Daily Fantasy Sports Companies Live to Fight Another Day in New York

December 15, 2015

On Friday afternoon, New York State Supreme Court Judge Manuel Mendez granted Attorney General Eric Schneiderman's request to enjoin and restrain DraftKings and FanDuel from conducting business in the state. DraftKings and FanDuel immediately filed for a stay of the decision with a New York Appellate Court, and that motion was granted – allowing them to continue operating in New York until at least January 4, 2016, at which time both parties' briefs will be fully submitted. While the Appellate Court will not hear oral argument on this motion, it is likely that a decision on whether to keep the stay in place could still take weeks.

According to industry reports, New York is the largest daily fantasy sports market. It's also where the industry's two biggest players, DraftKings and FanDuel, face their most ardent opposition – in the form of AG Eric Schneiderman. Given that these companies have been operating for years without interference from the state, it seems odd that Mr. Schneiderman is intent on stopping the industry dead in its tracks. However he continues to aggressively press his position that daily fantasy sports gaming constitutes illegal gambling in the state, even going so far as to call DraftKings and FanDuel "the leaders of a massive multi-billion dollar scheme intended to evade the law and fleece sports fans across the country."

The resulting legal battle has been front-page news for many weeks, and Friday's decision gave us another significant development.

Judge Mendez's Decision
Among other things, Judge Mendez's decision focused on the language of New York Penal Law § 225.00[1], which defines "Contest of Chance" to mean, ". . . any contest, game, gaming scheme, or gaming device in which the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein." The Court's emphasis on the word "notwithstanding" was particularly important in that Judge Mendez goes on to hold that "although skill of the contestants is a factor, the outcome depends substantially on chance and factors not in the DFS player's control."

The Court again referenced the language of the New York Penal Law in distinguishing the present action from Humphrey v. Viacom, Inc. – a New Jersey case heavily relied upon by the DFS Sites. The Humphrey Court held that the payment of an entry fee in order to participate in seasonal fantasy sports is not an illegal "wager" or "bet."

Judge Mendez noted, however, that the New York Penal Law does not refer to "wagering" or "betting." Instead, the focus of the New York Penal Law is upon whether a person has risked something of value. Judge Mendez found that the entry fee constituted "something of value." The Court also took note of the fact that Humphrey dealt with a one-time fee for seasonal fantasy sports, rather than daily fantasy sports, where participants pay a fee every time they play. However, the Court did not rule on the merits of the case and asked both sides to submit more evidence.

Moving Forward
Herrick's Sports Law Group will continue to keep you updated as the battle over daily fantasy sports plays out in the New York courts – as the final outcome of this winner-take-all litigation will have a significant impact on the daily fantasy sports industry as a whole.

About Herrick's Sports Law Group:
For more than four decades, Herrick's Sports Law Group has helped the world's greatest sports entities stay ahead of the game. Our roster of clients includes world-class leagues and teams, owners and executives, athletes, sports agencies, investors, rights owners and holders, licensors and licensees, sponsors, advertisers, event promoters and technology providers. Many of the industry's transformative concepts — including regional sports broadcasting, pay-per-view telecasts and premium stadium experiences — were brought to life by Herrick clients, who relied on our guidance from idea to execution.

Some of our recent high-profile sports transactions include:

  • Advised Larry H. Miller Sports & Entertainment, owner of the NBA's Utah Jazz, in a 10-year arena naming rights transaction for the Vivint Smart Home Arena.
  • Advised Top Rank in the co-promotion, PPV broadcast and international TV sales agreements for Mayweather-Pacquiao, the highest grossing one-day sporting event in history.
  • Advised sports investor Joe Tacopina in the acquisition of the Italian soccer club Venezia F.C.
  • Advised on the formation of Major League Soccer's New York City Football Club, its radio rights deal, and negotiations for the financing and development of a new soccer stadium.
  • Advising New City Development in a proposed $4.2 billion plan to develop a new stadium for the National Football League's Oakland Raiders.
  • Advised Legends Hospitality in its equity investment in daily fantasy company DraftKings, and a strategic partnership with Live Nation, which has Legends operating food and beverage services at 34 of Live Nation's music venues in North America.

For a more comprehensive list of our representative experience, please click here.