NY Ban on Fantasy-Sport Sites Inspires Lawsuits

MANHATTAN (CN) - DraftKings and FanDuel announced separate court challenges Friday against attorney general Eric Schneiderman's recent prohibitions on their fantasy-sports businesses.

Fantasy-gaming websites have been under heat for more than a month 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."

Another ad touted: "The giant check is no myth... BECOME A MILLIONAIRE!"

"Like most gambling operations, DraftKings' own numbers reveal a far different reality," Schneiderman wrote on Nov. 10. "In practice, DFS 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."

Calling their enterprises "neither harmless nor victimless," Schneiderman minced few words about what he called a "multi-billion-dollar scheme intended to evade the law and fleece sports fans across the country."

DraftKings and FanDuel fired back Friday with separate lawsuits that the companies disseminated to reporters in advance of their filing in Manhattan Supreme Court.

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."

Insisting it runs a game of skill, FanDuel said: "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."

It is represented by John Kiernan of Debevoise & Plimpton.

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

Slamming Schneiderman's letter as "devoid of judicial authority or coherent analysis," DraftKing's combative lawsuit perhaps reflects the pugnacious style of its lead author: former mob prosecutor Randy Mastro, of Gibson, Dunn & Crutcher.

"The attorney general's actions constitute a shocking overreach," Mastro wrote. "He has unleashed an irresponsible, irrational, and illegal campaign to destroy a legitimate industry, intending to deprive hundreds of thousands of New Yorkers of the use and enjoyment of these services. Adding insult to injury, he has done so in defiance of New York law, which plainly permits games of skill such as [daily fantasy sports]."

Damien Lavera, a spokesman for Scheidnerman, seemed unthreatened by the claims, emphasizing that the "law here is clear."

"Online sports gambling sites are illegal in New York," Lavera said in a statement. "DraftKings and FanDuel are operating illegal sports betting websites under New York law, causing the same kinds of social and economic harms as other forms of illegal gambling. As a result, our office issued a cease and desist letter to stop them from violating state law by accepting bets from people in New York. Because both companies have refused to follow the law in our state, we will take action to enforce state law."

Two payment-processing companies allegedly terminated contracts with DraftKings in the wake of Schneiderman's ban, leading the website to file suit Friday against the corporate owners of Optimal Payments and Vantiv.

DraftKings filed this Nov. 13 lawsuit with the Court of Common Pleas in Hamilton County, Ohio.

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