Eleven months after New York Attorney General Eric Schneiderman sent daily fantasy sports companies DraftKings and FanDuel cease-and-desist letters demanding they stop doing business in the state, the war between the official and the two companies is over.
It ended in a $12 million settlement.
The two private tech startups have each agreed to pay the state $6 million over the next three years to settle Schneiderman’s claims of “repeated false advertising.” Conceding such a thing is a hit to their reputations, and a financial setback. (FanDuel reportedly laid off 60 staffers this month.)
But while Schneiderman won the false advertising battle, the companies won the war when the New York State legislature passed a bill in June to legalize and protect fantasy sports. In August, New York Governor Andrew Cuomo signed the bill into law. DraftKings and FanDuel quickly re-opened for paid entries in New York, where FanDuel is headquartered, after having shut down for five months.
Yahoo, parent company of Yahoo Finance, also offers a daily fantasy platform and also shut down temporarily in New York in March, when DraftKings and FanDuel did, though it never received a cease-and-desist from Schneiderman. Yahoo is the distant No. 3 player by market share in the “daily” category of fantasy sports, and behind Yahoo are a number of smaller DFS apps, such as Draftpot (see below Sportsbook video).
Nine months passed from the time of the cease-and-desists to the DFS bill passing, and those nine months cost DraftKings and FanDuel dearly in legal fees, negative headlines, and potentially lost customers. DraftKings and FanDuel reportedly took in a combined $3 billion in entry fees last year.
The question of whether DraftKings and FanDuel would get to continue doing business in New York was resolved in August; now the final piece, the false advertising claim, is resolved.
“Today’s settlements make it clear that no company has a right to deceive New Yorkers for its own profit,” Schneiderman said in a press release on Tuesday. “DraftKings and FanDuel will now be required to operate with greater transparency and disclosure and to permanently end the misrepresentations they made to millions of consumers. These agreements will help ensure that both companies operate honestly and lawfully in the future.”
The most damning part of Schneiderman’s announcement is where the Attorney General highlights four “violations” perpetrated by DraftKings and FanDuel, emphasis ours:
- Misled casual and novice players about the substantial advantages of high-volume and professional players, which included using automated computer “scripts” and sophisticated statistical and game theory strategies;
- Gave false and misleading statistics in marketing and advertising about the likelihood that players will win cash prizes and earn a positive return on their entry fees (in fact, most players lost money over time);
- Deceptively promised to match a player’s initial deposit in marketing promotions, while providing a much less generous rebate on entry fees; and
- Marketed its contests as harmless fun, while failing to disclose the danger to populations at risk for compulsive gaming and addiction or provide responsible safeguards.
But there is one line in the announcement that should please the companies as well as their devoted users: “Today’s settlement agreement resolves all outstanding claims against DraftKings and FanDuel by the Office of the Attorney General.”
DraftKings and FanDuel are hardly out of the woods with legal trouble from state attorneys general: DraftKings doesn’t operate in 10 states where the law is unfriendly to their contests; FanDuel doesn’t operate in 11 (the difference is Texas).
But New York was seen as a key domino, and supporters are hopeful that other states will follow New York’s lead with pro-fantasy sports legislation.