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Two fantasy sports operators settle false advertising claims with $6 million each

ALBANY –The nation’s two biggest operators of daily fantasy sports wagering have agreed to pay $6 million apiece to settle a legal fight with New York state over allegations of deceptive advertising.

Two months after the fantasy sports contests were made legal in the state, DraftKings and FanDuel on Tuesday entered into a deal with the state attorney general’s office to end a nearly year-old legal tussle.

“Today’s settlements make it clear that no company has a right to deceive New Yorkers for its own profit,’’ Attorney General Eric Schneiderman said in a statement. He said the deal helps ensure “that both companies operate honestly and lawfully in the future.’’

The deal permits the two industry giants to stretch out their penalty payments until late November 2019, when each must make its last payment to the statement of $3 million. Schneiderman’s office said the penalty payments and schedule for making them came after a review that “considered the financial condition” of the two companies.

Besides the financial penalties, the companies signed off on a deal that requires them to:
* “clearly and conspicuously” disclose information about conditions and terms of marketing promotions, details about past or expected winnings and point consumers on their web sites to outlets that provide gambling addiction services
* end any marketing suggestions about the likelihood of success by “casual or novice” players
* and provide information for consumers about relative rates of success, including  “novices” who have played fewer than 50 fantasy sports contests, as well as financial winnings of the top 1 percent, 5 percent and 10 percent – as defined by net profits – over three different time periods.

Those requirements go beyond the provisions of legislation signed into law earlier this year by Gov. Andrew Cuomo that legalized daily fantasy sports contests in New York.

FanDuel said the negotiations with Schneiderman were “tough but fair.’’ It added the company is now focused on its busiest time of the sports year.

“We look forward to providing sports fans, especially our New York users, the contests they love,’’ the company said.

DraftKings, in its written response, said it is “pleased to move forward and as our business continues to grow we are focused on ensuring that millions of passionate sports fans across the country are able to continue engaging in an innovative way with the sports and athletes they love.’’

The dust-up over daily fantasy sports began in earnest last November, when Schneiderman ordered New York-based FanDuel and Boston-based DraftKings to stop doing business in the state. The attorney general said daily fantasy sports  amounted to illegal forms of gambling through games of chance. Moreover, the state alleged the two companies used deceptive advertising “to lure consumers into an unregulated online gambling operation that, while marketed as a game that anyone can win, in fact distributes the vast majority of winnings to a small subset of experienced, highly sophisticated players.’’

Prior to the start of the National Football League season a year ago, the fantasy sports industry – chiefly DraftKings and FanDuel – engaged in an advertising blitz costing hundreds of millions of dollars. Besides getting new customers, the relentless ad campaign also drew the attention of state attorneys general around the country. The two companies control an estimated 95 percent of the daily fantasy sports business in the nation.

Schneiderman earlier this year cut a deal with DraftKings and FanDuel to put on hold a pending court case his office had brought to give time for the industry to see if it could convince legislators and Gov. Andrew Cuomo whether to legalize daily fantasy sports contests.

Lawmakers in June  passed a measure declaring daily fantasy sports contests legal “games of skill.’’ The bill, signed into law by Cuomo, also included new consumer protections and tax obligations on the part of fantasy sports operators.

The law has since been challenged in a lawsuit financially supported by a national anti-gambling organization whose plaintiffs include several Western New York residents. The lawsuit contends lawmakers and Cuomo had no legal right to authorize the contests because expansion of gambling opportunities can only come through a change in the state constitution, such as the 2013 amendment authorizing up to seven new commercial casinos in New York.

Despite his earlier claims about the damage the DFS contests inflict upon consumers, Schneiderman said after the law was passed said his office would defend it. He added, though, that the statute did not stop his office’s investigation that DraftKings and FanDuel had engaged in false advertising and consumer fraud.

Last November, the attorney general said the two companies “deliberately target” demographics prone to problem gambling. He said the contests “are neither harmless nor victimless” and that their ad campaigns “seriously mislead” New Yorkers about their chances for winning and as “a path to easy riches that anyone can win.’’

In a letter to DraftKings, the attorney general noted the company used terms in ads like “It’s the simplest way of winning life-changing piles of cash” and “become a millionaire.’’ FanDuel, meanwhile, had ads noting that “anybody can play, anybody can succeed.’’

In fact, the state claimed, more than 90 percent of DFS dollar winnings – which the attorney general’s office dubbed as going to “professional gamblers” – went to just over 1 percent of DFS players.

The settlement papers noted one player DraftKings highlighted in its ads had won over $2 million playing daily fantasy contests. It failed to note that the person was a high-volume player who had previously worked in sports analytics and that he had lost considerable sums of money both before and after winning most of the $2 million in a single jackpot contest.

Since August, the state Gaming Commission has issued temporary operating permits to nine fantasy sports operators, including DraftKings and Fan Duel. The firms will be eligible to apply for longer term licenses once the agency completes the rulemaking process to implement the new fantasy sports law in the state.

 

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