DraftKings and FanDuel Given Last Second Reprieve by New York Judge

DraftKings logo (PRNewsFoto/DraftKings, Inc.)

Update: An appeals court judge in New York has granted a last minute temporary stay of Mendez’s ruling. The move allows DraftKings and FanDuel to remain open for business in the Empire State indefinitely. The two daily fantasy sports sites will likely have to go before a New York appeals court panel to once again make their case sometime in the new year. 

The top two daily fantasy sports sites in the country, Boston-based DraftKings and New York-based FanDuel, were dealt a crushing blow on Friday when a judge ordered them to stop hosting online gambling contests in New York state.

Justice Manuel Mendez of the New York Supreme Court ordered the companies to comply with New York Attorney General Judge Eric Schneiderman’s injunction blocking daily fantasy sports games there.

Mendez notes in the ruling that this “does not constitute a determination of the ultimate issues,” so things aren’t over for the online gambling world, but they are in serious jeopardy.

Both companies have indicated they will formally appeal Mendez’s ruling. The companies are expected to request an emergency stay and be heard sometime today.

Online gambling companies have been able to survive similar rebukes in smaller states such as Nevada, but New York is a different animal because of its national stature and financial importance. New York generates approximately $35 million in revenue for the daily fantasy sports betting companies, and is estimated by Elias Research to account for 13 percent of the national market. California, where daily fantasy sports are still legal, accounts for 10 percent of the market.

DraftKings indicated in court filings that they have over 113,000 regular players in New York alone, and that they received over $100 million in wagers on their daily fantasy sports games. All other states, with the exception of California, make up a much smaller portion of their customer base.

DraftKings and FanDuel argued that the injunction would hurt their business, but Mendez was not having it.

“The protection of the general public outweighs any potential loss of business,” he wrote in the decision.

Mendez rejected assertions that the games are games of skill, not chance, and found the amount of money people can wager on the games runs afoul of the state’s illegal gambling statutes.

PayPal announced not long after the ruling was handed down that they will no longer allow transfers to daily fantasy sports sites from New York-based accounts.

This ruling in New York is at odds with the way daily fantasy sports have been treated in Massachusetts. Attorney General Maura Healey submitted several proposed rule changes and regulations for the games in the Bay State in November. The proposals acknowledge that the games are indeed gambling, but Healey noted they are not illegal according to Massachusetts law. The New York ruling does affect players in Massachusetts.

The two daily fantasy sports companies both released statements about the decision:

DraftKings:

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.

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.