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Monday, November 23, 2015

Fantasy Sports Puts Its Cards on the Table for NY Court Hearing

The two biggest daily fantasy sports (‘DFS’) operators and the NY Attorney General will be placing big bets Wednesday in a New York courtroom, when they ask Judge Mendez for an injunction which could lead to the rescue or destruction of fantasy sports in New York.  Since the hearing addresses whether daily fantasy sports is a game of skill or a game of chance, the results will also spill over into the several other states whose Attorney Generals are investigating the industry and placing their own bets on the multi-billion dollar industry.

Observers of this legal battle got an interesting flavor of Judge Mendez’s perspective on the case a few days ago, when he denied DraftKing’s and FanDuel’s motions for a temporary restraining order. The requests to set aside NY Attorney General Eric Schneiderman’s recent cease and desist letter was denied, and the court set a hearing date of Wednesday, November 25th for all parties to present their arguments for a preliminary injunction.  The winner of this hearing will be dealt a strong hand, since a core part of the court’s analysis depends on which side the judge feels demonstrates a likelihood of success on the merits of their case.

If DraftKings and FanDuel win the hearing they can continue operating in New York, one of the most crucial states to their business model and financial existence.  If the government wins, the fantasy sports operators will be ordered to follow Schneiderman’s demand to cease such operations and stop accepting bets in New York.  A loss for DraftKings and FanDuel could also have other harmful effects, since the ruling will be predicated on whether DFS is an illegal game of chance – a result other Attorney Generals could use to further their own agendas and bring new storm clouds to additional fantasy sports operators including internet giant Yahoo.  

Daily fantasy sports is facing several major challenges, including various class actions lawsuits and government investigations.  Those other headaches will need to take a back seat to the hearing in New York this week, as the parties in that case take off the gloves and step into the litigation ring with much on the line.  Faced with no immediate opportunity for a business discussion with government officials for some kind of middle ground, all bets are off as spectators take a seat and await Judge Mendez’s crucial decision.

Seth Berenzweig is the founding and Managing Partner of Berenzweig Leonard.  His business law practice includes representing companies, executives, entrepreneurs and former professional athletes to help them address business growth and compliance.  He is also a Director of The Corporate Huddle, a non-profit organization that aligns CEOs with former professional athletes for professional mentoring.