The Ongoing Legal Saga Between New York and Daily Fantasy Sports

By: Jeff Ifrah

Christmas didn’t come early for daily fantasy sports players in New York. A state judge issued an injunction this Friday ordering the two largest DFS sites, DraftKings and FanDuel, to shut down. The injunction was based upon the judge’s finding that DFS constituted illegal gambling under state law. Fortunately for the sites, their players, and their investors, the two operators immediately appealed the court’s decision and were able to stay the injunction until a full appeals court hearing. That means the companies can continue to operate their sites—and players can keep playing the games they love—until a decision is made at the appellate level.

I was interviewed on Bloomberg Law Friday afternoon about the DFS events transpiring in New York that day. The genesis of the New York case was a cease and desist order that New York Attorney General Eric Schneiderman sent to DraftKings and FanDuel in early November. The NYAG ordered the sites to stop accepting bets in New York based upon his opinion that DFS was illegal under New York law. Both the NYAG and the DFS operators sought relief from the state court. The judge sided with the NYAG, opening up the question of whether DFS is legal to the higher court.

The appellate court’s decision will turn on whether DFS is considered a game of skill or a game of chance. Games of skill are exempt from New York’s prohibition on gambling. As I said in my Bloomberg interview, DFS is absolutely a game of skill. Should the issue be tried, DFS operators have the facts on their side. The evidence can demonstrate statistically that the players that are winning—and repeatedly winning the vast majority of the time—are skillful players.

An interesting inconsistency in the NYAG’s argument, which DraftKings pointed out, is that the Attorney General has said that season-long fantasy is okay, but daily fantasy is not. That’s a distinction without a difference and demonstrates the NYAG’s findings are arbitrary.

The ultimate outcome of the New York case is important to track, as it could influence how other states choose to treat DFS. Other state attorneys general could choose to take a similarly hardline approach. On the flip side, the court’s decision may encourage legislators from various states to clarify their laws vis-à-vis DFS. Several states have been working on legislation to define DFS as legal (which comports with a federal exemption on illegal sports betting for fantasy sports).

Among those who will be watching the case with a keen eye are the many stakeholders in DFS, which include the individual owners of some 28 NFL teams, the NBA, major league baseball and the NHL. Professional leagues either officially, or through their owners, have been pretty positive on daily fantasy and we don’t anticipate them taking any major action until the court of appeals renders its decision. But that probably won’t happen until the end of January.  So for now, players can keep playing like its 1999, so to speak.