New York judge orders shutdown of DraftKings, FanDuel

Show Caption Hide Caption Judge blocks DraftKings, FanDuel from offering contests in New York New York Supreme Court Justice Manuel Mendez blocked popular daily fantasy sports companies FanDuel and DraftKings from offering contests in New York on Friday.

A New York judge has ordered FanDuel and DraftKings to shut down and stop accepting "entry fees, wagers or bets" from New York consumers, striking another huge blow to the beleaguered daily fantasy sports industry.

New York Supreme Court Justice Manuel Mendez granted preliminary injunctions against the companies to be in effect until lawsuits against the companies are resolved, which could take a year or more. New York Attorney General Eric Schneiderman sued the companies last month and asked Mendez to shut them down, arguing they are illegal gambling operations under New York law.

"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," Schneiderman said in a statement. "I have said from the beginning that my job is to enforce the law, and that is what happened today."

Lawyers for DraftKings filed a notice of appeal minutes after Friday's ruling, writing that Mendez "misapplied the law in granting (the preliminary 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,” said David Boies, an attorney for 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.”

Mendez wrote that Schneiderman established a greater likelihood of success on the merits of his case if it were to go to trial — key criteria in deciding whether to issue a preliminary injunction. Mendez also denied requests by the companies to prevent Schneiderman from taking enforcement action against them.

But the fight is far from over. Legislators in New York already have said they would try to change New York law to make daily fantasy sports legal in the state.

FanDuel also said it would appeal the ruling. John S. Kiernan, a lawyer representing FanDuel, wrote "daily fantasy sports games do not constitute gambling under New York law" and "the preliminary injunction accordingly should have been denied."

“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,” FanDuel said in a statement. “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.”

Mendez noted that the attorney general’s office does not have to show irreparable harm, one of three criteria used to decide a preliminary injunction along with the likelihood of success on the merits and the "balancing of the equities."

“The balancing of the equities are in favor of the (attorney general) and the State of New York due to their interest in protecting the public, particularly those with gambling addictions," Mendez wrote. "Fanduel, Inc. and Draftkings, Inc., are only enjoined and restrained in the State of New York, DFS (daily fantasy sports) is permitted in other states, and the protection of the general public outweighs any potential loss of business.”

The New York Attorney General's office ignited these fireworks when it sent a cease-and-desist order to these companies last month, declaring them to be illegal gambling operations. DraftKings and FanDuel responded by suing Schneiderman in an effort to stay in business in New York, arguing they offered legal games of skill and not games of chance like traditional gambling.

Schneiderman disagreed and sued to have the companies shut down in his state. An emergency hearing then was granted before Justice Mendez in New York City on Nov. 25.

COURT RULING: DraftKings injunction

COURT RULING: FanDuel injunction

Both companies have faced a thunderstorm of legal controversy since October — a flurry of civil lawsuits from consumers, a grand jury in Florida, possible regulation in several states and even a Justice Department inquiry.

After years of operating without regulation, the sudden drama threatened their very existence in the U.S., making things awkward for the sports leagues and teams that have sponsorships or investments in them, including the NBA, which owns a stake in FanDuel.

FanDuel was founded in 2009, and Draft Kings started offering daily fantasy sports in 2012. Together, both start-up 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 NFL season.

The ads bragged about how easy it was for regular fans to win big cash jackpots every week — a marketing strategy they hoped would help them grow toward profitability by gaining new customers.

The strategy seemed to be working. But then came another controversy to fan the flames. A DraftKings employee won $350,000 on a FanDuel contest, raising suspicions about possible insider trading. Though the companies denied wrongdoing, the case attracted more unwelcome legal attention, including from Schneiderman.

Daily fantasy sports differs from traditional fantasy sports, which is played over the course of a season instead of a day or week. Schneiderman’s office distinguished between the two and did not seek to crack down on traditional fantasy sports, which have been around for decades.

“Unlike traditional fantasy sports, (daily fantasy sports) is designed for instant gratification, stressing easy game play and no long-term strategy,” Schneiderman’s office said in its cease-and-desist letter in November.

In exchange for an entry fee, daily fantasy sports companies offer fans a chance to win cash prizes based on the statistical performance of players in real-life events that day or week. The immediacy of the transaction more closely resembles traditional sports gambling, which is largely illegal outside of Nevada.