DraftKings, FanDuel File Responses In Advance Of NY Daily Fantasy Sports Hearing

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NY State Supreme Court Fantasy Sports

Around midnight on Monday night, DraftKings and FanDuel filed their responses to New York Attorney General Eric Schneiderman’s motion for a preliminary injunction barring daily fantasy sports (“DFS”) from New York for the foreseeable future.

FanDuel filed an identical brief in support of its own preliminary injunction permitting DFS in New York, though the docket in a similar case brought by DraftKings is not available online as of this writing.  The stage is now set for Wednesday’s hearing before Justice Manuel Mendez in Manhattan.

The arguments from FanDuel, DraftKings

Though filed almost simultaneously by wholly different teams of lawyers — five attorneys from Debevoise & Plimpton LLP and Zwillgen LLP led by John Kiernan on behalf of FanDuel and thirteen from Boies, Schiller & Flexner LLP and Gibson, Dunn & Crutcher LLP led by David Boies on behalf of DraftKings — they raise many of the same arguments.  

The strongest of these is that DFS relies primarily on the player’s skill, and is not a prohibited game of chance.  This argument is strengthened by the fact that the AG concedes that “[f]antasy sports is . . . legally played . . . in New York.”  The DFS sites effectively and convincingly show how DFS is more skill-based than season-long fantasy, in part because it insulates a player from chance elements such as draft position or injuries that make season-long fantasy sports unpredictable.

Both briefs support their position with statistical analyses showing that skilled players consistently and significantly outperform unskilled or casual players. This likely will be the key point argued by the parties, and unless the AG can counter the strong evidence that skill is more important in DFS (which he has not yet done), or backs away from his view that season-long fantasy is legal (which he is unlikely to do), he will have a tough hill to climb.

Weak parts in the DFS operators’ cases?

This is not to say that every argument raised by the DFS sites is bulletproof.

Most notably, both rely on what may be an incorrect legal standard. Whereas most states and some older and lower-court New York case law define a game of chance as one where chance predominates over skill (the “predominance” test), New York’s Penal Code was re-written in 1965 to define a contest of chance as one that depends upon chance “in a material degree.” 

This language has not been interpreted by a New York appellate court but it may be a less-favorable standard than the predominance test. In addition, both sites rely heavily on Humphrey v. Viacom, a federal court case from New Jersey that did not discuss New York law. Both briefs also make somewhat legalistic arguments that the payments to and from players do not represent a wager because they are not outcome-dependent; though arguably correct, the proposition that nothing is risked by DFS players is not intuitively appealing.

In any event, these issues likely are beside the point because they apply similarly to season-long fantasy sports, which are conceded to be legal.

The skill question vs. advertising and its place in the arguments

However, the DFS sites’ reliance on the advantage held by skilled- over unskilled players may give them problems with the allegations of false or deceptive advertising — particularly for DraftKings, whose advertising arguably contained more statements suggesting that anyone can win. This highlights a tension faced by DFS generally: how to preserve a skill-based form of entertainment while remaining appealing to new, less-skilled players.

In this case, the DFS sites may have simply decided that a restriction on advertising at this stage is a small price to pay (particularly after the horse has left the barn) to preserve the permissibility of DFS itself.

How might the judge find?

At root, it likely will be difficult for Justice Mendez to find that DFS is unlawful while season-long fantasy is legal.

But in the event of a close case, DraftKings also has focused on a procedural argument (raised briefly by FanDuel) that may carry the day: the court cannot simply find that DFS likely violates state law, but it also must find that it is equitable to prohibit DFS at a preliminary hearing, before the parties have had a chance to build and present their cases in a full trial.

As DraftKings correctly points out, the sky is not falling under the current status quo, but shutting DFS out of one of its largest markets would be a huge blow to the industry. Further, it is far from clear that the AG can realistically argue that DFS is a dire problem in need of an immediate fix without distinguishing it more effectively from season-long fantasy. This would discourage a judge from granting an injunction at an early stage of this close case.

Of course, there is no telling how effective such lengthy briefs will be when a judge has only 36 hours to digest them.  The real test of these arguments will be tomorrow, when the parties present them to the court.