ALBANY – The biggest daily fantasy online sports betting companies have agreed to stop doing business with New York State residents, State Attorney General Eric T. Schneiderman announced Monday.
DraftKings and FanDuel also have agreed to halt their legal challenge to Schneiderman if the companies lose in a coming decision by an appeals court in Manhattan.
The companies, however, are not abandoning efforts to try to add a provision to state law stating that daily fantasy sports contests are legal. Republicans in the Senate have proposed such a provision as part of state budget talks that are underway in Albany.
“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.
The sides also agreed to an “expedited path” to resolve the court fight should the State Legislature legalize daily fantasy sports by June 30, or if the companies lose their court case.
Last year, Schneiderman took the companies to court, alleging that the daily contests on professional and other sports matches amount to illegal gambling. The companies contend that their contests amount to “games of skill” and therefore are not a form of gambling as prohibited in New York.
DraftKings, in a statement Monday, said that it is dropping New York residents as customers but that it will work with state lawmakers “to enact fantasy sports legislation so that New Yorkers can play the fantasy games they love.”
The agreement calls for the two companies to process account withdrawal requests from New York State residents within seven days.
In essence, the deal Monday allows for a legal cooling-off period, turning off daily fantasy sports – at least by the two Web giants – until either a law is passed this spring regulating the industry or an appellate court decides in the companies’ favor, probably sometime in September.
State Sen. John J. Bonacic, R-Mount Hope, chairman of the Senate Racing, Gaming and Wagering Committee, said advocates, of which he is one, believe that daily fantasy sports, known as DFS, can be included in the budget that officials in Albany are trying to wrap up sometime next week. “I think it’s a no-brainer,” Bonacic said, adding that a constitutional amendment is not needed because fantasy sports are games of skill.
The Senate is pushing a proposal to require fantasy sports companies to pay an upfront licensing fee and a percentage of profits on New York wagers. “I think it’s something that’s a strong possibility because it’s a revenue-raiser,” Bonacic said.
Bonacic said “front people” for Gov. Andrew M. Cuomo have asked the Senate about how much a regulated fantasy sports industry in New York might be worth in annual revenues for the state budget. That projection, Bonacic said, could come as early as Tuesday.
Assemblyman J. Gary Pretlow, D-Mount Vernon, chairman of the Assembly Racing and Wagering Committee, said he supports regulating daily fantasy sports in New York that would include consumer protections such as ways to make it harder for minors to spend money on the contests. “I’m just not going to do something willy-nilly. It could be part of the budget, but I doubt it,” he said Monday.
A Cuomo spokesman did not provide the governor’s position on daily fantasy sports, and said only that the administration looks forward to reviewing Monday’s settlement and legislative proposals.
Schneiderman did not address specific legislative ideas for the fantasy sports industry. “The law has to be changed if they’re going to operate. We’ll see what happens in Albany,” he said in a Manhattan news conference.
FanDuel said that it is “disheartening for us” as a New York-based startup company to have its business restricted in the state. It added, though, that the settlement “is in the best interest of our company, the fantasy industry and our players while we continue to pursue legal clarity in New York.”
The agreements come in the midst of the NCAA basketball Tournament; the Boston Globe last week reported DraftKings and FanDuel have offered a total of $900,000 in prizes based on those games.
Daily fantasy sports offer contests, or gambling depending on one’s view, on everything from pro football and baseball to golf, mixed martial arts and NASCAR.
In January, an appeals panel sided with DraftKings and FanDuel and said the companies could continue taking contest money from New York residents while the case brought by Schneiderman made its way through the legal system. FanDuel had stopped its New York business, but started back up after that decision; DraftKings, maintaining its business is legal in the state, did not halt doing business with New York residents until Monday.
The attorney general, according to the settlement deals made public Monday, agreed to stop all legal cases against the two companies if the Legislature and Cuomo enact legislation to specifically permit and regulate daily fantasy sports contests. The companies, if successful in their legislative lobbying campaign, agreed that if they are successful at the Capitol, they would limit future contests in New York “only to the extent permitted” by any such law.
The agreement states that the two companies can offer free daily fantasy sports leagues or “other contests that offer prizes of value to entrants” so long as they do not charge an entry fee to consumers. Such fees are the financial bread and butter of the daily fantasy sports companies.
The sides said Monday that DraftKings and FanDuel will use existing software to block contests by people who are physically located within the state’s borders. The ban will apply to residents of the state and to visitors while physically located in New York.
The legal case involving DraftKings and FanDuel will end if there is no change in the law regarding daily fantasy sports contests and if a state appellate court that is reviewing the dispute affirms an earlier State Supreme Court ruling or determines that Schneiderman has “shown a likelihood of success on the merits in the action.”
Monday’s deal “shall not bind” the sides to “any course of action” if the two companies win at the appellate court level and there is not an “explicit finding” that Schneiderman’s case has a likelihood of success.
Lawmakers said the agreement gives a window for the daily fantasy sports industry to press its case in Albany.
“They’re leaving it in the hands of the Legislature to make them legal. As they’re constituted now, they’re illegal,” Pretlow said.
Senate Republicans have proposed that the state’s Department of Financial Services regulate daily fantasy sports. Asked on Monday why, given that the state Gaming Commission regulates such activities as casinos, the lottery and charitable gambling, Bonacic said that it came at the request of the fantasy sports industry. “While it was pending judicial action, (the industry) felt that if we put it under the Gaming Commission, it’s gambling and it would hurt their chances in the court proceeding,” Bonacic said.
With Monday’s agreement, Bonacic said, the Senate would be open to amending the proposal to have the Gaming Commission regulate daily fantasy sports.