In the latest twist in the saga of daily fantasy sports (DFS), industry leaders DraftKings and FanDuel announced that they will halt operations in New York as part of a deal with state Attorney General Eric Schneiderman.

The AG filed suit last year, alleging that DFS constitute illegal gambling under state law. A state court judge granted Schneiderman's request for an injunction banning the sites from the state, but an appellate panel granted a stay. The AG continued to push back by filing an amended complaint requesting that the sites return all of the money they earned in New York and pay a $5,000 civil penalty for each violation of law.

Now the parties have reached an agreement with the sites agreeing to stop operations in the state. "While it is disheartening for us to restrict access to paid contests in our home state, we believe this is in the best interest of our company," FanDuel said in a statement.

In return, Schneiderman promised to stay litigation until the appeals hearing scheduled for September. "As I've said from the start, my job is to enforce the law, and starting today, DraftKings and FanDuel will abide by it," Schneiderman said in a statement. "Regardless, our key claims against the companies for false advertising and consumer fraud are not affected by the agreement and will continue."

Pursuant to the deal, if any legislation is passed that "expressly legalizes" DFS contests with "a statutory framework to protect consumers" by June 30, the AG will drop his suit against the sites, with the exception of his false advertising claims. If the appellate court sides with Schneiderman, the companies will cease operations in the state and the AG will limit his remedies by no longer seeking restitution, disgorgement, and other civil fines and penalties.

Just a few days after the deal was reached, Yahoo followed suit, announcing that it also ceased operation of its DFS in New York "[d]ue to recent developments." The company—which also imposed new "fair play" rules that cap entries at 10 per user where its DFS sites continue to operate—said it "believes that its contests are lawful and … will continue to assess the legal environment for DFS while providing a compelling fantasy sports experience for all of our users."

Controversy involving the DFS sites continues in other states, including Illinois and Texas, where DraftKings filed suit after Texas Attorney General Ken Paxton issued an advisory opinion that the fantasy sites are likely illegal in that state (FanDuel reached an agreement with the AG similar to that in New York).

To read the provisional settlement agreement with DraftKings, click here.

To read the provisional settlement agreement with FanDuel, click here.

Why it matters: The deal in New York signals a shift in strategy. Instead of battling over the legality of DFS, DraftKings and FanDuel will angle for legislative approval of the industry. In its statement announcing the settlement with the AG, DraftKings said the company intends to "continue to work with state lawmakers to enact fantasy sports legislation so that New Yorkers can play the fantasy games they love." Several bills have already been introduced in the state legislature, some similar to the law recently enacted in Virginia. In that state, DFS is now legal, with established regulatory oversight (such as a $50,000 registration fee and the company's submission to annual audits) as well as certain limits (players must be over the age of 18 and fantasy site employees are barred from participation).