On Friday November 13, 2015, daily fantasy sports (DFS) giant DraftKings, Inc. initiated a state court lawsuit against New York Attorney General Eric Schneiderman.
The lawsuit was filed in response to Schneiderman’s November 10, 2015 ruling, which required DraftKings and FanDuel, Inc. (DraftKing’s industry competitor) to cease and desist from accepting DFS wagers from New York State residents. The AG’s ruling implicated only DraftKings and FanDuel, although several other DFS companies exist.
DraftKings’ lawsuit seeks to preclude New York from halting the company’s business in the state. In its petition papers, DraftKings refers to Schneiderman’s decision as a “shocking overreach.” DraftKings also claimed that New York’s AG violated state law. The petition argues:
[Schneiderman] has unleashed an irresponsible, irrational, and illegal campaign to destroy a legitimate industry, intending to deprive hundreds of thousands of New Yorkers of the use and enjoyment of these services. Adding insult to injury, he has done so in defiance of New York law, which plainly permits games of skill such as DFS. Indeed, academic scholarship, skills studies, and commentary conclusively establish that DFS is a classic game of skill and entirely legal under New York law.
Schneiderman’s decision found that the business operations of DraftKings and FanDuel qualify under New York law as illegal gambling. Article 225 of the New York Penal Law defines “gambling” as staking or risking “something of value upon the outcome of a contest of chance.”
In light of New York law, the issue in the lawsuit is whether DFS qualifies as a “contest of chance.” DraftKings allegedly hired Gaming Laboratories International (“GLI”)—a company that services gaming entities—to conduct research on DraftKings’ MLB, NBA, NHL, and NFL contests. In support of DraftKings’ stance that DFS games are not a contest of chance, the state court petition alleges:
GLI tested the performance of DraftKings lineups generated at random—subject only to the constraint that 90% of the salary cap must be used—compared to the results achieved by top-earning DraftKings users. In each case, skilled users dramatically outperformed the computer simulation in head-to-head contests: 83% of the time in MLB, 96% of the time in NBA, 82% of the time in NHL, and 84% of the time in NFL.