-
Deceptive Advertising Settlement Between Online Gambling Sites And NYAG Serves As Reminder Of NYAG’s Broad Mandate For Consumer Protection
10/31/2016On October 25, 2016, New York Attorney General (“NYAG”) Eric Schneiderman announced settlements with daily fantasy sports providers DraftKings, Inc. (“DraftKings”) and FanDuel Inc. (“FanDuel”) that resolved claims that the companies had violated New York’s deceptive advertising laws by, among other things, failing to disclose the significant technological advantages enjoyed by more sophisticated players and overstating the likelihood of winning large cash prizes. Settlement Agreement, In the Matter of DraftKings, Inc. (Oct. 25, 2016); Settlement Agreement, In the Matter of FanDuel Inc. (Oct. 25, 2016). Under the terms of the settlements, DraftKings and FanDuel each agreed to pay $6 million in penalties and costs and reform their marketing efforts to align with a series of highly specific demands for disclosure by the NYAG.
Daily fantasy sports games are web-based games where participants create “virtual rosters” of professional athletes and score “points” based on the athletes’ performance in real-world games. In general, fantasy sports players who accumulate the most points win cash prizes, while the service providers, e.g., DraftKings or FanDuel, profit from participation fees collected from players. The NYAG sued DraftKings and FanDuel on November 10, 2015, claiming that the games violated New York’s statutes regarding gambling and false and deceptive advertising. The NYAG’s gambling claims were rendered moot after the New York legislature passed legislation that legalized the games on June 18, 2016, and New York Governor Andrew Cuomo signed the legislation into law August 3, 2016. The October 25 settlements resolved the NYAG’s remaining claims for false and deceptive advertising under New York Executive Law § 63(12) and General Business Law §§ 349-50.
The NYAG alleged that the companies had engaged in deceptive advertising by leading participants to believe that all players had the same chance of winning with a minimal investment of time, when in fact a small percentage of high-volume players who engaged in extensive research and used complex algorithms won most of the prize money. In addition, the NYAG claimed that the companies’ advertising promoted “average” winnings without acknowledging the frequency of losses, misrepresented a promotion that ostensibly promised to match participants’ initial deposits, and failed to disclose risks of gambling addiction.
The settlement serves as a reminder of the power the NYAG can wield through the enforcement of consumer protection statutes. The settlement requires broad reforms of DraftKings and FanDuel’s marketing materials and consequently provides what the NYAG clearly believes will be significant protections for consumers. The affirmative requirements of the settlements obligate the companies to “clearly and conspicuously” disclose all material facts concerning the performance of participants in the companies’ daily fantasy games whenever the companies make any general or specific statements about the participants’ performance. In addition, the companies are required to provide information on success rates of its users, including information on what percentage of winnings are captured by the top one, five, and 10 percent of players and maintain records sufficient to substantiate all representations made in all promotional materials for four years from the date that the material is distributed. While the details of the settlements are obviously highly specific to the nature of daily fantasy games, the fact that the NYAG sought to so completely define the manner in which the companies may advertise going forward is a reminder of the NYAG’s power in this area. No different from the Consumer Financial Protection Bureau, the NYAG is taking an aggressive approach to reforming areas where it believes consumers have been harmed.
