DraftKings, FanDuel Agree to Stop Taking Action in New York

Voluntary Retreat Could Take a Bite Out of TV Ad Sales

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In a development that could have lasting implications for the TV advertising marketplace, fantasy sports titans DraftKings and FanDuel have agreed to stop operating paid contests in New York, effectively shutting themselves out of the Empire State's $300 million market.

According to the provisional settlement agreements signed by New York Attorney General Eric Schneiderman's legal counsel and the attorneys representing DraftKings and FanDuel, both sites will begin blocking New Yorkers from entering their respective contests, effective immediately. Both companies also agreed to allow New York-based users to cash out their accounts within seven days of requesting such a withdrawal.

In exchange for agreeing to stop taking action in New York, the attorney general will hold off on pursuing restitution for players who lost money on DraftKings and FanDuel until an appeals hearing is held in September. If, however, the state legislature passes one of any number of bills to legalize and regulate daily fantasy sports, DraftKings and FanDuel once again will be free to go about their business. The final day of legislative sessions for 2016 is June 16.

Per the terms of the agreement, should the legislature not take any action re DFS and the appellate court subsequently rules against DraftKings and FanDuel in the fall, both sites will make no further appeals.

"As I've said from the start, my job is to enforce the law and, starting today, DraftKings and FanDuel will abide by it," Mr. Schneiderman said in a statement released this afternoon. He added that the state's four counts against the DFS companies "for false advertising and consumer fraud are not affected by the agreement and will continue."

Getting shut out of New York permanently would be a staggering blow for both sites. According to research firm Eilers & Krejcik Gaming, New York residents in 2015 accounted for nearly $300 million in DFS spending, a tally that includes $267 million in entry fees. With an estimated 1.2 million players, New York is the nation's largest DFS market.

DFS-related wagering also has been outlawed in Illinois and Texas.

The potential loss of that much income is likely to have a chilling effect on DraftKing and FanDuel's famously prodigal TV spend. According to iSpotTV estimates, the two DFS companies last year invested a combined $305.5 million on national TV ads, of which more than one third ($107.6 million) was spent on time in NFL broadcasts. In stark contrast, the two have spent just $3.33 million on TV since the year began; in fact, FanDuel hasn't spent one thin dime on TV as of Feb. 1.

While the vast majority of DraftKings and FanDuel's ad spend is placed in September and October, the waiting game in New York may very well disrupt both companies' long-term media planning. Mr. Schneiderman did not offer a firm date for an appellate court hearing, noting only that appeals would be heard sometime in September.

Back in January, incoming DraftKings chief marketing officer Janet Holian told Ad Age that the company's 2016 ad budget would likely be reduced in accordance with the brand's elevated profile.

"New York is a critical state for FanDuel," the company said in a statement released shortly after the attorney general made the compromise public. "We are proud to be one of New York's largest startup companies, and while it is disheartening for us to restrict access to paid contests in our home state, we believe this is in the best interest of our company, the fantasy industry and our players while we continue to pursue legal clarity in New York."

More than half of the 50 U.S. states are pondering DFS legislation, and just two weeks ago Virginia became the first to officially begin regulating the industry. A similar measure awaits the governor's signature in Indiana.

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