DraftKings and FanDuel have agreed to pay million apiece in a settlement of a false advertising suit brought by New York’s Attorney General Eric Schneiderman.
New York passed legislation in June to legalize daily fantasy sports in the state, but the suit stems from a blitz of advertising the two companies engaged in at the start of the 2015 NFL season. The suit charged that the companies deceived players on their chances of winning substantial cash prizes.
“Today’s settlements make it clear that no company has a right to deceive New Yorkers for its own profit,’’ Schneiderman said in a statement. He said the deal helps ensure “that both companies operate honestly and lawfully in the future.’’
Under the deal, the two companies can disperse their penalty payments until late November 2019, when each must make its last payment of $3 million. Schneiderman’s office said the payment schedule was set after a review that “considered the financial condition” of the two companies, according to the Buffalo News.
The deal also requires the two companies to “clearly and conspicuously” disclose information about conditions and terms of marketing promotions, details about past or expected winnings and point consumers on their web sites to outlets that provide gambling addiction services, the paper said.
The companies must also end marketing suggestions about the likelihood of success by “casual or novice” players and provide information for consumers about relative rates of success, including ‘novices’ who have played fewer than 50 fantasy sports contests, as well as financial winnings of the top 1 percent, 5 percent and 10 percent – as defined by net profits – over three different time periods.
Those provisions were not included in the state’s DFS legislation.
FanDuel said in a press statement that the negotiations had been “tough, but fair.’’
“We look forward to providing sports fans, especially our New York users, the contests they love,’’ the company said.
DraftKings said in a statement that it is “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.’’
In November 2015, Schneiderman made one of the most high profile moves against the DFS industry by ordering the two sites to stop operating in the state charging that they were in violation of state gambling laws. That set off a legal battle with the sites—which contend that DFS is a game of skill and not gambling—that ultimately ended when the state legalized daily fantasy sports.
But Schneiderman also charged that the sites used deceptive advertising “to lure consumers into an unregulated online gambling operation that, while marketed as a game that anyone can win, in fact distributes the vast majority of winnings to a small subset of experienced, highly sophisticated players.’’
That was just the start of the massive fall out the 2015 advertising blitz brought to the industry as it drew attention from regulators throughout the country. The two sites have been fighting a state-by-state legal battle ever since.
The settlement comes as both companies are reportedly having serious cash flow problems as they continue to pay legal and lobbying fees around the country. The New York Times reported that New York-based FanDuel has laid off more than 60 people in recent weeks and both companies have acknowledged that they are months behind in their payments to vendors.
In other DFS news:
FanDuel has closed its eSports site Alpha Draft, which sought to combine daily fantasy sports type games with eSports competitions.
The announcement was made in an email to players.
“As we continue to evaluate the eSports landscape, we are announcing that we have made the difficult decision to stop offering fantasy eSports contests on AlphaDraft as of Friday, 21October, at the conclusion of the League of Legends World Championship.”
AlphaDraft was purchased by FanDuel in September 2015. However, the purchase was made just weeks before an “insider trading” scandal at DFS sites brought increased regulatory attention to the industry, which has been facing legal challenges in several states ever since.
Vulcun, another eSports fantasy site closed in January, meaning that both major sites for the briefly flourishing eSports fantasy industry are now gone.
Also, several large Australian media companies are expressing interest in DFS in that country.
According to Yogonet.com, News Corp has formed a joint venture called DraftStars Pty Ltd with CrownBet and the Seven Network, offering fantasy sports contests on a range of local and international sports.
News Corp is also reportedly considering launching an Australian version of its UK-based fantasy betting business Sun Bets. Australia’s largest wagering company, Tabcorp, is also a shareholder in Sun Bets, which markets novelty and fantasy betting services to more than one million British soccer fans.
