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Fantasy Sports put on hold in New York

Two largest operators agree to pause New York entries while legislature considers regulation

On March 21, 2016, New York Attorney General Eric Schneiderman announced that, effective immediately, the two largest operators of daily fantasy sports contests will close their contests to New York residents. In a just-issued press release, Schneiderman announced he had reached separate agreements with FanDuel and DraftKings in which the companies will stop accepting entries from New York residents, and in exchange, the Attorney General will drop most of his claims for disgorgement and restitution of prior revenues. FanDuel is based in New York City.

The parties will also ask New York’s Appellate Division for a stay that would delay ruling on the legality of daily fantasy sports until September. If granted, a stay would allow a window of time for New York’s legislature to enact a regulatory scheme which is acceptable to both sides without risk of the disruption that would be caused by a definitive legal ruling. 

In November, Schneiderman issued a cease-and-desist letter to both FanDuel and DraftKings, and the companies responded by filing lawsuits seeking a ruling on the legality of their contests. It is these lawsuits that are the subject of the stay request.

There has been a flurry of legal activity all around the United States in the daily fantasy sports industry in recent weeks. The industry appears to be moving towards a model where states exempt daily fantasy contests from their gambling laws but closely regulate them and charge expensive licensing fees that would eliminate all but the biggest operators. 

Earlier this month, Virginia became the first state to enact legislation into law; Virginia will now require a $50,000 annual registration fee. In January, Texas’ Attorney General issued an opinion that daily fantasy sports violate state gambling laws, but last week, FanDuel and DraftKings entered into agreements with Texas similar to the ones announced in New York today.

TAKEAWAY: Fantasy sports are subject to the laws of fifty different states plus the District of Columbia, Puerto Rico, etc. The law is currently in a state of flux with new developments literally every week so be sure to consult with an experienced attorney before entering the business of daily fantasy sports.

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