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Belmont Stakes

NY judge: Decision on daily fantasy 'very soon'

Joe Lemire
Special for USA TODAY Sports
DraftKings and FanDuel, the two top daily fantasy companies operating in the U.S., are in a battle with the NY attorney general over whether the daily game is legal in New York.

NEW YORK — Justice Manuel Mendez declined to offer an immediate ruling on the New York attorney general’s request seeking a preliminary injunction to stop daily fantasy sports sites from operating in the state, saying a written decision will come “very soon.”

DraftKings and FanDuel are the two industry leaders in daily fantasy sports — which has grown into a billion-dollar business — and have in turn filed lawsuits against state attorney general Eric Schneiderman after he sent them cease-and-desist letters earlier this month. FanDuel has temporarily suspended operations in the state; DraftKings continues to let New York residents play.

What’s at stake? Daniel Wallach, a sports and gaming law expert at Becker & Poliakoff in Florida who attended Wednesday’s hearing, said that an injunction against the daily fantasy companies could threaten “the very stability of their industry.”

“Judge Mendez will have a very close call to make in determining whether to grant New York state a preliminary injunction,” said Marc Edelman, an associate law professor at Baruch College’s business school who has taught a seminar on fantasy sports law. “Among the issues that remain unsettled include, first, whether New York state has shown that daily fantasy sports contests operated by FanDuel and DraftKings entail a material element of chance. And, second, in the alternative, whether these contests are based on future contingent events outside the control of the participants.”

The daily fantasy companies shared an hour of oral arguments among litigation heavyweights David Boies, John Kiernan and Randy Mastro, while Kathleen McGee — chief of the attorney general’s Internet bureau — argued on behalf of the state.

The burden of proof rests with the attorney general’s office which contends that, while season-long fantasy sports are legal under state law, daily fantasy is materially a game of chance and should be deemed illegal gambling.

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DraftKings and FanDuel counter that daily fantasy competitions are contests of skill and that participants, through their knowledge of how best to set up rosters, have influence over the outcome are thus protected under state law.

“The dispersion of results — that is, the actual people who win time after time — is wholly inconsistent with it being a game of chance and with it being anything other than a game of extreme skill,” Boies said outside the courthouse after the hearing.

Kiernan argued that daily fantasy requires skill “by any reasonable definition” because of the evidence showing result differentiation, the replication of success or failure and participants’ improvement over time.

Mastro referred to a precedent from a New York case about a horse owner in the Belmont Stakes, in which the court deemed the owner's entry fee and chance at a prize not to be gambling. The owner hires a trainer and a jockey who control the subsequent actions.

"The owner is putting the team together, and the team is performing," Mastro said, likening the experiencing of the horse owner to a fantasy player.

McGee said in arguing the state's case that the only skill demonstrated by daily-fantasy players is “skill at gambling.” New York law deems a contest to be gambling if it depends on chance to a material degree, even though some skill is necessary.

She likened daily fantasy to prop betting — wagers on outcomes not related to a game’s final score — which Kiernan rebutted by saying that their game was not binary in nature.

As FanDuel wrote in its court filing, “Such contests are permitted under New York law because they do not constitute ‘stak[ing] or risk[ing] something of value’ on a ‘contest of chance’ or a ‘future contingent event not under [the participant’s] control or influence’ under New York’s anti-gambling statute.”

Assembling a roster of players, FanDuel and DraftKings argue, gives a fantasy participant control because he or she is engaging in a contest that is independent from one sports team winning or losing — a “purposeful and elaborate detachment from the outcome of the game,” as Kiernan argued.

The fantasy contests are decided by a series of individual performances in multiple games.

Wallach said that is a tough hurdle to cross.

“I don’t see how you wear blinders and only see the DFS contest without reference to the actual, underlying games,” Wallach said. “There wouldn’t be scoring without the underlying games.”

Wallach noted that the opinion of the attorney general, as the top elected law enforcement officer in the state, carries significant weight but also said the fantasy lawyers advocated their side well. “They may have succeeded in persuading this judge,” Wallach said.

Justice Mendez made few comments that suggest which way he is leaning. He interjected during Kiernan’s remarks that, after a roster is set, “Now you’re relying on someone else’s skill to play the game.” On the other hand, Mendez later told McGee that, even after her argument, he still didn’t see why season-long and daily fantasy sports would be covered differently under the law.

"What’s the difference?” he asked.

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McGee said that season fantasy sports didn’t always have an entry fee and, importantly, that it wasn’t administered by the site itself; DFS companies do take a cut of the fee.

The defense cited a Nevada Supreme Court decision in Las Vegas Hacienda, Inc. v. Gibson, which concluded: “The test of the character of a game is not whether it contains an element of chance or an element of skill, but which is the dominating element.” Boies pointed out that its decision relied on an earlier New York case.

The state is seeking the preliminary injunction in addition to a full shutdown of the industry and has contended that “socially damaging,” noting the industry’s $200 million advertising expenditure and the 10,000 new users in New York.

An injunction requires the state to prove a likelihood of success in the case, irreparable harm if the motion is not granted and balancing of equities.

Boies argued that such an injunction would upset a business that has been operating for eight years

As for that argument, Wallach said, “He was arguing that we are right on the law, but . . . if it’s a close call, you can’t enter this kind of extraordinary relief and upend the status quo that has existed for eight years.”

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