NEW YORK -- The country's two biggest daily fantasy sports companies filed complaints Friday in New York, asking a judge to stop the state attorney general's efforts to shut down their operations and rule on the legality of their businesses.
In separate complaints filed in state Supreme Court in Manhattan, FanDuel and DraftKings similarly asked a judge for an injunction, arguing that Attorney General Eric Schneiderman wrongly characterized their businesses as games of chance, rather than skill, in cease-and-desist letters earlier this week.
FanDuel asked a judge to allow customers to continue playing, arguing they'll suffer "irreparable harm" if the company's business is banned in the state. DraftKings said in its filing that Schneiderman's efforts to shut down their New York operations represented "a shocking overreach," including pressuring payment processors to cut ties.
New York is integral to DraftKings and FanDuel, which are valued at more than $1 billion each and have drawn investors across the sports, media and venture-capital industries. The state accounts for 13 percent of the nation's fantasy sports market followed by California with 10 percent, according to a player survey conducted by Eilers Research in July. FanDuel and DraftKings stand to lose $35 million in combined annual revenue without New York.
Daily fantasy sports customers pay entry fees and pick rosters of real-life athletes in the hope of winning millions of dollars in prizes. Schneiderman began a review of the businesses after first looking into allegations that a DraftKings employee used inside information to win $350,000 on FanDuel. A law firm hired by DraftKings concluded the employee did nothing wrong.
"Such a shutdown would deprive hundreds of thousands of subscribing New Yorkers of the opportunity to pit their skills against the skills of others in selecting a fantasy team of athletes from different sports teams and competing in contests offering prizes to the players whose fantasy teams perform best," FanDuel said in its complaint, which seeks an expedited ruling that its contests don't constitute gambling or bookmaking under New York law.
Schneiderman's order already disrupted FanDuel's business and the attorney general pressured payment processors to stop providing the company service unless it suspends its New York operations, FanDuel said in the complaint.
About 300 people gathered Friday morning on the sidewalk outside Schneiderman's downtown Manhattan office building to protest his move to shut down the two fantasy sports websites.
Accompanied by a heavy NYPD presence, the mostly men in attendance donned T-shirts that said "(hashtag)fantasysportsforall" and carried signs with slogans such as "Schneiderman should focus on real problems" and "Keep your laws off my lineup."
Many of the protestors at the hour-long rally admitted to being employees of one of the daily fantasy sports websites Schneiderman sent cease and desist letters to, FanDuel and Draft Kings. Other people present said they already were planning to be in Manhattan for a fantasy sports convention taking place in Times Square.
But they all agreed they don't want New York to prevent them from continuing to spend their money on daily fantasy sports websites, calling it "a game of skill" that distinguishes it from a chance-based game such as the lottery.
The chant-filled rally ended peacefully at 9 a.m. without any official appearance from Schneiderman staffers, short of the security detail standing guard outside the doors.
Although FanDuel and DraftKings will be barred from taking bets in New York state next week, DraftKings leaves open a digital loophole that may let New Yorkers play anyway.
The New York Times, working with users in all six states where daily fantasy sports is already considered illegal, was able to make bets on the DraftKings site using the most basic, easily accessible service for disguising a computer's true location.
Called a proxy server, the service is available for a few dollars a month from numerous companies. It allows users in, say, Iowa -- one of the states where daily fantasy is illegal -- to appear to be logging on to a website from somewhere else. Although companies can use standard technology to counter the service, The Times used it to make bets on DraftKings from Iowa and the five other states where daily fantasy is considered illegal.
Fantasy sports, under a 2006 federal law, is essentially unregulated, and it is unclear whether the companies have any obligation to block such bets placed via proxy.
In contrast, FanDuel would not allow access via a proxy from any of the states where daily fantasy is considered illegal, The Times found. In Iowa, the FanDuel site noted that the user was in a "restricted location" and would not allow any betting.
As investigations of daily fantasy sports operations continue to grow, the involvement of the various sports leagues comes into question.
The NFL as a whole does not have any financial interests in DraftKings and FanDuel, but some of its owners do, and that's becoming an issue in the league office. The New York Post reported Thursday night that Dallas Cowboys owner Jerry Jones and New England Patriots owner Robert Kraft could be forced to sell their financial stakes in DraftKings.
NFL employees and owners are not allowed to participate in any form of gambling, which will be a major issue if states such as New York declare that daily fantasy sites are indeed gambling.
"The NFL is reviewing the entire fantasy sports situation," a source close to the NFL said on Thursday, noting that the issue could pop up on the agenda during the Dec. 2 owners' meeting. "This is becoming a priority that is being discussed at the highest levels."
Major League Baseball owns a small stake in DraftKings, the NBA has a small stake in FanDuel and the NHL has an extensive marketing agreement with DraftKings. Although it has no direct financial interest in the companies, the NFL has taken millions of dollars in sponsorship and advertising money from DraftKings and FanDuel.
Information for this article was contributed by Bloomberg News, Newsday, The New York Times and The Washington Post.
Sports on 11/14/2015