Boston-based daily fantasy sports company DraftKings Inc. said late Tuesday that it will withdraw from Hawaii, where it was under pressure from officials who said its contests for cash are illegal under state gambling laws.
Last week, Hawaii Attorney General Douglas Chin ruled that the games offered by companies like DraftKings and its rival, New York-based FanDuel Inc., are illegal. Then, Monday, a Honolulu county prosecutor sent the company a cease-and-desist order demanding the companies stop allowing residents there to enter their contests.
“While we disagree with the Attorney General’s opinion because daily fantasy sports are games of skill permitted under Hawaii law, we are hopeful our constructive engagement with Hawaii legislators will promptly address the issue so that our loyal fans can continue to enjoy the games they love without anyone questioning the legality of their conduct,” DraftKings said in a statement. “In the meantime, we will voluntarily pause operations in the state but hope to resume soon.”
A person familiar with DraftKings’ thinking said the company decided to withdraw from the state in part because Hawaii is a small market, but also because Chin’s ruling insinuated that daily fantasy players, not just operators, could be held liable for breaking state law. The person also said the company was hopeful about the prospects of a bill in the Hawaii legislature that would explicitly legalize fantasy contests, allowing it to resume operations there.
FanDuel declined to comment. Both companies voluntarily withdrew from Nevada last year, after regulators ruled that fantasy sports operators needed to secure gambling licenses.
Honolulu Prosecuting Attorney Keith M. Kaneshiro sent cease-and-desist letters Monday to the two companies, citing Chin’s ruling.
“Hawaii’s gambling laws are clear and DraftKings and FanDuel are violating those laws,” Kaneshiro said in his letter, according to a copy posted on his office’s website. “I must demand that DraftKings and FanDuel immediately halt accepting wagers from Oahu residents and refrain from doing further business on Oahu.”
Last week, the companies each said they disagreed with Chin’s opinion, arguing their games should be considered legal contests because of the skill participants exercise in choosing promising fantasy lineups.
The law could change, however, as Hawaii legislators are pondering several bills that would regulate daily fantasy sports by requiring the operators to register with state authorities. A separate bill, meanwhile, would make promoting those contests explicitly illegal.
Besides Hawaii, attorneys general in Texas, Illinois, Mississippi, and Vermont have said that daily fantasy sports games violate state gambling law.
The most serious challenge has come from New York’s attorney general, who is asking a judge to shut down DraftKings and FanDuel in that state.
Some daily fantasy companies are also facing the loss of the industry’s largest payment processor, Vantiv, which has vowed to withdraw from daily fantasy sports later this month.
Massachusetts regulators have said state law is unclear on the subject and have instead proposed increased regulation of the industry. Attorney General Maura Healey is finalizing a long list of consumer protection measures, including a ban on players under 21 and elimination of fantasy contests based on college sports.