Fantasy Sports Win New York Court Approval to Keep Operating

Hearing in Appeals Court Will Likely Come in May

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DraftKings and FanDuel can keep operating in New York while an appeals court decides whether to shut down the two biggest daily fantasy sports sites as they fight the attorney general's claim that they're illegal gambling operations.

A New York appeals court allowed the sites to keep accepting bets from players in the state while they challenge a judge's order that they shut down pending a trial over the core dispute -- whether they're illegal gambling operations or games of skill. A hearing at the appeals court is likely in May.

"We're very grateful to the courts for continuing the stay for the duration of the appeal so that the hundreds of thousands of New Yorkers who love daily fantasy sports can continue to enjoy these contests," said Randy Mastro, an attorney for DraftKings. New York Attorney General Eric Schneiderman's office didn't immediately respond to a request for comment.

Supreme Court Justice Manuel Mendez on Dec. 11 ordered the sites to close while they fight Mr. Schneiderman. An appeals court judge later that day put Mr. Mendez's ruling on hold, and a larger panel of jurists on Monday gave the companies the green light to continue taking deposits in New York while they consider whether to overturn Mr. Mendez.

"The balancing of the equities are in favor of the NYAG and the Sate of New York due to their interest in protecting the public, particularly those with gambling addictions," Mr. Mendez wrote in initially shutting down the sites. The judge noted that wasn't the final determination and both sides had to submit more evidence.

Biggest market
According to a 2015 poll of players, New York has the biggest U.S. market for daily fantasy sports, with 13 percent of participants, said Eilers & Krejcik Gaming LLC, a research company in Anaheim Hills, California. Losing them would cost the companies an estimated $35 million a year, Eilers says. California is the No. 2 market, with 10%, it says.

Those statistics represent active players, while FanDuel and DraftKings say in filings that according to a list of open accounts New York represents less than 10% of the U.S. market.

At least six states have banned daily fantasy sports, and others are considering regulating the contests. DraftKings on Dec. 24 asked an Illinois court to overturn a finding by Attorney General Lisa Madigan that the games are illegal gambling.

Upped stakes
The New York attorney general upped the stakes in the fight with the fantasy sites on New Year's Eve, demanding the return of all money to users who lost in 2015, plus fines.

The new demand shows Mr. Schneiderman "still doesn't understand fantasy sports," DraftKings' lawyer David Boies said in a statement.

While the fantasy sites said they raked in $200 million from New York-based players, the fantasy sites collect a percentage of the bets while the players compete for the rest of the pot. According to the website Fantasy Sports Leader, FanDuel's take ranges from 10% on $1 to $50 buy-ins to 6.5% on buy-ins of $535 in general leagues.

In daily fantasy sports games, a player assembles a roster of athletes and wins or loses based on their real-life performances on a game day, with some contests offering prizes in the millions of dollars.

The New York attorney general says the business constitutes illegal gambling under state law because the outcome of the contests depends mostly on chance and factors outside of a player's control.

Skill games
The sites argue that their games are contests of skill, in which players act as de facto general managers and select teams that don't exist in real life.

FanDuel voluntarily stopped offering contests in the state shortly after Mr. Schneiderman issued cease-and-desist orders to the companies in November. It opened the contests to New Yorkers after the appeals court's temporary lifting of the ban. DraftKings let New Yorkers play throughout the fight with the attorney general.

-- Bloomberg News

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