DraftKings, FanDuel Granted Stay, Can Resume NY Business During Appeal

New York Attorney General Eric Schneiderman, who ruled that daily fantasy sports (DFS) constitute a game of chance under state law, made the request for injunctions in November and his request has been upheld by Justice Manuel Mendez.

A New York judge earlier today granted an injunction sought by the New York Attorney General barring FanDuel and DraftKings from operating in the state.

The whole argument is that Schneiderman is saying that daily fantasy sports platforms like DraftKings and FanDuel – and fantasy sports as a whole – are forms of illegal gambling, while the companies maintain that they are forms of skilled games that require knowledge. If DraftKings and FanDuel are found illegal in the state, it could smooth the way for future litigation in states with similar statutes, including Alaska and New Jersey.

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. Together, both startup companies dominated the daily fantasy sports market, but they didn’t seem to get on the radar of prosecutors and lawmakers until this year, when they started to heavily advertise on television near the start of the National Football League season. His memorandum stated, “So-called Daily Fantasy Sports (‘DFS’) wagers fit squarely in both these definitions, though by meeting just one of the two definitions DFS would be considered gambling”. Wallach went on to point out that Mendez’s claim that the preliminary injunction “is not a final determination of the merits and rights of the parties” provided hope for the DFS industry. Unless the judge grants a stay, the sites will be forced to stop accepting play from NY customers. In Massachusetts, regulations are being developed to protect consumers, while regulators in Nevada have restricted daily fantasy sports to existing casinos. FanDuel did not have an immediate comment on the ruling. After a few hours, the Appeals Court granted an emergency stay on the case, essentially providing the companies with temporary relief from the lower court’s ruling.

In New York, State Assembly Racing and Wagering Committee Chairman J. Gary Pretlow predicted this week that the state will ultimately legalize and regulate daily fantasy sports, regardless how the court fight turns out.

This has enabled fans to spend money on the games with a frequency that critics say is akin to sports betting. The companies have said their contests are games of skill, not chance.