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New York’s daily fantasy sports crackdown puts pro sports leagues in precarious positions

A DraftKings promotions tent is set up in the parking lot of Gillette Stadium home of the New England Patriots. (Charles Krupa/AP Photo)

On opening day in Washington, Major League Baseball Commissioner Rob Manfred outlined his league’s stance on daily fantasy sports compared to traditional sports betting. The league owned an equity stake in DraftKings, yet Manfred saw no contradiction with MLB’s anti-gambling stance. “The difference is, one’s legal and one is not,” Manfred said. “It’s a pretty definitive line.”

The line blurred significantly Tuesday evening for leagues with a stake in the embattled daily fantasy sports industry. New York Attorney General Eric Schneiderman found daily fantasy sites DraftKings and FanDuel in violation of the state’s gambling laws and sent both companies cease-and-desist letters to stop accepting payments – “wagers,” in his words – from New York residents.

[New York Attorney General labels daily fantasy gambling]

Daily fantasy is under fire. The leagues that profit from it may be up next. Questioned about the leagues’ responsibility regarding daily fantasy, a spokesman in the New York attorney general’s office declined to comment, but did not rule out that it was an area of focus in the investigation.

The NBA, MLB, NFL and NHL all operate out of Manhattan. Just as MLB owns a little piece of DraftKings, the NBA owns a small percentage of FanDuel. The NHL shares an extensive marketing agreement with DraftKings. The NFL has attempted to keep the companies at arm’s length, but multiple team owners are heavily invested in both companies, and the league’s network partners draw massive advertising dollars from both of the daily fantasy titans.

During the emergence of daily fantasy sports, leagues profited financially and benefited from the increased engagement and exposure the sites provides. As the companies come under attack, leagues must grapple with their responsibility and role in an industry coming under ever-increasing scrutiny from lawsuits, federal inquiries and government overseers.

[How FBI investigation could impact daily fantasy players’ money]

On Tuesday, before Schneiderman’s announcement, Rep. Frank Pallone (D-NJ) and Sen. Robert Menendez (D-NJ) called for the Federal Trade Commission to investigate the relationship between the daily fantasy industry and sports leagues. Pallone, a ranking member on the House Energy and Commerce Committee, requested a congressional hearing about daily fantasy sports in September.

“The legal ambiguity surrounding the industry and its relationship with professional sports makes this issue ripe for Congressional review,” Pallone said in a news release.

The NFL does not own any stake in DraftKings and FanDuel, but Pallone’s original request for a congressional hearing concentrated on the perceived “hypocrisy” of the league, a Democratic staffer with knowledge of the committee’s thinking said.

While taking a hard stance against legalized sports wagering, the NFL has accepted millions of dollars in sponsorships and advertisements from FanDuel and DraftKings. New England Patriots owner Robert Kraft and Dallas Cowboys owner Jerry Jones are both big investors in DraftKings.

[Redskins WR Pierre Garcon strikes back at daily fantasy companies]

The NBA and MLB prohibit players from participating in daily fantasy sports. NFL players are allowed to play, but cannot win more than $250 in prizes over the course of a year, according to the NFL’s player policy. Menendez, the New Jersey senator, cited the policy as reason for a congressional hearing.

“If employees of fantasy sports games should not be allowed to play the games due to the potential use of insider information,” Menendez said in a statement, “then certainly neither should those who actually run, catch, throw, or kick the ball.”

Under the NFL’s own policy, networks broadcasting its games cannot run advertisements for “any product or service relating in any way to gambling or sports betting.” The NFL has allowed networks to air a bombardment of DraftKings and FanDuel commercials.

“It’s considered a game of skill and not gambling,” NFL spokesman Brian McCarthy said in September. “If laws change, then we’d certainly comply.”

It’s not clear if Schneiderman’s finding that daily fantasy football constitutes gambling will change the NFL’s mind. McCarthy said the NFL had no new comment following Schneiderman’s letter, but repeated the league’s stance.

“The NFL and its teams do not have equity stakes in these companies,” McCarthy said in an email. “The other pro sports leagues and major companies do. There are no sponsorships or partnerships with the teams or the league office.

“What is permitted: Clubs may accept advertising in stadium and in their own controlled media such as their Web site. There is no use of NFL or team logos in this advertising.”

Other leagues, too, appear uncertain on how to navigate the cloudy daily fantasy waters. Schneiderman’s strong language, issued from the same city that houses the leagues’ headquarters, made it more difficult for them to claim they are only aligning their policies with the law.

[From March: Daily fantasy sites find riches in loophole]

“DraftKings DFS contests are neither harmless nor victimless,” Schneiderman wrote. “Daily Fantasy Sports are creating the same public health and economic concerns as other forms of gambling, including addiction. Finally, DraftKings’ advertisements seriously mislead New York citizens about their prospects of winning.”

On Tuesday, an MLB spokesman said the league had not reviewed Schneiderman’s letter. On Wednesday at baseball’s general manager meetings, chief legal officer Dan Halem elaborated.

“We’re evaluating it,” Halem said. “It just came out yesterday. In fact, we haven’t even seen a decision. We’re going to speak to our lawyers and then, you know, we’ll make a decision if we need to take any action. But at this point we’re still studying it.”

“We continue to monitor reports concerning daily fantasy sports,” NBA spokesman Mike Bass said. “We expect the industry to respond appropriately to the issues that have been raised and continue to comply with all applicable laws.”

James Wagner contributed to this report in Boca Raton, Fla.