Magazine

Game Changers

The debate over fantasy sports may never end

DraftKings and FanDuel call their product games of skill. Regulators call them gambling.

At the beginning of 2015, daily fantasy sports contests for cash were a growing but still niche hobby, played mostly by hard-core sports fans and stats geeks. Then, after raising a staggering $500 million from investors over the summer, Boston-based DraftKings Inc. launched an all-out TV ad blitz to coincide with the beginning of the National Football League season. The spots, featuring ordinary guys winning huge sums, drove thousands of new users to sign up with DraftKings. New York rival FanDuel Inc. also ran ads and boosted its user numbers.

Their moment in the sun would be brief.

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In numerous states, the commercials also drew the attention of attorneys general and federal investigators, who wondered if the contests were just a thinly veiled form of illegal sports gambling. Official suspicions only deepened after revelations that employees of both firms were competing in each other’s contests and, in one notorious case, winning hundreds of thousands of dollars.

That prompted multiple investigations, even as the companies insisted their contests were games of skill — not chance — and therefore legal under the federal Unlawful Internet Gaming Enforcement Act of 2006.

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With controversy swirling, New York Attorney General Eric Schneiderman emerged as the prime public antagonist of daily fantasy sports, taking a far more aggressive approach than his peers in other states. He sued in November, demanding that DraftKings and FanDuel cease accepting entries from players in New York, one of their most lucrative markets. He even threatened to make the companies return the hundreds of millions of dollars in entry fees collected from residents there.

DraftKings and FanDuel fought back with top-shelf lawyers and a nationwide lobbying blitz in state capitals, but they were clearly on the defensive.

Schneiderman’s strident tone amplified jitters among DraftKings’ investors and financial partners. A recent $70 million fund-raising round saw a key investor sharply cut its estimate of the company’s value. Meanwhile, Vantiv Inc., an important payment processor for daily fantasy sports operators, said it planned to quit the market altogether because of legal risks. And several major credit card companies, including Citigroup Inc., are refusing to process customer payments to DraftKings and other companies.

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In Massachusetts, Attorney General Maura Healey opted for a lighter touch, allowing the contests to continue but issuing regulations that limit who can play, how the games are designed, and where companies can advertise.

A complex legal battle is still ongoing, but in March, DraftKings and FanDuel agreed to a cease-fire with Schneiderman. The firms have temporarily stopped accepting paid entries from New York while state lawmakers contemplate a bill that would regulate the contests.

Whatever the outcome, the future of the once-hot daily fantasy sports industry remains deeply uncertain. And for that, you can thank (or blame) Eric Schneiderman.

Dan Adams is a Globe staff writer. Send comments to magazine@globe.com.
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