A probe by New York State's attorney general into the fast-growing, multibillion-dollar daily fantasy sports industry has been expanded to include online media giant Yahoo, a person familiar with the matter told Reuters on Tuesday. CNBC has confirmed the report.
The move coincides with a court filing by Attorney General Eric Schneiderman on Tuesday seeking a temporary injunction that would shut down DraftKings and FanDuel, leaders among online companies offering paid-for daily fantasy sports contests. (Disclosure: Comcast and NBC Sports are investors in FanDuel.)
Yahoo, which operates a daily fantasy sports site, was issued a subpoena by Schneiderman, the person familiar with the matter said. The company was not named in Schneiderman's Tuesday filing.
Daily fantasy sports gaming "is nothing more than a rebranding of sports betting," New York Attorney General Eric Schneiderman said in legal documents filed in a Manhattan trial court amid a widening probe. "It is plainly illegal."
Yahoo does not comment on legal matters, a spokesperson said. "We are monitoring industry trends and events closely and believe that we offer a lawful product for our daily fantasy sports users," the spokesperson said.
Modern fantasy sports started in 1980 and have mushroomed online. Participants typically create teams that span an entire season in professional sports, including American football, baseball, basketball and hockey.
Daily fantasy sports, a turbocharged version of the season-long game, have developed over the past decade. Players draft teams in games played in just one evening or over a weekend.
In response to the state attorney general's push for an injunction, FanDuel stopped allowing New Yorkers to participate in paid contests as of Tuesday afternoon.
"We believe that this restriction is temporary and we hope to be able to offer our paid contests to New Yorkers again very soon," FanDuel said.
DraftKings, however, has pledged to continue running its business as usual in the state.
New York has more daily fantasy sports players than any other U.S. state, according to Eilers Research, so being forced to shut down there could cripple the companies.
A hearing on the injunction is set for Nov. 25.
Game of skill or chance?
The move by Schneiderman, which was expected, followed a failed effort on Monday by the DraftKings and FanDuel to obtain a separate court order that would have headed off Schneiderman's proceeding.
Schneiderman last week sent cease and desist letters to the two companies, demanding that they stop taking money from players in New York state.
While the letter established Schneiderman's view that daily fantasy sports are illegal gambling, he must obtain a court order to shut the companies down in New York state.
Schneiderman, in the legal papers filed on Tuesday, argued that daily fantasy sports contests are not games of skill, which are allowed in the state, but games of chance, citing the companies' investor presentations and comments by their chief executives.
For example, Schneiderman pointed to a DraftKings presentation to prospective investors that makes comparisons to poker and sports wagering.
Moreover, the attorney general said the companies had "basic compliance issues," encouraging their employees to play daily fantasy sports games on their competitors' platforms.
Schneiderman also said in the DraftKings complaint that nearly 90 percent of daily fantasy sports players lost money in 2013 and 2014, citing the company's data.
The injunction requested in New York is the latest threat to the daily fantasy sports industry. The two companies have become the subject of congressional inquiries as well as a ban in Nevada after spending hundreds of millions of dollars on television advertising in 2015.
DraftKings has contacted the sales division of at least one television network asking for flexibility for their ad commitments and are asking to shift some money out of the fourth quarter into the first quarter of next year, according to sources familiar with the situation, who wished to remain anonymous because the conversations were confidential.
A spokesman for DraftKings said the company has not specifically asked to move ads from the fourth to the first quarter.