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Sports in Society

FanDuel, DraftKings To Mount Legal Challenges Against New York AG's Order

FanDuel and DraftKings both plan to mount legal challenges against New York Attorney General Eric Schneiderman, who on Tuesday issued cease-and-desist orders against the companies allowing paid participation from residents in the state. FanDuel co-Founder & CEO Nigel Eccles and outside counsel Marc Zwillinger in a lengthy conference call yesterday declined to outline the specific legal steps in development. However, they said they intend to meet with Schneiderman's office within the next five days to seek a reversal as part of a five-day response window contained in the order. In the meantime, FanDuel said it intends to stay in operation and take entries from New York residents. Eccles and Zwillinger said they will be pursuing their own legal strategy as opposed to coordinating one with DraftKings, which continues to work with counsel Gibson, Dunn & Crutcher on its own legal challenge to Schneiderman. Eccles also stood behind the volume and tone of FanDuel's advertising, but acknowledged that the company's aggressive marketing raised the company's profile and likely helped amplify the scrutiny around daily fantasy. FanDuel has more than 600,000 players in New York, representing about 10% of its entire customer base (Eric Fisher, Staff Writer). In N.Y., Drape & Williams note DraftKings and FanDuel yesterday acknowledged that New York is "vital to the future of their businesses." What happens in the state also will "weigh heavily on lawmakers in nearly a dozen other states that are considering some form of fantasy sports legislation." Eilers Research Managing Dir Adam Krejcik: "If they have to pull out, it sets a negative precedent and would be extremely troubling for the industry. They could withstand the pullout of Nevada. They can’t afford to leave New York" (N.Y. TIMES, 11/12). 

PAYMENT PROCESSING: The WALL STREET JOURNAL's Terlep & Berzon note Eccles "declined to address the matter of whether companies that process player payments, an essential link in fantasy-sports operations, would refuse to do so if the company operated in New York." A source said that FanDuel is "in talks with at least one payment processor over whether to handle funds from players in New York." Money movement "became the key factor in the criminal and civil law-enforcement violations filed against online poker companies" in '10. The stand by FanDuel and DraftKings "came as a smaller fantasy-sports operator announced plans to bar New Yorkers from playing." Mondogoal said it is "eliminating cash fantasy sports play in the state of NY" (WALL STREET JOURNAL, 11/12). In Boston, Adams, Woodward & Fernandes in a front-page piece note some financial institutions that "move money between players and the companies are reviewing their relationships with DraftKings and FanDuel and assessing their legal liability if Schneiderman steps up his enforcement." Vantiv, a "crucial vendor that processes players’ funds" for the DFS companies, even "briefly demanded they immediately cut off entries from New York." Bank of America and AmEx said that they are "continuing to allow customers to use their debit or credit cards to play fantasy sports while the companies monitor the situation" (BOSTON GLOBE, 11/12). Meanwhile, Eccles said that the characterization that everyday players "can't win is also flawed," mentioning that 58% of the customers who played in a football game this year "won at least once" (ESPN.com, 11/11). DFS sites DailyMVP and DraftOps said that they "stopped taking payments in New York" following Schneiderman's order. Both companies added that they would "wait and see how their larger competitors fare in contesting the order" (REUTERS, 11/12).

MLB REVIEWING ORDER: MLB Chief Legal Officer Dan Halem said that the league "was reviewing" Schneiderman's order. Halem: "We haven't seen the decision. We're going to speak to our lawyers and then we'll make a decision if we need to take any action" (N.Y. TIMES, 11/12). The Washington Post’s Kevin Blackistone said major sports leagues "need to divest themselves” from DFS companies ("Around The Horn," ESPN, 11/11). The N.Y. Daily News’ John Harper said, “I never understood how the leagues could be involved in this. It’s such a conflict of interest.” SNY’s Sal Licata said it is “incomprehensible” that leagues and owners are involved in these DFS sites and “get in bed with something where you know is obviously gambling” ("Daily News Live," SNY, 11/11).

ADDING THINGS UP: AD AGE's Anthony Crupi noted unless the presiding judge "issues a temporary order for the two companies to close up shop while their cases are being heard, it could take years for the matter to be litigated." Meanwhile, TV ad sales reps are "particularly interested in seeing how the whole illegal-wagering-vs.-games-of-skill argument shakes out." On the day Schneiderman "sent the cease-and-desist notices, FanDuel spent $206,931 on 226 spots, while DraftKings invested $25,725 on 20 ad units." One month ago, DraftKings "was the No. 2 NFL in-game advertiser (Verizon was No. 1), boasting an outlay" of $29.8M, slightly more than the $24.9M invested by No. 3 FanDuel. Since then, FanDuel has "doubled its one-month spend, leading all comers with an overall NFL tally" of $49.9M. At the same time, DraftKings "has added" just $6.6M to its initial tab, "slipping to the No. 8 slot" with $36.4M in NFL inventory (ADAGE.com, 11/11). Eccles acknowledged that the marketing push "could have played a role in their recent woes" (N.Y. DAILY NEWS, 11/12). More Eccles: "Advertising was a very natural course. We continue to grow that. It's fair to say it put us on everyone's radar as we became mainstream." Eccles added it was "only a matter of time before we got to this level of prominence. Advertising helped us get there faster." ThePostGame.com Founder & CEO David Katz: "This is a case where raising too much money hurt the industry instead of bolstering it. All of that cash created an arms race for users. If DraftKings and FanDuel had simply grown in a quieter, more organic way, they would have been much less scrutinized" (ADWEEK.com, 11/11). 

FROM THE EDITORIAL BOARD: A N.Y. TIMES editorial states even in states where DFS games "are legal, they need to be regulated." Lawmakers should also be "concerned about the effect daily fantasy games have on the bettors." Gambling in "all its forms has always been enticing, and subject to strict regulations." DFS "should be no different" (N.Y. TIMES, 11/12). A NEWSDAY editorial states Schneiderman "may have the law on his side," but the "moralizing and scolding on the ills of gambling in the letters is neither persuasive nor necessary." His argument that the daily fantasy sites are "'fleecing' players and the sites are neither 'harmless nor victimless' won't convince many people." If he "feels those moral convictions so deeply, he should fight to close the horse tracks and casinos, and end the lottery" (NEWSDAY, 11/12). 

LOOKING FOR HEADLINES? SI's Andrew Brandt noted the controversy around the DFS industry has gone on “for months," and for Schneiderman to "get involved now, it just seems like, ‘Well, where were you in August when this barrage of promotional activity -- tens of millions of advertising on all networks -- was happening?’” ("OTL," ESPN, 11/11). CNBC’s Michelle Caruso-Cabrera said Schneiderman "just wants a headline every single day." Caruso-Cabrera: "That’s what he does" (“Fast Money Halftime Report,” CNBC, 11/11). SNY’s Eamon McAnaney said Schneiderman "should have more important things to worry about than FanDuel and DraftKings" ("Daily News Live," SNY, 11/11).

ROBINS SPEAKS: DraftKings co-Founder & CEO Jason Robins said that the DFS site's alleged insider trading-type scandal "caught him off guard and rattled his company." Speaking this week before Schneiderman's order, Robins said, "The business metrics have been fine. The damage has been to our brand, people questioning our integrity, the morale of the company. It was a tough period and still is a tough period" (L.A. TIMES, 11/11). 

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