Is This the Beginning of the End for Daily Fantasy Sports?

A couple of weeks ago, s@&* hit the fan for daily fantasy sports giants DraftKings and FanDuel (read more here). Now, the companies are taking their fight to court as New York Attorney General, Eric Schneiderman, attempts to strong-arm the multi-billion dollar online gaming operations out of business.

Schneiderman recently sent cease and desist letters to both companies, ordering them to stop operating in New York on the basis that they are in violation of New York State law.

His statement read, in part: “Our investigation has found that, unlike traditional fantasy sports, daily fantasy sports companies are engaged in illegal gambling under New York law, causing the same kinds of social and economic harms as other forms of illegal gambling, and misleading New York consumers. Daily fantasy sports is neither victimless nor harmless, and it is clear that DraftKings and FanDuel are the leaders of a massive, multi-billion-dollar scheme intended to evade the law and fleece sports fans across the country. Today we have sent a clear message: not in New York, and not on my watch.”

Schneiderman isn’t messing around. And, neither are DraftKings and FanDuel.

Both companies have lawyered up, vowing to fight Schneiderman’s “misinformed” allegations in order to continue operating in New York.

New York is a huge market for the sites. Between DraftKings and FanDuel, there are more than 1.1 million active users in New York – 12.8 percent of the daily fantasy sports industry (source: Eilers Research). Experts estimate both companies stand to lose a combined $35 million in revenue per year if they are pushed out of New York.

If other trends are any indication, what happens in New York will likely be mirrored in other states in the coming months. Perhaps DraftKings and FanDuel should be a little bit worried now, if they weren’t before.

In response to Schneiderman’s notice, DraftKings and FanDuel are suing. Both companies vehemently maintain their sites offer games of skill not chance but surprisingly enough, and perhaps even more confusing, they have embraced a gambling designation abroad in the U.K. I’m left scratching my head on that one – it’s okay to be categorized as a gambling site in other countries, but not in the U.S.?

While this will likely be a long legal battle, it could also signal a cascade of legal troubles in other states and at the federal level. Stay tuned for the next installment in this ongoing saga. We’re keeping a close eye on this one.