FanDuel, DraftKings still operational in New York after court grants permanent stay

FanDuel and DraftKings were granted a permanent stay Monday that will allow them to continue to operate in New York. The stay will remain in place until trial and appeals conclude to determine whether daily fantasy sports constitute illegal gambling under state law. The companies had been operating under a temporary stay placed in December after a judge granted the New York attorney general's request for a preliminary injunction to shut down the companies.

"We are pleased with the Court's ruling today," DraftKings attorney David Boies said in a statement. "Daily Fantasy Sports contests are as legal now as they have been for the past seven years that New Yorkers have been playing them. As our litigation continues, we expect an appellate court to see what we have known since the outset: DFS is a game of knowledge and skill, one that builds community and whose competitive spirit has become important to the lives of millions of people."

Monday's decision by the appellate is not a judgment on the cases made by DraftKings and FanDuel, nor the New York attorney general. It is likely an acknowledgment that prohibiting New Yorkers from playing daily fantasy sports could have done irreparable damage to both companies.

Judge Manuel Mendez's initially granted an injunction based on a Nov. 25 hearing in which both the attorney general and the daily fantasy sports giants presented arguments about whether daily fantasy sports constitute illegal gambling. The decision was not a final ruling on the legality of daily fantasy sports, but it appeared to bode well for the attorney general. In issuing a preliminary injunction, the judge considers "the extent of the irreparable harm, each party's likelihood of prevailing at trial, and any other public or private interests implicated by the injunction."

In his decision, Judge Mendez wrote that the attorney general "has a greater likelihood of success" than FanDuel or DraftKings in a trial by the definitions of gambling under New York law. He also wrote that the attorney general did not need to prove irreparable harm done by the companies, only that they are illegal. He issued the preliminary injunction in favor of the attorney general "due to their interest in protecting the public, particularly those with gambling addictions."

During the hearing, the attorney general argued that daily fantasy sports relied on a "material degree" of chance and "future contingent events," which countered the companies' insistence that winning their games depended predominantly on skill.

The "game of chance or game of skill" debate was the primary focus of media coverage and rallies held in support of daily fantasy sports. Indeed, that debate was also important to the attorney general. New York's "material degree" standard for chance is ostensibly lower than the several states that have a "predominant factor" test to determine whether a game should constitute gambling.

Future contingent events

New York's definition of gambling stipulates that the game depend on "a future contingent event not under [that person's] control or influence," a point that the attorney general emphasized perhaps even more than daily fantasy sports' elements of chance. According to the attorney general, because daily fantasy sports players can't directly influence on-field outcomes -- the "events" as the attorney general would define them -- DFS should be considered gambling.

As with the definition of a "game of skill" against a "game of chance," the definition of a "future contingent event" is difficult to determine objectively. FanDuel and DraftKings would argue that their contests are "events" in themselves, and that they aren't contingent. DFS players select the athletes in their lineups, thus giving them some control over the outcome of the contest.

The court appeared to side with the attorney general during the hearing, via Legal Sports Report.

THE COURT: But I think what they are arguing is . . . the fact that you have the skill to pick the players, fine, you have that skill. But now you are relying on someone else's skill to play the game, and that is your contingency there, how that other person performs. ...

Justice Mendez then used the example of the "hole-in-one" golf case [Las Vegas Hacienda, Inc. v. Gibson, 359 P.2d 85 (Nev. 1961)], cited earlier by Mr. Kiernan, to make the point that the golfer who pays the entry fee to participate in a hole-in-one golf contest is relying entirely on his own skilland not someone else's:

THE COURT: And I think that is what happened in the Gibson case you cited in your brief, where the golfer paid to enter, and then that golfer went and took the shot, whether he hits the hole-in-one [or not], but the golfer is doing it himself.

Daily fantasy sports vs. traditional fantasy sports

Daily fantasy sports flourished because of a carve-out in the Unlawful Internet Gambling Enforcement Act passed in 2006 for "fantasy or simulation sports" games. UIGEA prohibits "gambling businesses" from accepting electronic payments in connection with a "bet or wager," but it made an exception to protect traditional season-long fantasy sports, which don't profit as significantly from entry fees that could be construed as "bets."

During the November hearing, assistant attorney general Kathleen McGee made clear that the attorney general wasn't targeting traditional fantasy sports. DraftKings lawyer David Boies seized on this point, arguing that daily fantasy sports players have more control over outcomes than they do in traditional fantasy sports because DFS players get to select each athlete in their lineups for every contest they enter and aren't saddled with players from a preseason draft.

When Judge Mendez pressed the attorney general to explain why traditional fantasy sports should be considered legal and daily fantasy sports illegal, McGee explained that traditional fantasy sports games typically don't have entry fees and are often played for bragging rights.

The future of DraftKings, FanDuel and daily fantasy sports

Both companies will continue to exist, but the the fate of New York will significant impact their businesses. DraftKings and FanDuel would stand to lose 7 and 5 percent of their active user bases, respectively. (Those figures are from the attorney general's complaints, but numbers vary across sources. The New York Times reported that 12.8 percent of total daily fantasy sports users reside in New York.)

DraftKings and FanDuel came under scrutiny from the New York attorney general after Ethan Haskell, a DraftKings employee, won $350,000 in a FanDuel game while potentially having information that had not yet been made available to the public.

The attorney general launched an inquiry into Haskell and has yet to report any wrongdoing, but the incident coupled with the rapid growth of daily fantasy sports -- DFS sites will take in more than $3 billion in entry fees this year, according to Eilers research -- illustrated how little oversight there is over the industry. The attorney general sent cease-and-desist letters to both companies in November, prompting an immediate response from the companies to rally support.

Disclosure: SB Nation has a partnership with FanDuel to produce content about daily fantasy sports and advertise their games.

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SB Nation presents: FanDuel vs. DraftKings -- whoever wins, it won't be you