Daily fantasy faces huge legal test in N.Y. statehouse

Lucas Jackson/Reuters/File

DraftKings Inc. and FanDuel Inc. are in the final days of a frenzied campaign in the state capital of New York, pressing legislators to legalize daily fantasy sports in one of the most important markets for the young industry.

The push in Albany — with about two weeks remaining on the Legislature’s calendar — is part of a multimillion-dollar lobbying effort around the country to get state lawmakers to expressly allow the companies to offer their games without violating local gambling laws.

DraftKings and FanDuel have each suspended operations in New York, forgoing millions of dollars in fees from players, since they were sued by state Attorney General Eric Schneiderman, who contends the games are an illegal form of gambling.

Schneiderman has agreed to drop his legal action if state lawmakers expressly authorize the games. But if lawmakers adjourn June 16 without passing legislation, the court battle resumes, and DraftKings and FanDuel could enter the NFL season shut out of a state that produced an estimated $267 million in entry fees in 2015.

“We’re trying to thread a needle through a very, very small eye,” said Jeremy Kudon, who heads the national lobbying campaign for Boston-based DraftKings and FanDuel of New York.

The legislative barrage has already produced victories in smaller states and a stunning setback in Illinois. That effort stalled in late May after a legislator alleged that one fantasy sports lobbyist suggested votes could be swayed with donations to lawmakers’ favored charities.

DraftKings and FanDuel denied any wrongdoing, saying in a statement the allegation was “simply not how we do business.” But lobbying became so intense that legislators asked the bill’s sponsor, Representative Michael Zalewski, to suspend any action.

Zalewski agreed, but he doesn’t think it will be the last word. DraftKings and FanDuel have continued to run paid contests in Illinois despite that state’s attorney general determining they likely violate local gambling laws, which means players in the state may feel caught in a legal grey area.

“I think people are going to look at us and say, ‘Wait a minute. Why did this not pass? Why are these people not paying taxes? Why are these guys not getting vetted?’ ” said Zalewski.

In New York, lawmakers are considering two different bills; both would levy a 15 percent tax on company revenues, institute licensing fees, require criminal background checks for company officials, and ban games based on college sports.

Fantasy players in the state have sent 50,000 e-mails to New York legislators in favor of the legislation, Kudon said. But the New York Gaming Association, which represents horse-track casinos, argues the state should not allow sports wagering that takes place solely online. “Our position is that it should be done through the brick-and-mortar facilities,” association president James Featherstonhaugh said.

Schneiderman’s office declined to comment on the legislation, but said that regardless of any changes to the gambling laws, “our investigation into potential consumer fraud violations is continuing.”

The New York legislation could have effects far beyond the state’s borders — it’s being watched by regulators in other capitals, and could even influence DraftKings’ and FanDuel’s efforts to raise more money from investors, said Adam Krejcik, whose, firm Eilers & Krejcik Gaming, closely follows the industry. “The loss of New York would not only have negative financial implications, but would also be very bad from a perception standpoint,” he said.

In Massachusetts, Attorney General Maura Healey has enacted consumer protection regulations that allow the games to continue, but ban players under age 21 and require companies to clearly identify experienced players who win most prize money.