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 New York State Appeals Court Judge Paul Feinman temporarily
suspended an injunction granted earlier in the day by New York
Supreme Court Justice Manuel Mendez.
Mendez had stopped short of deciding whether daily fantasy sports
are a game of skill or chance under New York law, but ruled that
there was a likelihood that New York Attorney General Eric
Schneiderman would be able to prove that the games are illegal if
the matter goes to trial.
The short-term stay, issued in an emergency appeal filed by FanDuel
and DraftKings on Friday, allows the companies to do business in New
York until at least Jan. 4, a DraftKings lawyer said. After that a
panel of judges will rule on whether the injunction granted by
Mendez was appropriate.
"This is a necessary first step on the road to an appeal," said
DraftKings' attorney Randy Mastro, a partner at law firm Gibson
Dunn. "We are confident we will prevail in appeal because daily
fantasy sports are legal in New York."
Schneiderman last month sent cease and desist letters to the
companies demanding that they stop taking money from players in the
state.
FanDuel stopped letting New York state residents play the games
after receiving the letter, but DraftKings has continued operating
as usual.
Since FanDuel stopped taking money from New Yorkers, entry fees in
the company's weekly National Football League (NFL) games have
dropped by about 25 percent, according to data from fantasy sports
analytics company SuperLobby.
Over that same period, entries into DraftKings' NFL guaranteed prize
pool contests are down around 12 percent.
Professional football is the most popular sport for daily fantasy
contests.
NATIONWIDE SCRUTINY
The legal sparring comes amid nationwide scrutiny at the state and
federal level as to whether the games amount to gambling. A New York
decision has the potential to ripple throughout the country as eight
other states have gambling laws similar to New York's, according to
DraftKings.
Fantasy sports started in 1980 and surged in popularity online.
Participants typically create teams that span an entire season in
professional sports, including American football, baseball,
basketball and hockey.
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Daily fantasy sports, a turbocharged version of the season-long
game, have developed over the past decade. Players draft teams in
games played in just one evening or over a weekend.
This has enabled fans to spend money on the games with a frequency
that critics say is akin to sports betting.
The companies have raised hundreds of millions of dollars from
investors including Fox Sports, Major League Baseball, the National
Hockey League, KKR & Co LP, Raine Group, Google Capital and the
venture arms of Time Warner Inc and Comcast Corp.
DraftKings also partnered with Major League Baseball to advertise in
ballparks while FanDuel signed partnerships with several NFL teams.
Privately-held FanDuel and DraftKings may have painted targets on
their own backs with aggressive advertising at the start of the NFL
season that promised large winnings.
Bernstein research estimates that 59 percent of total TV ad revenue
growth in the third quarter alone was from spending on daily fantasy
football ads.
FanDuel has said it planned to pay out $2 billion in cash prizes
this year.
The companies could also be saved in New York's state legislature
where a number of bills of have been introduced to make the games
legal. But the level of support for these bills is unclear and
lawyers said the state's attorney general could challenge any such
laws as being unconstitutional.
(Reporting by Michael Erman and Suzanne Barlyn; editing by G Crosse)
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