New York Attorney General Eric Schneiderman sued DraftKings Inc. and FanDuel Inc. on Tuesday, asking a judge for preliminary injunctions that would force the companies to stop accepting entries to their daily fantasy sports contests from New York.
The attorney general’s office said the injunction requests will be heard in a New York County court in Manhattan next Wednesday.
The lawsuits follow Schneiderman’s determination last week that the companies’ daily fantasy sports contests for cash constitute illegal gambling under state law. He sent both firms cease-and-desist orders, prompting each to respond with a lawsuit.
The two companies were unable to persuade a New York judge Monday to impose temporary restraining orders against Schneiderman that would have allowed them to continue operating while the dispute played out in court.
In a statement Tuesday, DraftKings said Schneiderman’s lawsuit against it was “based on an incomplete understanding of the facts about how our business operates and a fundamental misinterpretation and misapplication of the law.” And in an e-mail to its New York customers, the company said it would continue accepting entries from them until a judge rules on Schneiderman’s request next week.
“Your right to play DFS in New York will remain unchanged unless a New York court decides otherwise,” wrote DraftKings, which is based in Boston.
FanDuel, whose headquarters are in New York, began blocking customers in the state from making new deposits on Friday. On Tuesday afternoon, after Schneiderman sued the company, FanDuel said it would now also block New York customers from using their existing balances to enter paid contests. The company said customers would still be able to withdraw their funds from the site.
“FanDuel has always complied with state and federal law and we are going to continue to fight to ensure millions of New Yorkers have the right to play the fantasy sports games they love,” FanDuel said in a statement. “We look forward to the court vindicating our position next week.”
In Boston on Monday, a Suffolk Superior Court judge granted DraftKings a temporary restraining order that required two of its payment processors to continue working with the company. In court filings, DraftKings has said Schneiderman pressured its payment processors to stop working with the company.
New York is a crucial market for DraftKings. According to documents attached to Schneiderman’s lawsuit, the company collected $25.67 million in entry fees from the state in 2014, and after paying out prizes it had $2.58 million in revenue there. That’s more than in any other state except California, where DraftKings had $3.45 million in revenue, according to the document. Those figures are expected to be much larger this year.
The lawsuits filed by Schneiderman Tuesday echo arguments the attorney general made last week in the cease-and-desist order sent to DraftKings and FanDuel. He said the contests are “plainly illegal” under a New York state law that prohibits sports gambling and that defines gambling as wagering money on a “future contingent event not under [the bettor’s] control of influence” or on a “contest of chance.”
Schneiderman acknowledged that winning daily fantasy sports contests takes skill, as the companies have long argued. But he said luck is also required, as with poker, and that as long as the games require some amount of chance, they are effectively gambling.
The attorney general also sought to turn the companies’ own words against them. He cited a DraftKings investor presentation that called the company’s fantasy sports contests “betting” and compared them to online poker. Schneiderman also referenced messages DraftKings chief executive Jason Robins posted on the Reddit.com forum several years ago in which he suggested DraftKings operates in the “gambling space” and said the company’s revenue model is “identical to a casino[’s].”
The suits also note the companies recruited employees and players from the traditional gambling industry, and they blasted their advertising for “[luring] New York residents with promises of easy riches.”
The daily fantasy sports industry has been engulfed in scandal since September. That month, a DraftKings employee prematurely published data on the company’s NFL contests the same weekend he won $350,000 in a contest on FanDuel. While a company investigation later found the employee had not used insider data to win, the incident prompted officials to question the practices.
Both firms withdrew from Nevada last month after regulators there said it was a form of gambling that required a license. In Massachusetts, Attorney General Maura Healey has said there is no clear state law on the contests and she will not shut them down.
Dan Adams can be reached at firstname.lastname@example.org.