MANHATTAN (CN) – As a million people gathered to watch the ball descend at Times Square, New York Attorney General Eric Schneiderman went to court to drop the other shoe on fantasy-sport companies FanDuel and DraftKings.
It has been nearly two months since Schneiderman’s office sent a scathing cease-and-desist letter warning the companies to stop operating in the state.
Since that time, FanDuel and DraftKings have faced dozens of class actions around the country, amid reports that insiders rig the game through sophisticated algorithms running confidential information.
Against the defense that the websites offer a game of skill, Manhattan Supreme Court Judge Manuel Mendez granted Schneiderman’s request for an injunction banning them in New York as illegal betting operations.
The decision has been stayed pending an appeal, but Schneiderman’s office hasn’t cashed out yet. On New Year’s Eve, the attorney general filed an amended complaint seeking the restitution of “all funds” the companies made through their “fraudulent, deceptive, and illegal acts” in New York.
Schneiderman touted his office’s recent victory in a statement announcing its new action.
“This filing, which follows a preliminary determination by the State Supreme Court that DraftKings and FanDuel have been running illegal sports betting operations, seeks appropriate fines and restitution from the companies,” he said. “It should be no surprise that the amounts involved are substantial, given the skyrocketing size of these illegal gambling operations.”
The 33-page amended complaint seeks a $5,000 civil penalty for each case.
According to CBS News, the companies estimated that they made more than $200 million from at least 600,000 customers in the Empire State.
Though FanDuel suspended its operation in New York when the court denied it a restraining order in November, the website has been back up since the stay of the court’s injunction. A full appellate panel must still decide whether the stay is necessary.
“As we have previously iterated, FanDuel remains committed to offering our fantasy contests to the Yankees, Mets, Jets, Giants, Bills, Knicks, Nets, Rangers, Islanders and Sabres fans that comprise the great state of New York and love fantasy sports – be it season-long or daily,” the company said in a statement. “As one of New York’s fastest growing startup companies, we are thoroughly disappointed in the attorney general’s ongoing actions and will fight this meritless amended suit until fantasy sports are safeguarded for all sports fans.”
David Boies, an attorney for DraftKings at Boies, Schiller & Flexner, said the new complaint shows that Schneiderman “still does not understand fantasy sports.”
“Like the NYAG original complaint, it is based on the fundamental misunderstanding of fantasy sports competitions,” Boies said in a statement.
Schneiderman’s error stems from the assumption that fantasy sports bank on “chance” rather than skill.
“Everyone who plays fantasy sports knows they are games of skill,” Boies wrote. “It is the opportunity to match your knowledge and skill against the knowledge and skill of your friends and other fantasy enthusiasts that makes [DraftKings] contests so exciting and challenging.”
With a trial court judge rejecting that argument, Boies believes that the state’s chance theory still has been “disproven” by the company’s evidence.
In its Dec. 22 brief opposing the stay, the attorney general’s office estimated in court paper that ban on the companies would deprive them of “only single-digit percentages” of their nationwide business.
“Whatever ‘skill’ is involved in predicting athletic performance is simply skill at gambling – not the type of skill that removes an activity from the realm of gambling altogether,” Schneiderman’s office said.
FanDuel is expected to file its appeal Monday night to New York’s Appellate Division, First Department.
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