Schneiderman demanded DraftKings and FanDuel, the two industry giants, stop accepting "wagers" from New York residents and discontinue operations in the state.
"Our review concludes that DraftKings'/FanDuel's operations constitute illegal gambling under New York law," Schneiderman wrote in the letter, obtained by ABC News.
During their rampant growth, daily fantasy sites have pointed to the Unlawful Internet Gambling Enforcement Act of 2006 in regard to their legality and have claimed they offer games of skill. But Schneiderman found that "each DraftKings/FanDuel wager represents a wager on a 'contest of chance' where winning or losing depends on numerous elements of chance to a 'material degree.'"
Using that criteria, Schneiderman reasons that the customers of the two largest daily fantasy sites, which have said they would award more than $3 billion combined in prizes in 2015, "are clearly placing bets on events outside their control of influence, specifically on the real game performance of professional athletes."
Both of the daily fantasy sports companies took issue with the attorney general's characterization their games as contests of chance, not skill.
"Fantasy sports is a game of skill and legal under New York State law," FanDuel said in a statement. "This is a politician telling hundreds of thousands of New Yorkers they are not allowed to play a game they love and share with friends, family, coworkers and players across the country. The game has been played -- legally -- in New York for years and years, but after the Attorney General realized he could now get himself some press coverage, he decided a game that has been around for a long, long time is suddenly now not legal."
DraftKings said in a statement that the company would "examine and pursue" legal options to keep operating in New York.
"We are very disappointed that New York Attorney General Eric Schneiderman took such hasty action today, particularly since he did not take any time to understand our business or why daily fantasy sports are clearly a game of skill," the company said. "We strongly disagree with the reasoning in his opinion and will examine and vigorously pursue all legal options available to ensure our over half a million customers in New York State can continue to play the fantasy sports games they love."
Schneiderman differentiated between traditional fantasy sports and the daily games.
"Our investigation has found that, unlike traditional fantasy sports, daily fantasy sports companies are engaged in illegal gambling under New York law, causing the same kinds of social and economic harms as other forms of illegal gambling, and misleading New York consumers," Schneiderman said, in a statement. "Daily fantasy sports is neither victimless nor harmless, and it is clear that DraftKings and FanDuel are the leaders of a massive, multi-billion-dollar scheme intended to evade the law and fleece sports fans across the country. Today we have sent a clear message: not in New York, and not on my watch."
But FanDuel is headquartered in New York, having just opened a new 40,000-square-foot office and while DraftKings is set up in Boston, it too also has a new 21,000-square-foot satellite office in Manhattan.
Advertising for DraftKings and FanDuel can be prominently seen throughout New York City, including in subway stations and on street vendors.