The two biggest players in the daily fantasy sports arena agreed to each pay $6 million to settle claims of repeated false advertising violations by the New York attorney general's office.
New York Attorney General Eric Schneiderman said both DraftKings and FanDuel consistently misled consumers in advertisements, often by making it appear novice players had a realistic shot at scoring big payouts when in reality, "most players lost money over time."
"Today's settlements make it clear that no company has a right to deceive New Yorkers for its own profit," Mr. Schneiderman said in a statement issued Tuesday evening. "DraftKings and FanDuel will now be required to operate with greater transparency and disclosure and to permanently end the misrepresentations they made to millions of consumers."
"These agreements will help ensure that both companies operate honestly and lawfully in the future," he added.
Together, the two sites spent an estimated $300 million on national TV advertising in 2015. The settlement agreements impose the highest New York penalty awards for deceptive advertising "in recent memory," the attorney general's office said.
At the heart of the year-long investigation was the fact casual and novice players were at a severe disadvantage when pitted against high-volume and professional players, who often used automated computer scripts and sophisticated statistical and game theory strategies to reap massive payouts.
Both FanDuel and DraftKings gave false and misleading statistics in marketing and advertising about the likelihood that players could win cash prizes and earn a positive return on their entry fees, the attorney general's office said.
The two companies also marketed its contests as harmless fun while failing to disclose the danger to populations at risk for compulsive gaming addiction and deceptively promised to match a player's initial deposit in marketing promotions when in reality, provided "a much less generous rebate on entry fees," according to the attorney general's office.
The agreements will require reforms to the companies' marketing, including clear disclosure of terms and conditions for marketing promotions, expected winnings and expected performance in the online contests, as well as resources for players at risk for compulsive gambling disorders.
Additionally, FanDuel and DraftKings will be required to maintain a webpage that provides information about the rate of success of users in its contests, including the percentage of winnings captured by the top 1%, 5% and 10% of players, the attorney general's office said.
FanDuel and DraftKings' ad spend has dropped sharply from 2015. Last year, from Jan. 1 to Oct. 24, the national TV spend for the sites together was $266.4 million. This year, from Jan. 1 to Oct. 24, the national TV spend for both was $23.9 million, a year-on-year reduction of 91%. DraftKings hasn't spent a dime on 2016 in-game NFL inventory (a year ago at this time, they were up to $34.1 million), and FanDuel is down to $3.29 million this year, down from $54.5 million.
In March, both companies agreed to stop operating paid contests in New York, effectively shutting themselves out of the city's $300 million market. And in September, FanDuel and DraftKings closed $150 million of new funding to help it fight its legal battles.
Boston-based DraftKings and its New York-based competitor FanDuel have faced legal battles over whether their fantasy sports sites constitute illegal gambling. The two companies have disputed that charge, saying their websites offer games of skill rather than chance.
