FanDuel and DraftKings File Lawsuits to Challenge New York Attorney General’s Legal Action

Last updated on November 2nd, 2018

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FanDuel and DraftKings each filed a lawsuit today in New York, hoping to seek an injuction against the New York State Attorney Generals. The suits were filed in the state’s Supreme Court. If successful, the lawsuits would provide the two daily fantasy sports sites the right to operate in the state, against the wishes of the AG’s office.

The filings were a response to Eric Schneiderman’s announcement that unregulated fantasy sports was illegal in the State of New York. Schneiderman, the state attorney general, gave the DFS sites 5 days in which to respond before he would start legal proceedings against them to shut down their businesses. At the time, both companies released highly critical public statements on the action. DraftKings hinted it might pursue legal action.

Both DraftKings and FanDuel Filed

Today, the state’s lead prosecutor got that reply. DraftKings released a statement to spin their legal filing, saying Schneiderman had overstepped his bounds and rendered an unjust decision.

The statement read, “Today, we have taken decisive legal action to prevent a unilateral, misinformed and legally misguided attempt by the New York Attorney General to act as judge, jury and executioner for daily fantasy sports in New York. We are asking the New York Supreme Court to rule that the Attorney General’s cease-and-desist letter is unconstitutional, an abuse of discretion, and simply wrong.”

In a nod to the residential fantasy sports hobbyists who live in the state of New York, the DraftKings’s missive said, “We are confident in our legal position and intend to continue to fight to preserve the right of the over 500,000 New York consumers to play the fantasy sports games they love.”

AG Pressuring PayPal and Vantiv

The filing from DraftKings notes that the Attorney General’s office has been pressuring support providers for the daily fantasy sports industry to acquiesce. The suit mentions that Eric Schneiderman had contacted DraftKings’ payment process handlers, PayPal and Vantiv, to convince them to immediately stop processing payments from residents in New York.

DraftKings alleges that those actions go above-and-beyond the AG’s duties and represent a malicious and misguided attempt to harm legitimate businesses. The DraftKings court filing states, “As a direct result of respondents’ misconduct, DraftKings has suffered and will continue to suffer irreparable harm to its ability to operate its business in New York and elsewhere.”

Protests Outside Schneiderman’s Offices

Supporters of the two leading daily fantasy sports websites protested outside the Manhattan office of Eric Schneiderman. Though the AG singled out the daily fantasy sports industry in his cease-and-desist ultimatum, the description he gave of sports “gambling” in that same letter was a broad enough definition to include traditional fantasy sports, including local fantasy football leagues.

An estimated 50 million Americans play fantasy sports each year. Whether most of those people view their $100 entry fees in a yearly leagues as gambling is debatable, but most of those team owners would not view friendly bets among friends and family as particularly harmful–and certainly none of the government’s business.

Schneiderman an “Existential Threat” to DFS

Florida gaming lawyer Daniel Wallach says the New York State legal actions are an “existential threat” to the daily fantasy sports industry. New York is the 3rd-largest DFS gaming market in the United States, behind California and Texas.

It is also a center of America’s business and legal culture, so legal actions taken in New York could have an effect on lawmaking in other states–and possibly even the federal level. Mr. Wallach says the Feds might decide DFS entry fees are a violation of the Illegal Gambling Business Act (IGBA), and any ongoing legal disputes might cause federal authorities to act.

Daniel Wallach Predicts a Showdown

Daniel Wallach believes the fight over New York gaming could become an all-or-nothing contest, which is an amazing reversal for companies predicted by everyone to be on their way up only a couple of months ago.

Wallach said, “I’m looking two chess moves ahead, and how Schneiderman’s opinion can serve as the foundation for an escalated federal law prosecution. Their future depends on winning the battle of New York, winning the battle of the Hudson. If they lose the battle of the Hudson, there may not be too many battles for them left to fight.”

The so-called “Battle of the Hudson” is more complicated than FanDuel/DraftKings versus Eric Schneiderman. Standing in the wings is New York-based U.S. Attorney Preet Bharara, the much-feared prosecutor who wrote the Black Friday indictments in the online poker industry. Bharara has launched a probe into the DFS industry and any developments in New York state would be followed closely by the US Attorney’s office in South New York.