Online fantasy sports sites DraftKings and FanDuel have been ordered to cease operations in New York.
The New York Attorney General's Office sent letters to both companies on Tuesday saying they had determined them to be illegal gambling sites and ordering them to cease operations in the state.
"Our review concludes that DraftKings’ operations constitute illegal gambling under New York law, according to which, 'a person engages in gambling when he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence,'" reads the attorney general's letter to DraftKings. "DraftKings’ customers are clearly placing bets on events outside of their control or influence, specifically on the real-game performance of professional athletes. Further, each DraftKings wager represents a wager on a 'contest of chance' where winning or losing depends on numerous elements of chance to a 'material degree.'"
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The letter says DraftKings contests "are neither harmless nor victimless. Daily Fantasy Sports are creating the same public health and economic concerns as other forms of gambling, including addiction."
Boston-based DraftKings issued a statement Tuesday saying it is "very disappointed" in the attorney general's actions.
"We strongly disagree with the reasoning in his opinion and will examine and vigorously pursue all legal options available to ensure our over half a million customers in New York State can continue to play the fantasy sports games they love.
"New York's actions today are an unfortunate example of a state governmetn stifling innovation, technology and entrepreneurship and acting without full and fair consideration of the interests of consumers."
FanDuel said in a statement that "hundreds of thousands of New Yorkers" love the game. "The game has been played — legally — in New York for years and years, but after the attorney general realized he could now get himself some press coverage, he decided a game that has been around for a long, long time is suddenly now not legal."
Legal experts believe this could reverberate in other states like Massachusetts where the online fantasy sites are being scrutinized.
Participants on the unregulated sites can compete in games involving professional or college sports, paying an entry fee that goes into a larger pool. They try to assemble teams that earn the most points based on real-life stats in a given period with a certain percentage of top finishers earning a payout.
Entry fees on DraftKings range from 25 cents to more than $5,000. Some prizes top $1 million.
DraftKings and FanDuel say the sites provide games of skill and not chance and are therefore protected by the 2006 Unlawful Internet Gambling Enforcement Act, which carved out a specific examption allowing fantasy sports.
Fantasy sports has been a popular U.S. pastime for years, but daily contests, where winners and losers are decided in one night, rather than over the course of a season, have exploded in popularity recently. DraftKings and FanDuel have advertised heavily on the Internet and TV ahead of and during the 2015 NFL season.
The sites have come under increased scrutiny since it was revealed last month that a midlevel DraftKings employee playing fantasy football beat more than 200,000 other players, winning $350,000 on rival FanDuel. The case raised questions about insider trading after game data not publicly accessible was inadvertently posted online.
The companies have said their employees didn't appear to violate industry rules but launched internal probes and barred their workers from playing on rival websites.
News of that episode prompted Schneiderman to ask the companies to turn over information.
Nevada regulators ordered the sites to shut down on Oct. 15, ruling that they couldn't operate in the state without a gambling license. States including New Jersey, Pennsylvania, Massachusetts and Georgia have considered enacting their own rules.
NECN and NBC's parent company, Comcast Corp., and NBC Sports are among the investors in FanDuel.