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FanDuel vows to fight N.Y. cease-and-desist

The offices of FanDuel, a leading daily fantasy sports operator, in New York. Michael Nagle/The New York Times

The country’s two largest daily fantasy sports operators, DraftKings Inc. and FanDuel Inc., are barreling toward a showdown with New York’s top law enforcement official, refusing for now his order that their contests be closed to state residents because he says the games amount to illegal gambling.

FanDuel chief executive Nigel Eccles said Wednesday his company will continue to accept entries — and money — from New York residents for this weekend’s contests while it explores legal options to prevent Attorney General Eric Schneiderman from restricting those customers.

“New Yorkers can certainly play on FanDuel,” Eccles said. “We’re going to use every avenue we can to stay open. We’re going to engage with the AG’s office, we’re going to look at other legal routes that we may want to take.”

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Boston-based DraftKings said in a statement that it was also exploring legal avenues to continue accepting players from New York. The company and FanDuel insist they do not engage in illegal gambling, even as their operations are under scrutiny by officials in many other states.

“Under applicable law, the attorney general cannot and should not shut down daily fantasy sports through fiat and heavy-handed threats, without first seeking a court order,” DraftKings said.

Both companies cited a provision in New York law they said gives them five days to comply or respond to Schneiderman’s edict. FanDuel said it will attempt to meet with the attorney general. Neither company said definitively that it would take Schneiderman to court.

Schneiderman’s finding Tuesday that DraftKings and FanDuel were running illegal gambling operations reverberated widely through the daily sports fantasy industry and beyond. Several of the smaller fantasy companies quickly closed off their games to New York players, even though they were not ordered to do so by Schneiderman.

Some financial institutions that move money between players and the companies are reviewing their relationships with DraftKings and FanDuel and assessing their legal liability if Schneiderman steps up his enforcement. A crucial vendor that processes players’ funds for the companies even briefly demanded they immediately cut off entries from New York.

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The trade publication Legal Sports Report said Wednesday that the vendor, Vantiv LLC, sent the request to several fantasy sports companies that read, in part: “We must require you to immediately stop accepting players from New York. Please acknowledge the receipt of this notice and confirm you are updating all location controls to block players from this jurisdiction.”

People with knowledge of the Vantiv letter told the Globe that both DraftKings and FanDuel received the request, but said the vendor later relented and agreed to continue processing payments after talks with the companies. These people requested anonymity because they were not authorized to speak publicly about the companies’ business relations.

Vantiv did not return requests for comment.

The stakes are potentially very high for financial institutions, which can be prosecuted under federal law for facilitating betting transactions that violate state gambling laws, according to legal specialists in the field.

The tone Wednesday among financial companies was of uncertainty.

Jason Oxman, the chief executive officer of the Electronic Transactions Association, whose members include PayPal, Bank of America Corp., and Vantiv, said his group fielded numerous questions from its companies about Schneiderman’s order.

“We are working quickly to understand the different state rulings and the applicability of federal law as well,” Oxman said. “It’s a complicated jurisdictional analysis.”

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For now, several of the banks and payment processors contacted by the Globe seemed to be taking a wait-and-see approach.

Bank of America and American Express said they are continuing to allow customers to use their debit or credit cards to play fantasy sports while the companies monitor the situation. An American Express spokesman added the company relied on merchants to follow applicable laws, a sentiment echoed by Mastercard. PayPal and Visa each said it would work with merchants and other financial institutions to ensure they complied with the law.

Sarah Jane Hughes, a professor at the Indiana University Maurer School of Law who specializes in banking and payment systems, suggested that financial companies are preparing to restrict accounts from New York if DraftKings and FanDuel lose their fight with Schneiderman.

“Any financial institution that’s handling significant traffic for these sites in New York is probably madly trying to readjust their” systems that identify where customers are located, Hughes said, “and reevaluating whether to do business with them as commercial customers at all.”

In fantasy sports, competitors assemble virtual teams from professional rosters and score points based on the individual performances of the players on game day. Cash prizes for some contests can reach $1 million, and the industry is projected to collect nearly $4 billion in revenues this year.

The companies maintain their games don’t amount to illegal online gambling because of an exemption for fantasy sports in a 2006 federal law. But state laws on the matter vary, and regulators across the country are taking a fresh look at whether the industry should be more tightly regulated.

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The companies’ legal troubles stem from an incident in October, when a DraftKings employee mistakenly posted critical player information online and then won $350,000 playing on FanDuel later that week. Both companies said the worker, Ethan Haskell, couldn’t have altered his winning entry after accessing the information. But the incident prompted Schneiderman as well as US attorneys in Manhattan and Boston to investigate. The federal prosecutor in Tampa has reportedly convened a grand jury to review the legality of the games.

Then on Tuesday, Schneiderman issued a cease-and-desist order to DraftKings and FanDuel “from illegally accepting wagers in New York.” His office said the companies may avoid being sued if they closed off entries to New York residents and respond within five days. But a spokesman stressed the cease-and-desist order is effectively immediately.

While many fantasy sports players think Schneiderman will lose in court, at least one in New York said he was closing down his accounts and advising his friends to do the same.

“Better to take my money out and see what happens than get caught with my pants down,” Paul Rodriguez, a longtime fantasy sports player from Long Island, said in an interview.


Dan Adams can be reached at dadams@globe.com,
Curt Woodward at curt.woodward@globe.com, and Deirdre Fernandes at deirdre.fernandes@globe.com.