On Friday afternoon, New York State Supreme Court Judge Manuel Mendez granted Attorney General Eric Schneiderman's request to enjoin and restrain DraftKings and FanDuel from conducting business in the state. DraftKings and FanDuel immediately filed for a stay of the decision with a New York Appellate Court, and that motion was granted – allowing them to continue operating in New York until at least January 4, 2016, at which time both parties' briefs will be fully submitted. While the Appellate Court will not hear oral argument on this motion, it is likely that a decision on whether to keep the stay in place could still take weeks. According to industry reports, New York is the largest daily fantasy sports market. It's also where the industry's two biggest players, DraftKings and FanDuel, face their most ardent opposition – in the form of AG Eric Schneiderman. Given that these companies have been operating for years without interference from the state, it seems odd that Mr. Schneiderman is intent on stopping the industry dead in its tracks. However he continues to aggressively press his position that daily fantasy sports gaming constitutes illegal gambling in the state, even going so far as to call DraftKings and FanDuel "the leaders of a massive multi-billion dollar scheme intended to evade the law and fleece sports fans across the country."
The resulting legal battle has been front-page news for many weeks, and Friday's decision gave us another significant development.
Judge Mendez's Decision
Among other things, Judge Mendez's decision focused on the language of New York Penal Law § 225.00[1], which defines "Contest of Chance" to mean, ". . . any contest, game, gaming scheme, or gaming device in which the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein." The Court's emphasis on the word "notwithstanding" was particularly important in that Judge Mendez goes on to hold that "although skill of the contestants is a factor, the outcome depends substantially on chance and factors not in the DFS player's control."
The Court again referenced the language of the New York Penal Law in distinguishing the present action from Humphrey v. Viacom, Inc. – a New Jersey case heavily relied upon by the DFS Sites. The Humphrey Court held that the payment of an entry fee in order to participate in seasonal fantasy sports is not an illegal "wager" or "bet."
Judge Mendez noted, however, that the New York Penal Law does not refer to "wagering" or "betting." Instead, the focus of the New York Penal Law is upon whether a person has risked something of value. Judge Mendez found that the entry fee constituted "something of value." The Court also took note of the fact that Humphrey dealt with a one-time fee for seasonal fantasy sports, rather than daily fantasy sports, where participants pay a fee every time they play. However, the Court did not rule on the merits of the case and asked both sides to submit more evidence.
Moving Forward
Herrick's Sports Law Group will continue to keep you updated as
the battle over daily fantasy sports plays out in the New York
courts – as the final outcome of this winner-take-all
litigation will have a significant impact on the daily fantasy
sports industry as a whole.
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