Court Temporarily Blocks DraftKings, FanDuel From Doing Business In New York State

draftkingsUPDATE: DraftKings says it was able to get the court to hold off on enforcing the injunction pending an appeal of today’s ruling. That means DraftKings will remain operational in New York state for the time being.

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Last month, New York state investigators came to the conclusion that daily fantasy sites DraftKings and FanDuel are, under state law, illegal gambling operations. The state then sued the companies, seeking to stop the high-profile operations from doing business in New York, and today a court issued a temporary injunction that bars them from doing just that.

At issue in New York is whether or not daily fantasy sports (DFS) are “contests of chance,” which are generally illegal in New York state, or a game of skill that merely charges an entry fee.

In arguing against the injunction, lawyers for the DFS sites pointed to federal court precedent that held paying an entry fee is not the same as placing a wager or a bet.

But in today’s order [PDF] granting the injunction, New York State Supreme Court Judge Manuel Mendez notes that contrary to that case, which involved paying a non-refundable, one-time entry fee to play in the contest, DFS participants “pay a fee every time they play, potentially multiple times daily instead of one seasonal entry fee, with a percentage of the fee being paid to Fanduel, Inc., and DraftKings, Inc.”

The judge also pointed out that the New York law does not make any mention of wagering or betting, but rather states that in a contest of chance, a person “risks something of value.”

“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,’” writes the judge.

The DFS sites also contended that New York Attorney General Eric Schneiderman had overstepped his authority because, the Unlawful Internet Gambling Enforcement Act (UIGEA), which effectively outlaws most online games of chance, includes a carve-out specifically for fantasy sports.

But the judge countered that the very definition of “unlawful Internet gambling” in that law is the placing, receiving, or otherwise knowingly transmitting a bet or wager “by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made.”

Thus, because New York state believes these sites to be illegal gambling, the judge says the UIGEA carve-out does not apply. A number of states — Arizona, Iowa, Louisiana, Montana, and Washington — have laws on the books that prevent residents from playing on DraftKings and FanDuel, and neither site accepts fees from users in these states. Nevada was also added to that list after it too came to the conclusion that DFS sites constituted unlicensed gambling in the state.

“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,” reads a statement from AG Schneiderman. “I have said from the beginning that my job is to enforce the law, and that is what happened today.”

The folks at DraftKings are, as you’d expect, not pleased with the injunction.

“We are disappointed with the Court’s decision, and will immediately file an emergency notice of appeal in order to preserve the status quo,” says David Boies, counsel to 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.”

Between the two sites, they stand to lose access to more than 1 million paying users in New York state while the injunction is in place.