DraftKings And FanDuel Gear Up For Court Fight in New York

FanDuel and DraftKings, the two largest daily fantasy sports operators recognized on Wednesday that the state of New York was crucial to the future of their businesses. Both companies stated that they would seek all legal options to stay in operation, despite an order from state attorney general Eric T. Schneiderman that they stop permitting residents to play because their games constituted illegal gambling under state law.

“We’re a legal game,” said Nigel Eccles, the CEO of New York-based FanDuel. “We feel the A.G.’s office has taken the very extreme and very sudden position that New Yorkers are not capable of making their own decisions when it comes to playing fantasy sports.”

FanDuel and its Boston-based counterpart, DraftKings, must also negotiate another potential source of revenue. Financial transaction processor Vantiv Entertainment Solutions told the two companies, among many of its other clients, that they “must require you to immediately stop accepting players from New York” due to the cease-and-desist demand of the state attorney general. Eccles stated that FanDuel was given five business days to respond to the order. Both FanDuel and DraftKings will continue to allow New Yorkers to participate until the deadline.

“We are evaluating all of our options in order to permit New Yorkers to continue playing the daily fantasy sports games they love. Under applicable law, the attorney general cannot and should not shut down daily fantasy sports through fiat and heavy-handed threats without first seeking a court order,” DraftKings’ spokesman added.

New York is home to the multibillion-dollar industry’s largest market, with both companies claiming more than 1.1 million users combined, or 12.8 percent of market share. However, almost a dozen more states are now considering some form of legislation to curb fantasy sports activities.

Nevada regulators, for example, ruled last month that daily fantasy sports should be considered gambling, and thus ordered fantasy companies to suspend all operations until they secured gambling licenses. California comes in at second with 9.8 percent. Adam Krejcik, a managing director at Eilers, said losing New York would cost FanDuel and DraftKings a combined $384 million in entry fees and about $35 million in revenue per year.

Legal experts have also stated that, under the 2006 Unlawful Internet Gambling Enforcement Act, the burden to prohibit restricted transactions falls on payment processors like Vantiv — if they don’t stop accepting the sites’ customers, they risk facing steep civil or criminal punishments.

Sarah Jane Hughes, a banking expert and professor at Indiana University’s Maurer School of Law, stated that banks and credit card companies would be forced to, like Vantiv, quit doing business with daily fantasy sports companies in New York. However, banks would not risk losing the business of retail companies like Amazon, or other online services companies. Daily fantasy sports sites Draft Ops and Mondogoal have already stopped operating in New York.

A long list of sports associations, including MLB and the NBA, as well as other major companies like Comcast, NBC, and Google are among FanDuel and DraftKings’ top investors.

Mark Zwillinger, a lawyer representing FanDuel, said he hoped to convince the New York attorney general that his analysis of fantasy sports did not fit the definition of gambling according to New York law.

“This is the beginning of a legal process,” he said, “and not the end of it.”