FanDuel & DraftKings Hit By Injunction Play From NY AG To Shut Them Down

A week after Eric Schneiderman sent cease-and-desist letters to the CEOs of FanDuel and DraftKings, the New York Attorney General today is taking his efforts to shut down the popular daily fantasy sports sites to the courts — as promised. In separate graphically detailed filings Tuesday, the Empire State’s lead lawman is seeking preliminary injunctions to shut down the sites ASAP.

“The State therefore brings this action to enjoin the company from continuing to operate an unlawful gambling business in New York,” said the filing, dated November 16, against FanDuel (read it here), which matches the filing against DraftKings (read it here). A hearing on the injunction is set for November 25 in front of the NY Supreme Court Judge Manuel Mendez. The same hearing will also weigh the merits of the multibillion-dollar sites’ attempt to get the NY AG off their backs.

New York has proven a lucrative revenue stream and a pricey promotional outlet for both sites. With 5% of it users in the state, FanDuel spent $75 million in advertising there this year, according to Schneiderman’s filing. New York accounts for about 7% of DraftKings’ “active users” who “wagered” over $25 million on the site in 2014 in hopes of big ad-promised wins. To the NY AG’s offices this is unregulated gambling and clearly illegal under the state’s laws, as Schneiderman told the FanDuel and DraftKings bosses November 10.

“As an increasing number of states examine the company’s business model, they are reaching the same realization,” Monday’s injunction filing asserts. “In Nevada, Georgia, Illinois, and Michigan, gaming officials have each declared DFS to be gambling or have otherwise raised serious doubt about its legality.” The Department of Justice is said to be looking at the sites also, sources tell me.

“We look forward to being afforded a full and fair opportunity to demonstrate why daily fantasy sports are legal under New York State law,” said a DraftKings rep this morning. Yesterday, the site and FanDuel were denied their attempts to have a temporary restraining order put in place to halt Schneiderman. “We believe the Attorney General’s view of this issue is based on an incomplete understanding of the facts about how our business operates and a fundamental misinterpretation and misapplication of the law.” Both FanDuel and DraftKings insist that they are not gambling sites but venues for games of skill for players and participants.

“The false assertion that DFS is a skill game is particularly galling in light of the unrelenting barrage of advertisements that depict FanDuel and DraftKings as a new form of lottery,” says a memorandum of law accompanying the injunction filings.

Either way, all sides know this is a battle over big bucks in New York.

“Until a major spike in ad spending this fall and a public scandal over the fairness of its games, DraftKings managed to avoid serious scrutiny as a gambling business,” says the NY AG’s injunction request. Any sports fan knows those ads and the ones by FanDuel as they are all over NFL and NBA programming, along with sponsorships in the arenas and stadiums and on screen. The NBA has partnered with FanDuel while DraftKings is working with a number of individual NBA teams. Additionally, Dallas Cowboys owner Jerry Jones and New England Patriots owner Robert Kraft each have a stake in the site. They are positions they will likely have to sell under NFL rules that prohibit participation in gambling if the site and FanDuel are declared gambling sites.

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