DraftKings Inc. could be forced out of business entirely if it loses the next phase of its legal battle with New York’s attorney general, according to a lawyer for the embattled fantasy sports provider.
In court documents filed Monday, Boston-based DraftKings asked an appeals court to keep the company operating in New York while it fights a lawsuit accusing it of violating state gambling laws.
Without a legal lifeline from the appeals court, the company could be hit with a “domino effect” of business partners, investors, and service providers fleeing the industry, DraftKings lawyer Joshua Schiller said in an interview.
“It would have a catastrophic effect. It could be enough to put us out of business, I think,” Schiller said. “There have been those kind of pressures put on us already.”
Schiller pointed to Citigroup Inc.’s decision earlier this month to block its cardholders from paying for fantasy sports games in New York while the legal challenge plays out. Bank of America Corp. has been blocking New York players since December.
In its appeal, also filed Monday, DraftKings competitor FanDuel Inc. said a loss at this stage would cause “enormous loss of revenue, and could have adverse repercussions for its business nationwide.”
New York Attorney General Eric Schneiderman wants DraftKings and FanDuel banned from the state for violating the gambling laws. The companies argue that their games do not meet the formal legal definition of gambling because they require so much skill.
“We look forward to demonstrating to the Appellate Division, as we have to the trial court, that DraftKings and FanDuel should be prohibited from illegally taking bets in New York state,” said Matt Mittenthal, spokesman for Schneiderman.
DraftKings said New York is one of its largest markets, accounting for some 375,000 of about 2 million customers.
New York players paid about $100 million in entry fees last year, which amounted to more than $10 million in revenue for the company.
A handful of states have followed New York in questioning the legality of daily fantasy sports. The industry has mounted a legislative campaign seeking to have its games explicitly legalized and regulated, including in New York. Massachusetts Attorney General Maura Healey is finalizing her own consumer protection regulations for the sector.
Payment processor Vantiv Inc. said it will drop its daily fantasy sports clients at the end of February, although a Massachusetts judge has issued a restraining order that binds Vantiv to its current contract with DraftKings.