DFS Sites FanDuel, DraftKings Push Back after New York AG Adds Charges

The stakes continue to increase in the legal showdown between the New York Attorney General’s office of Eric T. Schneiderman and major daily fantasy sports sites DraftKings and FanDuel.  Already beset by a raft of illegal-gambling and marketing-fraud charges brought by NY AG Schneiderman back in November, the two DFS online giants are now facing an amended complaint filed by Schneiderman’s staff on New Year’s Eve.

draftkingsThe “Happy New Year!” present from Schneiderman to the two DFS giants — who together, control more than 90% of the online DFS market — appears designed, as many observers have noted, to not only drive the DFS providers from New York State, but to drive them out of business as well.  The amended New York complaint seeks full restitution of all funds wagered by New Yorkers on the site, as well as punitive damages, payable to the state of New York, of up to $5,000 per player.

Several news reports cite New York as comprising roughly 10% of all DFS play.  A recent ESPN update states that in 2015 alone, DraftKings and FanDuel are estimated to have collected a combined $200 million in entry fees from New York’s 600,000 or so DFS players.

Given that most DFS players have accounts on both DraftKings and FanDuel, the punitive damages Schneiderman’s office seeks would represent a $3 billion (or more) combined hit to the two firms.  DraftKings alone acknowledges having about 375,000 NY customers.  Given that neither of the two firms has yet reached profitability and that the DFS industry’s legal problems have chilled outside investment, losing such a judgment would be catastrophic and would almost surely mean the end of both firms.  (Perhaps Schneiderman’s staff, in filing their extortionate charges, borrowed a page from the Looney-Tunes Kentucky officials and judge who are trying to extract $871 million from PokerStars for that site’s prior operations in Kentucky.)

And as such, both DraftKings and FanDuel are mounting a fierce legal defense, as if their very corporate lives depend on it… which they do.  The two companies succeeded in obtaining a stay of Schneiderman’s initial injunction, and have already begun a similar process regarding the amended complaint.  DraftKings filed its initial response to the amended complaint yesterday, including a motion to stay the matter pending the trial schedule the two sides had previously agreed to.

As DraftKings’ response motion noted, “In this case, Justice Mendez entered a preliminary injunction without holding an evidentiary hearing, without taking witness testimony, and without making credibility findings — an approach that did not afford DraftKings due process. Allowing his preliminary injunction to take effect would immediately force DraftKings to shutter its business in New York, depriving its 375,000 New York customers of the contests they love and have been enjoying for years. It would cause DraftKings to lose millions of dollars in revenue while irreparably harming its relationships with investors and business partners that have invested hundreds of millions of dollars over the past four years, such as Fox Sports, Major League Baseball, the National Hockey League, the New York Yankees, the New York Mets, the New York Knicks, the New York Giants and the New York Rangers — organizations that have always taken a strong stance against gambling.”

Both DraftKings and FanDuel have issued brief public statements regarding the amended NY complaint.  From DraftKings’ lead counsel, David Boies:

“Our arguments remain strong and we are confident in our appeal for four simple reasons:

1. The Attorney General has still offered no evidence that supports a preliminary injunction.

2. Daily fantasy sports contests are not gambling — their outcome is controlled by the knowledge and skill of DFS players — that’s how you win or lose.

3. The only difference between a daily and a season-long fantasy contest is how long it lasts and the Attorney General has said that season-long fantasy sports contests are lawful.

4. It is legal for skills-based contests to charge entry fees and award prizes to participating contestants. A DFS player exercises “control and influence” over whether they win a prize by their choice of a roster which is without a doubt a skills-based exercise.”

And from FanDuel:

“As we have previously iterated, FanDuel remains committed to offering our fantasy contests to the Yankees, Mets, Jets, Giants, Bills, Knicks, Nets, Rangers, Islanders and Sabres fans that comprise the great state of New York and love fantasy sports – be it season-long or daily. As one of New York’s fastest growing startup companies we are thoroughly disappointed in the Attorney General’s ongoing actions and will fight this meritless, amended suit until fantasy sports are safeguarded for all sports fans.”

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