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Sports in Society

DFS Gets Reprieve In New York, But Legal Questions Giving Pause To PayPal, BofA

DraftKings "avoided a disastrous shutdown in New York on Friday, but after a tumultuous day in court, the company’s long-term survival in one of its most important markets remained deeply uncertain," according to Adams & Woodward of the BOSTON GLOBE. The emergency reprieve -- in effect until at least Jan. 4 -- "could, for the moment, help DraftKings soothe growing jitters among the financial firms that handle money for the company and provide the lifeblood of its business." But it "did little to ease the fears of avid daily fantasy players, who sense that momentum in the legal battle over the games has turned against them and the industry." FanDuel, which had voluntarily stopped allowing players from New York, on Friday said that it "would again let those customers enter its contests." While the initial order by Judge Manuel Mendez was "suspended later Friday, it underscored DraftKings’ potential vulnerability under New York law and prompted two of its critical financial partners," PayPal and Bank of America, to "say they would no longer facilitate payments to the site from players in that state." PayPal later said that it "would resume payments" after the emergency reprieve was granted. BofA "would not say if it, too, would resume processing payments." A final decision in the case is "not likely for months, and even then it could be appealed to a higher court" (BOSTON GLOBE, 12/12).

FUTURE IMPACT: In N.Y., Joe Drape wrote if the ruling by Mendez is upheld when a panel of judges evaluates it in January, it will be a "major setback to the daily fantasy sports industry." Data from Eilers Research showed that New York, "with more than 1.2 million customers, is the largest market, and the companies will lose" a combined $35-40M in revenue (N.Y. TIMES, 12/12). Meanwhile, ESPN.com's Darren Rovell noted New York Assemblyman Dean Murray has "introduced two bills that would change New York law and make daily fantasy legal in the state." Murray is "confident one of the bills will pass, but it might take a while." The New York Legislature "convenes in mid-January." Murray: "Realistically, you're looking at May or June" (ESPN.com, 12/11). 

STATE OF THE STATES: ESPN.com's Ryan Rodenberg noted a number of states other than New York are also "investigating the legality of DFS under state law." There is pending legislation to "explicitly legalize DFS through regulation" in Pennsylvania, Illinois and Florida, among others. Also, a few members of Congress, including Sens. Harry Reid (D-Nev.) and John McCain (R-Ariz.), have "expressed interest in holding hearings about DFS and traditional sports gambling, but nothing has been scheduled" (ESPN.com, 12/11). In California, Ryan Kartje wrote with DFS operations "clinging to only a tenuous grasp in New York, California could quickly become the industry’s most critical state, given its similarly large user base." The decision in New York "could influence" California AG Kamala Harris to "take action before the state assembly can gather to discuss future legislation." The ruling "could have more serious implications in other states, as well," particularly in Alabama, Alaska, Hawaii, Missouri, New Jersey, Oklahoma, Oregon and Washington, "where the same 'material element test' is used to determine what constitutes gambling." California "uses a 'predominant purpose test,' which differs from those states in that chance" has to play more than 50% of a role in "determining the outcome" (ORANGE COUNTY REGISTER, 12/12). 

HELD TO A DIFFERENT STANDARD? A BOSTON HERALD editorial states Massachusetts has "wisely decided -- at least for now -- that it will indeed need legislation to properly regulate the industry here and assure consumers they are being treated fairly." But in New York, "where people can legally bet on lotteries, horse racing, video slots at racetracks and at some planned casinos, the idea of sitting at a computer and betting on a roster of professional athletes is just too shocking" (BOSTON HERALD, 12/14).

TIME TRIAL: In Toronto, Raju Mudhar writes the timing of TheScore launching its QuickDraft mobile fantasy sports game last week "feels like it couldn't be worse." The Toronto-based media company's new game is "aimed at casual users, with free entry and a smaller roster of five players to pick." It is a "much lower stakes, with smaller prizes and a limited number of entries" (TORONTO STAR, 12/14).

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