In what many predicted to be an inevitability, the daily fantasy sports (DFS) industry’s two leading operators, DraftKings and FanDuel, are taking to the courts to defend the legality of their games. The outcome of the legal proceeding will reverberate nationwide and could have a profound impact on the rapidly-growing DFS marketplace.
Last month New York Attorney General Eric Schneiderman initiated an investigation into the business operations of DraftKings and FanDuel, following allegations of potential misuse of nonpublic data by a DraftKings employee. An independent investigation has since cleared that employee and the company of any wrongdoing. On November 10, however, the Attorney General upped the ante, sending a self-styled “cease-and-desist” letter to both companies, in which he declared their DFS offerings to be “illegal gambling” under New York law and demanded that they stop accepting “wagers” from New York residents. According to Mr. Schneiderman, via press release, DraftKings and FanDuel were the “leaders of a massive, multibillion-dollar scheme intended to evade law and fleece sports fans across the country.” The New York Attorney General punctuated his conclusion with the proclamation, “Today we have sent a clear message: not in New York, and not on my watch.”
The Companies’ Response
As expected, neither DraftKings nor FanDuel have taken the threat to their respective businesses lying down. Three days after the Mr. Schneiderman’s cease-and-desist letter, both companies independently filed similar lawsuits seeking, among other things, for the court to declare their DFS operations legal under New York law and enjoin the Attorney General from taking any enforcement actions.
The litigation process is also often a slow one, so it could take many months, if not years, to resolve the conflict pending in Manhattan. Further, the Attorney General’s cease-and-desist letter was only directed at FanDuel and DraftKings, and their respective games. Accordingly, a number of DFS operators have made the decision to continue to operate in New York, so New Yorkers are not without DFS options. The impact of a court ruling, however, could be substantial.