New York Judge Orders DraftKings and FanDuel to Halt Operations in the State

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New York Supreme Court justice Manuel Mendez has agreed with Attorney General Eric Schneiderman and ordered DraftKings and FanDuel to cease operations in New York effective immediately. The Attorney General had maintained that daily fantasy sports were illegal in New York by the state’s definition of gambling.

Disappointed in the ruling but vowing to continue the fight, both DraftKings and FanDuel won a temporary appeal on Friday afternoon for an “emergency stay,” which would effectively allow DraftKings to continue operating in the state (FanDuel left New York last month until the legal situation is more clear).

In the ruling form earlier in the day, Mendez stated that New York definitions of gambling states that a person must risk something of value, which Mendez implied wasn’t too difficult to find. “The payment of an ‘entry fee’ as high as $10,600 on one or more contests daily could certainly be deemed risking ‘something of value.'” Schneiderman agreed with the judge’s decision.

“We are pleased with the decision, consistent with our view that DraftKings and FanDuel are operating illegal gambling operations in clear violation of New York law. I have said from the beginning that my job is to enforce the law, and that is what happened today.”

Daily fantasy sports’ main defense, an argument of the weight of skill involved in DFS, didn’t even figure into the ruling. “Not only is the outcome disappointing, but the court provided little analysis on some of the key legal issues, including the critical issue of whether these games constitute games of skill or chance,” said Linda Golstein, an fantasy sports attorney.

New York-based FanDuel stopped serving New York customers shortly after Schneiderman informed DraftKings and FanDuel in November that they must stop servicing residents in the state. DraftKings has continued to operate in the state, although today’s ruling combined with a recent statement from Paypal on Friday indicating they may halt New York transactions, may make it nearly impossible to operate in the state soon.

Over 600,000 New Yorkers are believed to play daily fantasy sports. Since the original opinion of the attorney general in November, FanDuel has seen overall traffic decline by 25% while DraftKings has experienced declines of over 10%.

FanDuel and DraftKings Reactions

FanDuel and DraftKings have both issued statements about today’s ruling.

FanDuel

“This is only the beginning of the legal process and, perhaps more importantly, the New York legislature is already moving forward on action to ensure our game remains legal and is regulated, which we strongly support. The court specifically noted that this was not a final determination of the issue and that discovery would be needed to fully resolve the legal question, which we think should be decided in our favor when all of the evidence is in.”

DraftKings

DraftKings attorney David Boies released a statement on the injuctuion.

“We are disappointed with the Court’s decision, and will immediately file an emergency notice of appeal in order to preserve the status quo.
“Daily Fantasy Sports contests have been played legally by New Yorkers for the past seven years and we believe this status quo should be maintained while the litigation plays out.”

What’s Next

Friday’s ruling serves as a blow to not only DraftKings and FanDuel but also to the daily fantasy sports industry. Many DFS sites including DraftKings, are still offering contests to New York players. The emergency stay allows them to operate while the appeals process play itself out, but ultimately DFS sites may have to pull out if an unfavorable ruling comes their way.

As for the ripple effects on other states, jurisdictions that have similar language to the New York definition of gambling, could take similar action. Meanwhile, efforts are being made in some states, including New York to clarify the legality question, including recently introduced legislation by Assembly Member Dean Murray.

David Wallach, a sports and gaming legal expert said the next step is the lies in the appeal. “The battleground now shifts to the New York Appellate Division First Department, which will hear the appeal filed by DraftKings and FanDuel as well as the expected emergency request to ‘stay’ the effect of Justice Mendez’s preliminary injunction.”