DraftKings, FanDuel will stop in NY, but appeal, legislation pending

Leading daily fantasy sites DraftKings and FanDuel will stop operating paid contests in New York immediately, the state's attorney general's office announced Monday.

In exchange, New York Attorney General Eric Schneiderman will wait until an appeals hearing is held in Septemberto pursue underlying litigation that, if successful, would force DraftKings and FanDuel to pay restitution to participants who lost money playing the sites' games.

"As I've said from the start, my job is to enforce the law, and starting today, DraftKings and FanDuel will abide by it," Schneiderman said in a statement.

No specific date for the September hearing has been announced, and it may not take place if the state legalizes daily fantasy sports during this legislative session. Several daily fantasy bills have been introduced in the New York legislature, which runs until the middle of June.

New York Rep. Dean Murray, author of one of the daily fantasy bills (Assembly Bill 8588) being considered, says the best-case scenario would be to handle the DFS legislation during the budget process, which could happen within two weeks.

"It's up to the legislature right now," Murray said. "We can fix this immediately, and I think we can do it."

FanDuel issued a statement on Monday: "New York is a critical state for FanDuel. FanDuel is headquartered in Manhattan, where we employ more than 170 young, smart, passionate fans who are committed to innovating and providing the best fantasy experience possible. 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."

DraftKings also issued a statement.

"We are an industry leader in technology, innovation and consumer protections, and we are grateful to the hundreds of thousands of New Yorkers who have enjoyed playing fantasy sports on DraftKings for the last four years," it read. "We will continue to work with state lawmakers to enact fantasy sports legislation so that New Yorkers can play the fantasy games they love."

Schneiderman believes daily fantasy sports violate state gambling laws. The daily fantasy sites have argued that they offer games of skill, not games of chance, and as such are in compliance with state and federal laws.

Schneiderman originally sent a cease-and-desist letter to DraftKings and FanDuel in November and was granted a preliminary injunction by a New York district court on Dec. 11. That same day, the fantasy companies appealed the injunction and won a stay that allowed them to continue to operate in New York for the last three months, which included the rest of the football season.

On Dec. 31, Schneiderman issued an amended complaint against DraftKings and FanDuel, which accused the sites of false advertising practices and asked for restitution. The new deal announced Monday will halt that part of the litigation for now. The attorney general said the deal does allow his office to continue to investigate consumer-protection issues relating to daily fantasy sports.

Schneiderman said in a statement that "my job is to enforce the law, and starting today, DraftKings and FanDuel will abide by it."

"Today's agreement also creates an expedited path to resolve this litigation should that law change or upon a decision by the appellate division," he continued. "Regardless, our key claims against the companies for false advertising and consumer fraud are not affected by the agreement and will continue."

New York residents were responsible for more than $267 million in entry fees and $24.8 million in revenue for daily fantasy sites in 2015, making it the second-largest DFS state behind California, according to industry research firm Eilers & Krejcik Gaming. DraftKings and FanDuel represent more than 90 percent of the daily fantasy market.

FanDuel also recently made a deal with the Texas Attorney General's office to pull out of the fifth-largest daily fantasy state in May. DraftKings, however, elected to pursue litigation versus Texas Attorney General Ken Paxton and continues to operate paid contests in Texas.

Both sites also are in litigation with the Illinois Attorney General's office.

Arizona, Hawaii, Iowa, Louisiana, Montana and Washington state prohibit daily fantasy sports, and Nevada requires a gambling license to operate within the state.

More than 30 states are considering daily fantasy legislation, and last week Virginia Gov. Terry McAuliffe signed a bill legalizing fantasy sports in his state. A bill to legalize fantasy sports has reached Indiana Gov. Mike Pence, as well.

The NBA is an equity owner of FanDuel, and Major League Baseball and the NHL have equity in DraftKings. The NFL does not have a deal with either company at the league level, but 28 of 32 franchises and the NFL Players' Association have marketing agreements with DraftKings or FanDuel.New England Patriots owner Robert Kraft and Dallas Cowboys owner Jerry Jones each have a stake in DraftKings.