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Injunction filed against DraftKings, FanDuel next step in N.Y. battle

New York Attorney General Eric Schneiderman filed an injunction on Tuesday in the state's Supreme Court to stop daily fantasy companies DraftKings and FanDuel from allowing New Yorkers to play its games.

The maneuver was expected, as Schneiderman was legally compelled to memorialize his request for the businesses to shut down after the two companies said they would not do so.

As previously laid out by Schneiderman in cease-and-desist letters written to both companies last Tuesday, the injunction contends that DraftKings and FanDuel are essentially sportsbooks as defined by state law because their products are based on future events "not under [the bettor's] control or influence" and they are also a game of chance, which makes it gambling.

"The moment a DFS player submits a wager, he becomes a spectator whose fate is sealed by the real-game performance of athletes," the filing contends. "The rules of DFS make this relationship crystal clear. The 'final box scores' -- a tally of the real-game performance of athletes -- determines who wins and who loses a DFS contest."

While FanDuel and DraftKings have argued that daily fantasy sports are more a game of skill than of chance, Schneiderman's filing says as long as there's a "material degree" of chance, it can be defined as gambling.

"That the margin between a winning and losing DFS wager is often measured in fractions of a point only makes the chance element even more obvious," the filing reads.

Referenced is the Nov. 9 Monday Night Football game between the Chicago Bears and the San Diego Chargers, where Jay Cutler's kneel down at the end of the game reduced his output by one-tenth of a point, ultimately costing a player $20,000 in winnings.

In its motion to get a temporary restraining order on Monday, which was ultimately denied, lawyers for both DraftKings and FanDuel made the case that they can't be sportsbooks as defined by state law because they don't benefit from either side winning or losing, they merely take a percentage -- most often nine percent off the entry fee. The companies also contend that the fantasy players themselves aren't betting per se because case law -- at least in New Jersey -- had established that fantasy entry fees didn't qualify as a wager.

"We look forward to being afforded a full and fair opportunity to demonstrate why daily fantasy sports are legal under New York State law," DraftKings said in a statement on Tuesday. "We believe the Attorney General's view of this issue is based on an incomplete understanding of the facts about how our business operates and a fundamental misinterpretation and misapplication of the law."

The two companies also said that Schneiderman was underestimating the amount of skill that goes into winning at daily fantasy. In its motion, DraftKings cited a study that showed that skilled fantasy players beat a randomly selected lineup more than 80 percent of the time in all four major sports.

But Schneiderman's legal team does reference the small percentage of people who are successful at daily fantasy sports, which the daily fantasy companies argue is evidence that it is a game of skill. The attorney general's filing says that DraftKings data shows that 89.3 percent of daily fantasy players had an overall negative return on investment across 2013 and 2014.

The attorney general's office argues that success enjoyed by a select few doesn't make daily fantasy sports any less of a gamble.

"The reality is that like poker, blackjack, and horse racing, a small percentage of professional gamblers use research, software, and large bankrolls to extract a disproportionate share of DFS jackpots," Schneiderman's filing said.

Schneiderman also contends that, behind closed doors, the companies knew exactly what they were doing, pitching themselves to investors as a legal gambling alternative. They do the same publicly, he says, noting that DraftKings has gambling keywords written into its code. Although the terms don't appear on its website, they are embedded in what are commonly called meta tags, which increases the chance that someone searching for gambling would arrive at the daily fantasy sports sites.

While DraftKings and FanDuel say that Schneiderman's actions will cause irreparable harm to their businesses, Schneiderman says that the two companies are causing irreparable harm to society as their product, he says, is leading to a problem for people who have compulsive tendencies.

The companies and Schneiderman are scheduled to face off in court on Nov. 25 when Judge Manuel Mendez is expected to rule from the bench on whether the companies have to stop doing business with New York customers, as Schneiderman demands, or whether they can continue operating while the case works its way through the legal system.

In the meantime, DraftKings and FanDuel are continuing to do business with New York customers, though FanDuel announced on Friday it wasn't taking in any new deposits from customers in that state.

Schneiderman has not demanded that the companies stop doing their national business from the state. FanDuel's main headquarters are in New York, and it recently signed a 10-year deal on a 41,000 square foot space for $3.3 million a year. DraftKings is based in Boston, but it has a satellite office in New York.

As the companies prepare for the legal fight, they have both dialed back their advertising. In some cases, they have asked teams and ad firms to defer payments or even sought to cancel future media altogether.