DraftKings and FanDuel have reached an agreement with New York Attorney General Eric Schneiderman to immediately cease operating in the country’s fourth largest state. The sites will remain inoperative in New York until at least September, when the state’s Supreme Court Appellate Division will hear an appeal regarding the injunction against the companies. They can still continue to offer free contests in New York.
DraftKings, which has released a string of bombastic statements even as a number of state attorneys general have said that daily fantasy is illegal in their state, had this sad statement:
Effective today, as part of a settlement reached with the Attorney General’s office, DraftKings will stop offering paid daily fantasy sports contests in New York State.
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 4 years. We will continue to work with state lawmakers to enact fantasy sports legislation so that New Yorkers can play the fantasy games they love.
While there is an appeal to be heard in September, it is possible that the New York legislature comes up legislative solution to the daily fantasy quandary in the interim. According to the Legal Sports Report, the most promising bill is currently in the state Senate, and among other provisions levies a 15% tax on daily fantasy revenue, bans horse racing or college sports contests, and exempts daily fantasy from the gambling code.
The New York settlement comes as it appears DraftKings and FanDuel are belatedly realizing that they cannot litigate daily fantasy into legality in 50 separate states. After the Texas attorney general declared it amounted to illegal gambling, FanDuel reached a settlement to stop operating in the state in May, though DraftKings is still litigating. Legal Sports Reports says that settlement talks are also underway in Illinois, where the attorney general has declared daily fantasy is illegal gambling.
As part of the agreement, in the event that the New York Appellate Division upholds the injunction against DraftKings and FanDuel in September, Schneiderman will:
i. Terminate all of its claims against FanDuel/DraftKings in theActions with prejudice, except that the AttorneyGeneral shall have no obligation to terminate theFalse Advertising Claims;
ii. execute a release of FanDuel/DraftKings in the form attachedas Exhibit E; and
iii. discharge FanDuel/DraftKings from any obligation to theAttorney General to pay restitution, disgorgement, 4damages, civil penalties, fines, fees, expenses orcosts related to the terminated claims.
In other words, one of the incentives for the sites to stop operating in New York for the next six months is that in the event that the court rules they have to cease operating permanently, Schneiderman won’t come after them further. Though it should be noted—and Schneiderman specifically pointe this out in his short statement—that the settlement doesn’t prevent New York from going after DraftKings and FanDuel for false advertising and consumer fraud.