DraftKings, FanDuel Don’t Have to Leave New York—Yet

December 11, 2015, 10:43 PM UTC
<> on March 30, 2015 in New York City.
<> on March 30, 2015 in New York City.
Andrew Burton 2015 Getty Images

On the same day a judge in New York supported a “preliminary injunction” that would bar DraftKings and FanDuel from doing business in the state, a different judge granted an “emergency stay” of that injunction. It means the two daily fantasy sports companies, under siege from New York Attorney General Eric Schneiderman, don’t yet have to shut down in New York after all—they live another day.

In fact, they live for the rest of the calendar year, and maybe longer.

Earlier on Friday, New York Supreme Court Justice Manuel Mendez finally issued his decision in the November 25 hearing initiated by Schneiderman’s request for injunction. It was a major blow to the two companies, and for the daily fantasy sports industry (including players like Yahoo, which Schneiderman has subpoenaed) in New York. The state has more daily fantasy sports players than any other state, according to Eilers Research.

DraftKings and FanDuel quickly filed requests for an “emergency stay,” which is the precursor to larger appeal filings. The stay request was heard on Friday, and New York Supreme Court associate justice Paul Feinman, of the appellate division, granted the stay.

It is a small victory for DraftKings and FanDuel, though Randy Mastro, one of a handful of outside attorneys working with DraftKings, frames it as something bigger. “It is a sea change,” he told Fortune by phone on Friday evening. The stay lasts until at least January 4, when the issue will go to a panel of appellate judges, who will decide whether to continue the stay for the entirety of the appeal, a process that could take months. If the panel does not uphold the stay, DraftKings and FanDuel will have to shut down during their appeal process.

“This is a necessary first step and speaks volumes about where we hope this appeal is headed,” Mastro said about the emergency stay. “We are confident we will win the appeal, because daily fantasy sports are legal under New York law, no question about it. And when an appellate panel reviews it, those judges will agree.”

How can Mastro sound so confident after Justice Mendez’s decision so completely supported the opinion of Attorney General Schneiderman that daily fantasy sports companies are illegal gambling operators? Because, he reasons, “There was no trial here. Justice Mendez decided the case on paper and on oral arguments. He didn’t hold a hearing with witnesses and make factual findings.” The appellate panel will review Mendez’s findings and, Mastro hopes, “make their own decisions. We are confident we will win.”

Mastro mentioned a previous court case in New Jersey he believes should have had some precedence in the current New York matter: Humphrey vs Viacom in 2007, where a federal court reviewing New Jersey’s gambling statute determined that an entry into a fantasy sports contest is not a bet or wager. Mastro says the language in New Jersey’s gambling law is “nearly identical to New York’s” and thus, “as a matter of law,” should be yet another piece, among many, that supports the legality of daily fantasy sports. New York attorney Linda Goldstein, who helped draft the fantasy sports carve-out in the Unlawful Internet Gambling Enforcement Act of 2006, voiced the same opinion to Fortune. The results of the 2007 case, she said, “should apply equally to the games at issue and to the definition of gambling in New York.”

The Fantasy Sports Trade Association, which advocates for the interests of DraftKings, FanDuel, and all other fantasy sports operators (both daily and season-long), promptly issued a statement cheering the news of the emergency stay.

The FSTA was gratified to see that the appellate court acted so quickly and decisively to stay what we believe was an erroneous lower court decision that failed to address important issues affecting both the companies involved and the legion of New Yorkers who enjoy playing daily fantasy sports. We hope the higher court’s action will help encourage Attorney General Schneiderman to work with New York legislators, lawmakers and the FSTA to develop common sense consumer protection measures to ensure that New Yorkers can continue to enjoy the games they love.

Meanwhile, the Attorney General’s office had this to say about the stay: “We look forward to demonstrating to the appellate division why it should uphold today’s decision to grant a preliminary injunction barring DraftKings and FanDuel from continuing their illegal gambling operations in New York.”

Even if DraftKings and FanDuel are currently allowed, by law, to keep offering their paid contests in the state, they may have a bigger problem: PayPal and Bank of America both said in statements on Friday that they would stop processing payments for DraftKings and FanDuel. It is not clear whether the companies will reverse that decision as a result of the emergency stay.

If payment processors abandon these two companies, they will struggle to do business in New York, whether or not they are legal.

For now, and until January 4, Mastro said that they are eager to begin the appeal process because, “daily fantasy sports are legal in New York. We are as confident of that today as we have ever been.”

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