New York Supreme Court Justice Manuel Mendez today ordered DraftKings and FanDuel to stop accepting "entry fees, wagers, or bets" from residents in the state. The ruling is considered a massive setback for the daily fantasy sports industry in America.
Judge Mendez granted a preliminary injuction against the two DFS companies, meaning daily fantasy sports sites cannot operate legally in New York State until the case is resolved. Experts predict the case could take a year or more, so DraftKings and FanDuel cannot draw on their New York revenues for at least a year.
Eric Schneiderman's Influence
New York is the seventh state which bars residents from playing one-day fantasy sports for real money. Three months ago, the number was at 5, but those were states that did not significantly affect the revenue stream of FanDuel and DraftKings. In November, Nevada joined the list of states which considered DFS to be gambling, and required the companies to apply for a gaming license.
Then New York's Attorney General, Eric Schneiderman, called for a probe into the industry. Weeks later, Schneiderman announced daily fantasy sports was considered gambling in New York state. He subsequently banned the activity and gave the companies a cease-and-desist order. Those companies sought a restraining order against the New York AG, which led to Manuel Mendez's decision on Friday.
13% of the DFS Revenues in the United States
New York is a key state for DFS. Not only are the U.S. headquarters for FanDuel located in Manhattan, but the state represents 13% of the one-day fantasy revenue in the United States -- making it the leading state. California has a much larger population, but its DFS players are second in the nation with roughly 10% of the DFS revenues.
Appellate Court Hearing
DraftKings and FanDuel quickly appealed the decision. A New York Appellate Court agreed to hear the appeal in January and granted the companies the right to continue operations until the date of that hearing. That gives them another month of daily fantasy football gaming, but holds out small hope that the case will be overturned on appeal.
Given the growing number of lawsuits by former customers and investigations by officials, the two companies are facing mounting legal bills at the same time their customer base is shrinking. Those familiar with the industry suggest the signups at such sites, which spiked for a time after the Ethan Haskell scandal, have gone down.
DFS Companies Out of New York
Smaller DFS operations like DraftOps, MondoGoal, DraftDay, and DailyMVP have pulled out of the New York market. Those companies were not compelled to do so through official action by Schneiderman, but they decided it was in their best interest to avoid legal battles. For the time being, FanDuel and DraftKings are fighting the legal battles for the entire industry.
Statements from DraftKings and FanDuel
David Boies, the lawyer for DraftKings, released a statement after the appeals court decision was announced. The statement read: "We look forward to a full and fair hearing and are confident we will demonstrate clearly to the court why we should be able to continue to offer our DFS (daily fantasy sports) games in New York permanently."
FanDuel also released a statement, saying the DFS company wants to "work to bring our product back to sports fans around the state through our appeal and working with the legislature to enact sensible regulations for fantasy sports."
Meanwhile, both companies have signaled their approval for a regulatory plan worked out by the Attorney General of Massachusetts. Their decision to support Maura Healey's regulations is a sign of how far the ball has moved in three months, because the DFS industry wanted no regulation in September 2015.
