Emergency hearing set for FanDuel, DraftKings

Brent Schrotenboer | USA TODAY Sports

An emergency hearing has been scheduled for next week that could determine whether FanDuel and DraftKings will be forced to shut down in New York — a move that could cripple their businesses after several years of explosive growth.

Both daily fantasy sports companies had sought relief in the New York Supreme Court after New York Attorney General Eric Schneiderman ordered them to stop accepting illegal "wagers" in the state last week. On Monday, Justice Manuel Mendez denied the companies' requests for a temporary restraining order (TRO) and set a hearing for Nov. 25.

“The Court granted our order setting this case for an emergency hearing next Wednesday," DraftKings said in a statement. "The AG assured the Court he will take no action against DraftKings or its business partners before then. On that record, and because there will be an emergency hearing next week, the Court determined that no TRO was necessary. We are confident in our legal position, and look forward to our day in court next week. As a result, we intend to continue operating in New York.”

Scheiderman's office has determined the companies are illegal gambling operations and has asked the companies' payment processors to stop doing processing their payments. In a fight to survive, the companies responded last week by filing suit against Schneiderman in New York Supreme Court. Schneiderman now is expected to file his own lawsuit against the companies.

The hearing next week is significant because it will help decide whether the companies get a preliminary injunction to continue operating while their cases are pending, which could take a year or more.

"If a judge denies their motion for a preliminary injunction, that's a pretty strong signal that he's not going to rule in their favor following a trial," said attorney Daniel Wallach, a sports and gaming law expert in Florida. "It means a great deal to both sides. Whoever gets the preliminary injunction in their favor is going to be dealt a very strong hand for the remainder of the case. It's a such an extraordinary remedy. A judge would not grant it to one party or the other without a strong showing on the merits."

DraftKings, based in Boston, argued in court documents Monday that Schneiderman’s decision would severely harm its business in the rest of the country as well. The company noted that it has partnerships with Fox Sports, Major League Baseball, the National Hockey League, Major League Soccer, and the owners of the New England Patriots, Dallas Cowboys, New York Knicks, New York Rangers,and Los Angeles Dodgers.

“A shutdown would have a chilling effect on DraftKings' ability to attract new investors and partners and would impede its ability to continue its relationships with its existing investors and partners,” the company state. “All of this harm would not be confined to New York, but would cause a cascading effect throughout the country -- including in the dozens of states where DraftKings continues to operate lawfully -- adversely affecting its customer base and its business relations with vendors, customers, and regulators.”

The company said Schneiderman’s actions were “a shocking overreach.”

“They are so extreme that they led a Massachusetts court, just last Friday, to issue a temporary restraining order permitting a DraftKings payment processor to continue its services in the face of threats from the Attorney General,” the company stated.

FanDuel, based in New York, said on its website Friday that it would stop allowing new deposits from New York and will limit access to New York customers while the company pursues “the opportunity to be heard in court.”

The New York Attorney General "directly contacted FanDuel’s payment processors, pressuring them outside the judicial process to cease providing service to FanDuel unless FanDuel immediately suspends business in the New York market,: FanDuel's attorney said in court documents. "These actions were intended to immediately disrupt FanDuel’s New York business adversely, and they have done so."

Daily fantasy sports companies believe they are legal under a 2006 federal law that cracked down on online gambling but exempted paid daily fantasy sports under certain conditions, including that they reflect the skill of the participants as opposed to pure luck or chance.

That law, however, was enacted before these companies existed and doesn’t give them immunity from state gambling laws. FanDuel was founded in 2009, and DraftKings started offering daily fantasy games in 2012.

In exchange for an entry free, the companies offer customers the chance to win cash prizes based on the statistical performances of players in real-life sporting events. Though both companies have been operating for years, it wasn’t until recently that they were targeted by regulators, prosecutors, plaintiffs and lawmakers.

That attention is due in part to an advertising blitz since August that emphasized how easy it was to win big cash jackpots by playing their games.

Follow sports reporter Brent Schrotenboer on Twitter @Schrotenboer. E-mail: bschrotenb@usatoday.com