A state judge ordered daily fantasy sports sites DraftKings and FanDuel to quit doing business in New York, a setback for the burgeoning industry in one of its biggest markets.
The 14-page order rendered Friday by state Supreme Court Justice Manuel Mendez also rejected attempts by the companies to block an enforcement action by the state's attorney general on the grounds that he overstepped his legal authority and criticized their business practices.
But late Friday afternoon, after both DraftKings and FanDuel filed an appeal, a state appeals court judge decided to temporarily allow daily fantasy sports sites DraftKings and FanDuel to keep operating in New York at least until next month. A full panel of the judges will then rule on whether the companies can do business in in the state while the appeals process unfolds.
FanDuel and DraftKings both expect to ultimately prevail during the appeal, as does New York state Attorney General Eric Schneiderman, according to a spokesman who said Schneiderman looks forward to convincing the appellate division to continue the earlier ban.
DraftKings earlier said it was "disappointed" by Mendez's decision, according to its attorney David Boies.
"Daily Fantasy Sports contests have been played legally by New Yorkers for the past seven years and we believe this status quo should be maintained while the litigation plays out," Boies said in a press release.
"As the court itself noted, FanDuel is permitted in other states, making New York very much an outlier on the issue, as most states are moving towards sensible regulations -- not bans, but the Attorney General decided he knows what is best by denying New Yorkers access to a game they have embraced and shared with friends and family for years," the company said in a statement.
"We look forward to a full and fair hearing and are confident we will demonstrate clearly to the Court why we should be able to continue to offer our DFS games in New York permanently," Boies said.
New York-based DraftKings continued to operate in the Empire State while a challenge by Attorney General Eric Schneiderman is being heard. FanDuel, which is headquartered in Boston, opted to temporarily shutter its operations in New York. FanDuel and a spokesman for Schneiderman didn't immediately respond to requests for comment of this story. The ruling indicates that Mendez believes that Schneiderman is more likely to prevail on the merits of the case than DraftKings and FanDuel.
"I wouldn't say that I am surprised," said Marc Edelman, an Associate Professor of Law at the Zicklin School of Business, Baruch College, City University of New York, who specializes in gaming and sports law, in an interview. "This was a case that realistically could have come out either way. Based on the broad manner in which Judge Mendez issued this ruling, I would be surprised to see a reversal."
Mendez's puts sports leagues such as the National Hockey League and Major League Baseball in a bind since they have invested in DraftKings. The National Football League, by far the most popular professional sport, though has kept its distance from the industry even though two of its most prominent owners, Jerry Jones of the Dallas Cowboys and Robert Kraft of the New England Patriots, both have invested in the New York-based company. The National Basketball Association has a partnership with FanDuel.
"Daily fantasy has crossed the line and the leagues are going to need to respond to this," said Jodi Balsam, an Associate Professor at Brooklyn Law School, in an interview. "Many of their own personnel may well be in violation of their own anti-gambling policies if they are playing daily fantasy in New York State because we now have an official ruling that defines daily fantasy as gambling in this jurisdiction."
Officials from the NFL, the NBA, Major League Baseball and the NHL didn't immediately respond to requests for comment.
In early November, Schneidmerman demanded in a "cease-and-desist" letter that the sites quit operating in the Empire State, saying they're illegal gambling operations. The industry argues the games that they offer are based on skill, not chance, and therefore should not be viewed as gambling by regulators. Several states including Massachusetts are developing policies to regulate daily fantasy sports that the industry has said it supports, while officials in other states such as California are pushing to have them shut down.
"You can see how influenced the court was by the fact that these business were just not playing fair," Balsam said. "(The judge) was affronted by their deceptive use of language like calling every game 'winnable' regardless of your skill level."
Editor's note: CBS has an investment in FanDuel of less than 1% of that company's value