New York AG Schneiderman Announces $12M Settlement with DraftKings, Fan Duel

The office of New York State Attorney General Eric T. Schneiderman today announced twin settlements regarding false advertising claims made by the world’s two largest daily fantasy sports [DFS] service providers, FanDuel and DraftKings.  According to terms of the two settlements, each company will pay $6 million to New York to resolve the remaining counts of the legal actions, which were first brought against the two sites last year.

Seal-of-New-York-3FanDuel and DraftKings had already reached a partial settlement in March with Schneiderman’s office regarding additional allegations.  That earlier settlement allowed the two companies to resume offering their services to New York residents in the event the state formally legalized DFS play, which the state’s legislature did this past summer, even as legal action continued on the false-advertising claims.

According to a statement issued by Schneiderman’s office, the false and deceptive advertising practices included the following, where the two companies:

  • 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.

“Today’s settlements make it clear that no company has a right to deceive New Yorkers for its own profit,” said Schneiderman. “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.”

DraftKings was the first of the two firms to confirm the settlement.  In a brief statement, the company noted, “Today’s settlement concludes the process that we began with the New York Attorney General’s office last March. We are pleased to move forward and as our business continues to grow, we are focused on ensuring that millions of passionate sports fans across the country are able to continue engaging in an innovative way with the sports and athletes they love. We are grateful for the support we’ve received from hundreds of thousands of New Yorkers, leading to a regulatory framework for fantasy sports that was confirmed by New York lawmakers and Governor Cuomo last summer.”

A similar statement is expected from FanDuel, and it will be appended into the story when it becomes available.

The settlement had been rumored to be near completion in recent days.  Those rumors proved true, even as Schneiderman’s AG office executed a contingency plan by moving for a extension in the case, in the event filing an amended complaint turned out to be necessary.

Almost unaddressed in the settlement are business-world rumblings that the two DFS giants are cash-strapped, and set to merge with each other.  Last weekend, a New York Times feature cited unspecified corporate sources within the two firms as saying that a merger might become a necessity, and both companies were claimed to be behind on payments to third party vendors and service providers.

However, one paragraph in the statement from Schneiderman’s office did suggest that the companies’ current financial state may have played a factor in the settlement amount:

“The agreements cover penalties for the deceptive advertising. The Attorney General’s Office reviewed and considered the financial condition of the companies in determining the amount and schedule for the settlement payments.”

Also among a multitude of future scenarios are that attorney’s general offices in other states might view the New York prosecution as incentive to launch their own cases, in the hopes of culling similar settlements from the companies.  Some US states have already made legal examinations of the DFS industry, with roughly equal numbers of states declaring the activity either legal or illegal under state gaming laws.

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