BUSINESS

Citigroup halts DFS payments in New York; MLB rethinking DraftKings relationship

TAGs: daily fantasy sports, DraftKings, fanduel, FBI, Federal Bureau of Investigation, Internal Revenue Service, IRS, Major League Baseball, MLB, New York

draftkings-mlb-citigroup-daily-fantasy-sports-new-yorkDaily fantasy sports operators DraftKings and FanDuel have been dealt another blow after CitiGroup Inc. announced it would no longer process DFS payments in New York State.

On Friday, Bloomberg Business reported that Citigroup would cease processing DFS transactions in New York pending the outcome of the state Attorney General’s legal action against DFS operators. Spokesperson Jennifer Bombardier said the ban would remain in effect until the courts reached a “final decision.”

New York attorney general Eric Schneiderman launched legal action against DraftKings and FanDuel last November, one week after issuing cease and desist orders to the two operations, based on his opiinion that DFS was illegal gambling under state law. The operators won a permanent stay of Schneiderman’s injunction last month, but a definitive conclusion of this issue is a long ways away.

Citigroup is the world’s biggest credit-card lender, and its loss would be a major blow to DFS operators already reeling from last week’s news that payment processor Vantiv Inc, would cease handling DFS transactions effective Feb. 29. The two main DFS sites are believed to have around 600k customers in New York who generated roughly $200m in entry fees in 2015.

As more and more state attorneys general have echoed Schneiderman’s stance that DFS is illegal gambling, the DFS operators’ responses appear to have been based solely on how much revenue they stand to lose. DraftKings in particular has been publicly defiant – often, abrasively so – in major markets like New York, Illinois and Texas, while it exited Nevada and Hawaii swiftly and without much fuss.

MLB RETHINKING DRAFTKINGS RELATIONSHIP?
The pressure on DraftKings to exit the New York market grew more intense on the news that Major League Baseball is reportedly rethinking its relationship with the company. Last April, DraftKings became the ‘official daily fantasy game’ of MLB but the New York Times reported on Friday that MLB had formally notified DraftKings that the deal was off if the company failed to comply with New York law.

However, Sports Business Journal scribe Eric Fisher (@EricFisherSBJ) has since claimed that the communication from MLB to DraftKings was sent in the immediate aftermath of Schneiderman’s legal action and Fisher’s sources were telling him there was “no imminent changes” planned for the MLB/DK relationship. DraftKings issued its own statement saying MLB had “taken no steps to terminate its relationship with DraftKings.”

Regardless, other troubles may lie ahead for DFS operators. The Times also reported that the Internal Revenue Service and the Federal Bureau of Investigation were investigating the impact DFS sites are having on problem gamblers. The FBI was said to have begun weighing the legality of DFS last October.

The Times has teamed with PBS documentary series Frontline on an in-depth investigation of DFS. Based on the previews of the episode set to air this Tuesday (9), DFS operators should expect the public and political pressure to only ratchet up in the days and weeks to come.

Comments

views and opinions expressed are those of the author and do not necessarily reflect those of CalvinAyre.com