DraftKings Inc. is rebutting allegations that it collected nearly $500,000 in entry fees from players in five US states where daily fantasy sports games are considered banned.
The company filed documents in response to New York Attorney General Eric Schneiderman, who has questioned whether DraftKings is abiding by the anti-ambling laws of those five states. Schneiderman has sued to shut down DraftKings and its rival FanDuel Inc. in New York, saying daily fantasy sports are a form of gambling prohibited by state law.
A judge in Manhattan is expected to rule soon on Schneiderman's request for an emergency order to stop the companies' from accepting New York players. FanDuel has already voluntarily cut off those customers.
In its rebuttal, DraftKings said its team of data analysts tracked down more than 250 players whose accounts were in some way associated with the states of Washington, Montana, Louisiana, Iowa, and Arizona.
It found that most of the nearly $485,000 in disputed fees from 2014 proved to be from players who actually lived in other states where daily fantasy sports is permissible. DraftKings didn't say why the players' accounts were initially associated with banned states, but its court filings suggested that players may have moved, had residencies in multiple states, or even mistakenly filled out their online registration forms.
"Less than 8 percent appear to have come from the states where Draft-Kings declined to accept play, and DraftKings shut down those user accounts," Gregory B. Karamitis, the company's vice president of analytics, said in an affidavit filed in court.
DraftKings declined to comment.
It was not clear if DraftKings' explanation would mollify regulators in those states who previously said they were probing the claims of improper payments. Those states have highly restrictive gambling laws, and Draft-Kings and other companies say they use software to block those residents from entering cash contests.
In its court filings, DraftKings said it also had relied on employee investigations to verify a player's address after they registered from a potentially banned state. Their methods included checking their addresses in commercially available databases, and corresponding with the users, who sometimes supplied information from their personal ID cards.
The disputed fees are a fraction of the $300 million-plus that DraftKings said it collected from players in 2014.
Schneiderman's allegation prompted the Washington State Gambling Commission to launch an investigation of the player fees, while Arizona Attorney General Mark Brnovich sent letters to the companies asking for more information about player accounts in his state.
Brnovich's office said it could not immediately comment on the information provided by DraftKings. A spokesman for the Washington State Gambling Commission said the agency's investigation is ongoing and declined to comment further. Schneiderman's office did not respond to requests for comment.
The vast majority of fees in question — about $366,000 of the nearly $485,000 that Schneiderman identified — came from one player , Draft-Kings said.
The company said it used an identity-search service to verify the player had lived in an approved location since 2002. The apparent conflict came because the player also had listed a dual residence listed in Washington state beginning in late 2013.
The court filings also hinted at how some users may have slipped through the cracks in DraftKings' system, and noted that a few accounts were shut down only in the past few weeks.
One player listed as spending about $2,000 last year apparently lived near Tacoma, Wash., without being flagged. "Systems never detected geographic location," DraftKings' files said. "Restricted now."
Curt Woodward can be reached at email@example.com.