New York Attorney General Eric Schneiderman is preparing to ask a Manhattan court as early as Tuesday to close down DraftKings Inc. and FanDuel Inc. in that state, a day after the two fantasy sports operators suffered a legal setback.
Shutting down the two companies in New York would keep them out of one of the nation’s largest markets for the booming fantasy sports business.
On Monday, a New York Supreme Court judge denied DraftKings’ and FanDuel’s requests for a temporary restraining order against Schneiderman. That temporary delay would have allowed the companies to contest his determination that the fantasy sports contests are illegal gambling under state law.
Instead, the judge scheduled an emergency hearing for Nov. 25, according to Schneiderman’s office and DraftKings.
Matt Mittenthal, a spokesman for Schneiderman, said the attorney general’s next step would be a lawsuit seeking to shut down the companies’ operations in New York.
“We can file a lawsuit as soon as” Tuesday, Mittenthal said. “We have issued a cease-and-desist letter saying we are going to file a lawsuit. That’s still the case.”
DraftKings said it expects to continue accepting entries from New York. It has already received nearly $100 million from customers in the state this year, the company said.
FanDuel, meanwhile, stopped taking new paid entries from players in New York last Friday.
The legal skirmishing and rhetoric continued on a related front, as well, involving the financial companies that process payments for the fantasy operators.
DraftKings and FanDuel have both filed lawsuits against Schneiderman in New York in which they accuse the attorney general of pressuring the payment processors to not handle transactions from contestants in that state.
In a day of legal maneuvering, DraftKings successfully asked a judge in Boston to block the companies that process its payments from refusing to handle transactions from customers in New York.
DraftKings had sued the companies, Optimal Payments and Vantiv Inc., in Suffolk Superior Court last Friday, after they threatened to stop processing those payments, according to the company’s filing.
Optimal and Vantiv have processed credit cards for DraftKings since 2013, and the companies have a contract that runs until 2017, DraftKings said in its court filing in Boston.
DraftKings said that a cutoff would “massively disrupt” its businesses and that the company would not be able to quickly find replacement processors.
Vantiv and Optimal did not respond to messages seeking comment.
In court in Boston, the companies’ lawyers did not object to DraftKings’ request for a restraining order; rather, they asked Judge Brian Davis for legal clarity about their position.
“We are simply here to say ‘Tell us what to do,’ ” Doug Baldridge, a lawyer for Vantiv, told the judge. “We will abide by the law.”
DraftKings and FanDuel have continued to operate In Massachusetts, with no immediate threat of being closed down from state officials.
Massachusetts Attorney General Maura Healey is studying the legality of fantasy sports games and whether the operations should be regulated.
And Governor Charlie Baker said last week that he believes the games do not constitute illegal gambling, but he left open the possibility of new regulations.
In New York, meanwhile the tenor of the dispute has turned acrimonious.
In legal documents it filed Monday, DraftKings blasted Schneiderman’s order to shut down as an unconstitutional denial of due process and accused the attorney general of “launching a strong-arm campaign of coercion” against its payment processors.
“[Schneiderman’s] aides targeted DraftKings’ most important business partners and vendors, including the payment processors on which it depends, threatening them with enforcement actions if they did not immediately stop performing their contractual obligations to DraftKings in New York,” the company’s attorneys wrote.
They added that the negative publicity surrounding Schneiderman’s cease-and-desist letter was having “a chilling effect on DraftKings’ business nationwide, as well as its ability to attract new investors and partners, and causing irreparable damage to its business reputation.”
SuperLobby.com, which tracks fantasy sports contest data, reported that entry fees for NFL contests at DraftKings, FanDuel, and other fantasy sports operators dropped this past weekend.
DraftKings received about $1.15 million less from customers this past weekend for its largest prize contests, while FanDuel was down $1.7 million for its comparable contests, according to SuperLobby.
Both companies still collected more than $20 million each from contestants this past weekend.
In fantasy sports, players assemble a virtual roster of real-life sports stars and compete for the highest point totals, based on the performances of those athletes.
The games have existed for decades, but a niche known as daily fantasy has become popular in the past few years, offering quick-turnaround games that can award cash prizes of $1 million or more.
Investors have poured nearly $1 billion into DraftKings and FanDuel alone.
Those companies have spent much of the money on marketing, plastering their logos on sports stadiums and transit stations and broadcasting television commercials around the country.
Eilers Research LLC, an industry analysis firm, has projected that fantasy sports could collect nearly $4 billion in entry fees from players this year.
The companies typically return most of that money to players as prizes, keeping a fee of about 10 percent.