New York fantasy sports fight intensifies

Last Updated Nov 16, 2015 7:58 PM EST

Daily fantasy sports sites DraftKings and FanDuel have asked a New York state court for a temporary restraining order to block New York Attorney General Eric Schneiderman's efforts to shut them down.

Schneiderman last week demanded in a "cease-and-desist" letter that the sites quit operating in the Empire State because he says they're illegal gambling operations, a charge they vehemently deny. DraftKings is continuing to accept deposits from players in New York even as New York City-based FanDuel decided to quit doing so until the dispute is resolved. DraftKings is headquartered in Boston.

Both sites have become household names in recent months after bombarding consumers with ad campaigns.

But in a 45-page filing, DraftKings accused Schneiderman, a Democrat, of trying to "banish" the company from New York without providing it with enough time to adequately defend itself. DraftKings, which like FanDuel wants to preserve the status quo while the case is being decided , accused the AG of what it described as "shocking overreach."

And late on Monday, DraftKings issued the following statement: "The Court granted our order setting this case for an emergency hearing next Wednesday. The AG assured the Court he will take no action against DraftKings or its business partners before then. ... We are confident in our legal position, and look forward to our day in court next week."

However, the N.Y. AG's office denies it has made any such assurance and could issue a lawsuit at any time, perhaps as soon as tomorrow.

"The law favors maintaining the status quo pending decisions on the merits of the case," said Jodi Balsam, an associate professor at Brooklyn Law School, who's an expert on gaming law. "It does seem extremely unfair that they should be able to shutter the business which has been operating under the quite reasonable assumption that it's not gambling."

According to Balsam, "Schneiderman really jumped the gun here." Even though the businesses have "not operated in an entirely upfront manner" and the attorney general might have a valid consumer-protection complaint, she argued that DraftKings and FanDuel haven't done anything that would warrant their immediate shutdown.

Boston-based FanDuel also argues that Schneiderman is railroading the company after it operated in New York for more than six years. "We believe we should be entitled to our day in court before New Yorkers are suddenly deprived the opportunity to participate in our games by unilateral action by the NY Attorney General," FanDuel said in a statement.

A spokesperson for Schneiderman didn't have an immediate comment. In previous statements, the attorney general has accused the companies of ripping off consumers and has argued that the "cease-and-desist" letter was lawful.

Schneiderman is pressuring the companies' payment processor, Vantiv, "in an effort to achieve a shutdown of FanDuel's business with New York participants independently of the judicial process," FanDuel said.

According to the website Legal Sports Report, Vantiv ordered FanDuel and DraftKings to quit operating in New York state last week. A source familiar with the situation has confirmed that report to CBS MoneyWatch.

Cincinnati-based Vantiv is a key player in fantasy sports, noting on its website that it can increase "operational efficiency by reducing fraud, managing chargebacks and providing customer conversion guidance." Vantiv didn't respond to requests for comment for this story.

PayPal (PYPL), which has about 169 million users as of the most recent quarter, is also aware of the dispute between Schneiderman and the daily fantasy sports operators.

"Every service that PayPal offers is designed to adhere to applicable laws, regulations and compliance requirements in the markets in which we operate," according to a statement the San Jose, California-based company sent to CBS MoneyWatch. "Processing payments for fantasy sports providers is no different. We intend to continue to comply with the legal requirements that would apply to PayPal in this area and will work with our merchants and regulators to ensure we are in compliance."

PayPal declined to comment beyond the statement.

Both DraftKings and FanDuel argue that they're games of skill rather than chance and, therefore, aren't gambling. The law in New York and many other states, though, doesn't have clear standards for what's considered "chance" and "skill." Groups that counsel compulsive gamblers advise their members not to participate in the games because they consider them to be gambling.

Editor's Note: CBS has an investment in FanDuel of less than 1 percent of that company's value.

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    Jonathan Berr is an award-winning journalist and podcaster based in New Jersey whose main focus is on business and economic issues.