The steady erosion of the US daily fantasy sports industry continued Friday, as Citigroup Inc. began blocking credit card payments from its customers in New York to the two largest fantasy operators.
With DraftKings Inc. and FanDuel Inc. battling New York Attorney General Eric Schneiderman, who says the companies are violating gambling laws, players in that state will not be able to use Citigroup cards to deposit money into their accounts, the financial services company said.
“We have taken steps to block transactions at DraftKings and FanDuel by New York residents pending a final decision by the courts,” Citigroup spokeswoman Jennifer Bombardier said in a statement. She did not respond to questions about what prompted Citigroup, one of the world’s largest credit card lenders, to block the transactions. DraftKings declined to comment.
In a statement FanDuel said, “We are unaware of Citigroup’s attempts to prohibit their New York based customers from playing fantasy sports but we are grateful that there are various payment options and companies that allow their customers to make their own decision about what fantasy sports they can play.”
Bank of America Corp. has been declining payments to daily fantasy operators from its customers in New York since December; that block is still in place, the company confirmed Friday. JPMorgan Chase & Co., however, said its New York cardholders can still use its cards on both sites.
Citigroup’s decision, first reported by Bloomberg, comes as Schneiderman has sued DraftKings and FanDuel to force them to withdraw from New York, one of the most lucrative markets for fantasy sports in the United States. DraftKings has previously said it expected to collect about $100 million in entry fees in 2015 from players in New York. Attorneys general in several other states have also determined fantasy sports contests with cash prizes violate their local gambling laws, but none have gone after the companies as aggressively as has Schneiderman.
Under federal gambling laws, financial institutions are particularly vulnerable to prosecution if they are found to handle money related to illegal gambling.
Vantiv Inc., a critical payment processor that handles much of the money flowing in and out of the daily fantasy industry, notified clients last week that it intends to withdraw from the market at the end of February because of legal uncertainty. However, DraftKings previously obtained a court order from a Boston judge that requires Vantiv to continue processing its payments.
Industry experts said that Vantiv’s skittishness and Citigroup’s decision Friday could prompt other financial companies to rethink their involvement in daily fantasy sports. “When a bigger bank takes a position like that, it often sets market expectations,” said Sean Mahoney, an attorney at Boston-based K&L Gates LLP who specializes in banking regulations. “There’s a ‘follow the leader’ mentality.”
Daily fantasy companies are under pressure on multiple fronts, including investigations by federal officials in several states. In response, a trade association of firms including DraftKings and FanDuel has launched a massive lobbying effort to convince state legislatures to explicitly legalize fantasy contests. But that hasn’t stopped anxious banks from taking steps to distance themselves from the controversial industry.
“As the more attorneys general are showing an interest, the more the reputational risk increases for banks,” said Steve Kenneally, vice president of the Center for Payments and Cybersecurity at the American Bankers Association. “This is a dark gray area right now.”
DraftKings has sought to reduce the risk of losing customers at home by expanding abroad. On Friday the company said its long-awaited expansion in the United Kingdom was finally underway.
Meanwhile, the New York Times reported Friday that the US Internal Revenue Service and the FBI are investigating whether fantasy games affect problem gamblers. The Times also said Major League Baseball, an investor in DraftKings, had formally notified the company it was considering ending their marketing agreement if Draft-Kings was not in compliance with New York State law.