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Daily fantasy sports companies DraftKings and FanDuel really need a win. In New York Supreme Court this week, they’ll get their chance.
Both companies have a court date Wednesday to argue why they should be able to offer fantasy sports contests with entry fees and cash prizes legally in New York following cease and desist letters from Attorney General Eric Schneiderman earlier this month demanding they halt all operations.
The complicated issue can be boiled down to one simple question that has dogged both companies over the past two months: Are DraftKings and FanDuel running gambling operations?
Schneiderman believes they are, but answering that question rests with New York Justice Manuel Mendez until a jury trial can take place at a later date. That means that whatever decision Mendez makes — and there’s a good chance it may not come for a few days or even weeks — will only be a temporary fix.
But that doesn’t diminish its importance. Mendez’s decision could keep DraftKings and FanDuel sidelined for months if he believes they do indeed violate New York gambling laws. It would be a major blow, considering 15 percent of DraftKing’s users reside in New York, according to the restraining order DraftKings filed against Schneiderman last week. The company has generated $10 million in revenue in New York alone this year. It brought in a total of $30 million for all of 2014.
The outcome of the New York case is incredibly important as it’s likely that whatever happens in New York will set a precedent for other states, including California, where FanDuel is already preparing for another regulatory battle.
To argue its case in New York, DraftKings has hired super-lawyer David Boies, who has handled some of the most high-stakes legal battles of the past two decades. He represented Al Gore in front of the Supreme Court during his dispute over the results of the 2000 presidential election; he represented the NFL against the NFL Player’s Union during its 2011 summer lockout; he represented the government in its antitrust lawsuit that took down Microsoft. If it was unclear just how seriously DraftKings is taking Wednesday’s hearing, that should give you an idea.
Here is the state gambling law Boies will be dissecting on Wednesday:
New York Penal Law, S 225.00: “Gambling.” A person engages in gambling when he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome.
In a conference call with reporters on Friday, Boies laid out his plan of attack. The key lies in how the law defines gambling as an activity that creates an outcome that’s “not under [the player’s] control or influence.” Because DraftKings and FanDuel users choose the players on their teams for any given contest, Boies believes that means they can influence the outcome of their competition.
“We also think skill predominates, and we think the best illustration of that is the fact that the more skillful players consistently win,” Boies said, citing the fact that the same players win repeatedly on sites like FanDuel and DraftKings. In September, Bloomberg reported that only 1.3 percent of players won money in a three-month study conducted by the Sports Business Journal.
New York’s Attorney General disagrees. In an op-ed in the New York Daily News last week, Schneiderman argued that the outcomes of these fantasy contests, which hinge on the real-world performances of professional athletes, are “outside of the gambler’s control.”
“Games of chance often involve some amount of skill; this does not make them legal,” Schneiderman wrote. “Good poker players often beat novices. But poker is still gambling, and running a poker room — or online casino — is illegal in New York.”
Both DraftKings and FanDuel — and their myriad investors, including sports leagues like Major League Baseball and the NBA — hope Boies’s argument trumps Schneiderman’s. Their business likely depends on it.
This article originally appeared on Recode.net.
