In likely the final chapter of a case covered previously by this blog, the New York Attorney General recently announced settlements with daily fantasy sport companies Draft Kings, Inc. and FanDuel, Inc.  The companies will each pay $6 million in penalties and fees to the state of New York, in order to settle alleged false advertising violations.  The Office of Attorney General called the settlement agreements “the highest New York penalty awards for deceptive advertising in recent memory,” and Attorney General Eric T. Schneiderman stated, “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 settlements resolve all remaining claims from the pair of lawsuits the New York Attorney General’s office filed in October 2015.  The parties reached a partial settlement in March 2016, when both companies agreed to stop accepting entry fees in New York unless and until New York expressly legalized paid daily fantasy sport games.  The New York legislature legalized (and regulated) daily fantasy sports contests in legislation passed in June 2016 and signed into law by Governor Cuomo in August.  Following this change in the law, the Attorney General’s office dismissed all claims against the companies, except the false and deceptive advertising claims which are the subject of this most recent pair of settlements.

In addition to the monetary payments, the settlement agreements require both companies to disclose on their websites the rate of success of users in their contests, including the percentage of winnings that are won by the top 1%, 5%, and 10% of site users.  Among the A.G.’s findings against the companies were that, while the companies advertised that the average player would win money in their contests, 89% of players on DraftKings lost money.  The Attorney General’s office cited a study by McKinsey & Company, which found that 91% of daily fantasy sports profits “were concentrated in the hands of just 1.3% of players.”  Both companies are also required to make resources available on their websites regarding gambling addictions.

These settlements are significant for both the penalty amounts and for the unusual path the case took, including the involvement of the New York legislature.  They also exemplify the growing regulatory interest in the daily fantasy sports arena.