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Appeals court stops shutdown of daily fantasy sports in New York State

ALBANY – A state judge halted the nation’s biggest daily fantasy sports companies from doing business with New York residents, a decision that stops what Attorney General Eric Schneiderman calls illegal wagering on sports contests.

But the suspension was short-lived. By Friday evening, a state appeals court OK’d a stay of the morning’s injunction, allowing DraftKings to keep doing business in the state while the legal process proceeds.

Schneiderman’s office confirmed the stay granted in the afternoon.

“We will remain fully operational in New York,” David Boies, counsel to the fantasy sports giant, said in a statement.

“We look forward to a full and fair hearing and are confident we will demonstrate clearly to the court why we should be able to continue to offer our DFS games in New York permanently,” Boies said.

FanDuel also appealed the injunction, though it voluntarily stopped taking fees from New York residents last month.

Earlier Friday, Supreme Court Justice Manuel J. Mendez said the state’s penal code definition is written broadly enough to be “sufficient” to find that contests offered by DraftKings and FanDuel amount to illegal gambling.

The judge wrote that Schneiderman has established “the likelihood of success” in his broader legal case against the two companies so that bids by DraftKings and FanDuel to block the attorney general’s shut-down order will not be granted.

Further, the judge wrote the attorney general and state of New York have an “interest in protecting the public,” especially gambling addicts who Schneiderman alleges are targeted by the daily fantasy sports industry.

The judge ordered both companies to immediately stop accepting “entry fees, wagers or bets” from New York consumers.

Boston-based DraftKings was still doing business with New Yorkers while the legal tussle was underway in Mendez’s court, while New York-based FanDuel a couple weeks ago stopped its operations within the state.

“We are pleased with the decision, consistent with our view that DraftKings and FanDuel are operating illegal gambling operations in clear violation of New York law,” Schneiderman said in a statement.

With the exploding daily fantasy sports industry under increasing scrutiny by federal and state government officials around the nation, Schneiderman on Nov. 10 issued cease-and-desist letters to the two biggest players in the trade. He accused them of being engaged in illegal bookmaking operations, saying they prey on gambling addicts while spending millions advertising big payouts for winners.

Mendez noted the fantasy sports sites charge consumers fees of between 25 cents and $10,600, and take commissions of between 6 to 14 percent. Schneiderman considers those fees as “wagers.”

Mendez also noted that the state’s penal code is broadly written to define illegal gambling as to include when someone is engaged in an activity that “risks something of value.”

“The payment of an ‘entry fee’ as high as $10,600 on one or more contests daily could certainly be deemed risking ‘something of value,’ ” the judge wrote.

Officials said the stay of the injunction is for one month while an appellate division court reviews the legal dispute. “We look forward to demonstrating to the appellate division why they should uphold today’s decision to grant a preliminary injunction barring DraftKings and FanDuel from continuing their illegal gambling operations in New York,” said Damien LaVera, a spokesman for Schneiderman.