Citigroup to Block New Yorkers’ Payments to DraftKings, FanDuel
On February 5, 2016, a week after a major payment processor completely backed out of the daily fantasy sports (DFS) market, Citigroup announced that it will begin blocking its New York residents’ credit and debit card payments on the websites of DraftKings, Inc. and FanDuel, Inc. The two companies are the current DFS industry leaders.
Since insider trading claims were alleged against DraftKings and FanDuel in October 2015, a national debate has arisen questioning whether DFS is legal on a state-to-state basis. Each state has the individual right to determine whether the activity is legal, and unfortunately for the DFS industry, DFS wagering is arguably illegal under the existing gambling definitions in many states.
While efforts in state legislatures to create new legislation permitting DFS has progressed (i.e. Florida, Indiana, California), the industry remains liable for any penalties that may come from a violation of a state and/or federal anti-gambling statute. This includes payment processing companies such as Citigroup.
Penalties that accompany a violation of a federal statute, such as the Wire Act or the Unlawful Internet Gambling Enforcement Act, can be severe. For example, all proceeds related to an unlawful activity may be subject to a forfeiture penalty. Prison time is also on the table.
Therefore, payment processing companies must determine whether to chance doing DFS business in state where the legality is questionable. It seems as though Citigroup believes New York may be too much of a risk.