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Fantasy Sports-Betting Sites Dealt a Blow in N.Y.

MANHATTAN (CN) - A judge barred DraftKings and Fanduel from taking wagers in New York on Friday but said the fantasy sports-betting websites can appeal his injunction before it takes effect.

Though DraftKings and Fanduel insisted that their websites offer a "game of skill," and not illegal gambling, Judge Manuel Mendez with the Manhattan Supreme Court did not take the bait.

When it comes to daily fantasy sports, as is the issue here, "the participants pay a fee every time they play, potentially multiple times daily instead of one seasonal entry fee, with a percentage of every entry fee being paid to Fanduel Inc. and DraftKings Inc.," Mendez wrote.

The judge emphasized that the New York penal code defines gambling with broad terms, a "contest of chance" in which a person "stakes or risks something of value."

Without the use of words like "wagering" or "betting," Mendez said, the law clearly implicates daily fantasy sports.

"The payment of an 'entry fee' as high as $10,600.00 on one or more contests daily could certainly be deemed risking something of 'value,'" the 11-page decision states.

Some hours after Mendez granted New York Attorney General Eric Schneiderman an injunction against the websites Friday morning, however, the judge ensured that his ruling would not immediately take effect. The stay allows New Yorkers to continue using DraftKings while it and Fanduel appeal.

Randy Mastro, an attorney for DraftKings with Gibson Dunn, told ESPN that sports fans can keep enjoying the fantasy sites through the holidays.

"We remain open for business for the hundreds of thousands of New Yorkers who enjoy daily fantasy sports," Mastro said.

The threat of appeal did not faze Schneiderman's spokesman Damien LaVera.

"We look forward to demonstrating to the appellate division why they should uphold today's decision to grant a preliminary injunction barring DraftKings and FanDuel from continuing their illegal gambling operations in New York," LaVera said in a statement.

Earlier this morning, Schneiderman praised the initial injunction. "We are pleased with the decision, consistent with our view that DraftKings and FanDuel are operating illegal gambling operations in clear violation of New York law," Schneiderman said in a statement. "I have said from the beginning that my job is to enforce the law, and that is what happened today."

FanDuel had suspended its operation in New York when the court denied it a restraining order in November.

"We believe that this restriction is temporary and we hope to be able to offer our paid contests to New Yorkers again very soon," the company said on Nov. 17.

Fanduel vowed Friday afternoon to appeal.

"This is only the beginning of the legal process and, perhaps more importantly, the New York legislature is already moving forward on action to ensure our game remains legal and is regulated, which we strongly support," Fanduel said in a statement. "The court specifically noted that this was not a final determination of the issue and that discovery would be needed to fully resolve the legal question, which we think should be decided in our favor when all of the evidence is in."

Schneiderman had requested the injunction last month, shortly after his prohibition on their businesses prompted DraftKings and FanDuel to file separate lawsuits.

Fantasy-gaming websites have been under fire amid reports that insiders rig the game through sophisticated algorithms running confidential information.

Nevada became one of the first states to pull the plug on DraftKings, FanDuel and similar companies with a cease-and-desist order on Oct. 15.

Schneiderman's office followed suit in a scathing Nov. 10 letter that splashed cold water on promotions for the companies that say fantasy sports is the "simplest way of winning life-changing piles of cash."

"Like most gambling operations, DraftKings' own numbers reveal a far different reality," Schneiderman wrote on Nov. 10. "In practice, [daily fantasy sports] is far closer to poker in this respect: a small number of professional gamblers profit at the expense of casual players. To date, our investigation has shown that the top one percent of DraftKings' winners receive the vast majority of the winnings."

FanDuel maintains in a 17-page complaint that Schneiderman took the "legally incorrect position that the presence of prize money in these contests transforms FanDuel's activities into illegal sponsorship of gambling, and that FanDuel's advertisements have been false and misleading."

At 28-pages, the DraftKings lawsuit pulls fewer punches in accusing Schneiderman of using "strong-arm tactics and defying the rule of law."

The lawsuits Schneiderman filed meanwhile accuse the websites of exploiting the goodwill associated with legal fantasy sports.

"The speed of DraftKings' games, the size of their jackpots, and the degree to which the games are sold as winnable have ensnared compulsive gamblers and threaten to trap populations at greater risk for gambling addiction, particularly male college students," Schneiderman's lawsuit against DraftKings states. "This has prompted gambling addiction experts and advocates to sound the alarm."

FanDuel faced identical allegations, with Schneiderman claiming that the company "uses advertisements to lure New York residents with promises of easy riches for a lucky few sports fans."

Schneiderman says the fantasy-gaming websites are illegal under state law that has outlawed bookmaking and other forms of sports gambling since 1984. He wants a court order stopping them from operating in New York.

"Rather than a new type of fantasy league, [daily fantasy sports] simply devised another way to bet on sports," Schneiderman's lawsuits state.

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