DraftKings, FanDuel Must Stop Operating in New York State

Justice Manuel Mendez, who sided with New York Attorney General Schneiderman today and granted an injunction against DraftKings and FanDuel.

State Attorney General Eric Schneiderman filed an enforcement action in New York State Supreme Court on November 17, seeking a preliminary injunction against the fantasy sites that allow players to compete against each other for money.

Six states have banned daily fantasy sports games, and a victory for Schneiderman might prompt others to follow, Matthew Schettenhelm, a Bloomberg Intelligence legal analyst in Washington, said before the judge issued his decision. A number of issues became very clear in court: first, the outcome of fantasy sports contests are determined by skill, not chance.

An appeals court judge allowed the companies to keep operating until additional judges have a chance to rule on the ban.

As daily fantasy sports websites DraftKings and FanDuel enter a protracted battle with the New York Attorney General regarding whether their practices constitute “gambling” and are therefore illegal in the state, they have at least an initial victory under their belts.

According to ESPN, more than half a million people play daily fantasy sports in NY.

In an interesting twist the National Basketball Association owns equity in FanDuel while Major League Baseball and the NHL has a stake in DraftKings. FanDuel executives said earlier this fall that it gets about 10% of its business from NY residents.

Fantasy sports companies and their users just lost big in NY.

FanDuel added that it remains committed to bringing daily fantasy to NY. FanDuel, which is headquartered in Boston, opted to temporarily shutter its operations in NY. Unless the judge grants a stay, the sites will be forced to stop accepting play from NY customers.

Both sites plan to appeal the ruling.

FanDuel stopped offering daily fantasy sports contests last month after Schneiderman opened legal proceedings against the company.

“There is a chance FanDuel can still succeed, but that chance is substantially less than it was before”, Nellie Drew, a sports law professor at the University of Buffalo, said in an email. Both companies will have to halt all business in NY state. There have been four separate bills introduced in the legislature to legalize and regulate the games.

Lawyers for DraftKings filed a motion expressing their intentions to appeal minutes after Friday’s ruling. “I have said from the beginning that my job is to enforce the law, and that is what happened today”, Schneiderman said in a statement posted to his website on Friday.