiderman had multiple meetings with company reps prior to cracking the whip.

DraftKings also sent emails to its New York players, asking them to email Schneiderman and express their opposition to his crackdown, while telling him that “New York has bigger challenges than fantasy football.”