8:49am PT by Eriq Gardner
In Lawsuit, DraftKings Says NY AG Impeding Relationship With Investors
DraftKings, one of the largest operators of daily fantasy sports, has filed a lawsuit against New York Attorney General Eric Schneiderman over his demand earlier in the week that it cease operating in the state.
The complaint alleges that Schneiderman is "misreading New York's gambling laws" and "is attempting to bully DraftKings" in violation of the U.S. Constitution, specifically its due process rights, the equal protection clause and its rights under the takings clause. Further, the lawsuit alleges that New York's action constitutes tortious interference with regard to payment processors.
"Fantasy sports have become a national pastime," states the complaint, which counts more than 2 million customers, including 7 percent who live in New York.
DraftKings demands an injunction for New York's "shocking overreach" and "rush to judgment" to classify its competitions as a game of chance rather than a game of skill. The plaintiff says that if an injunction isn't issued, the irreparable harm would be a "chilling effect on DraftKings’ business nationwide, as well as its ability to attract new investors and partners. Moreover, the Attorney General’s letter is impeding DraftKings’ ability to continue its relationships with its current investors and partners."
In a statement responding to the lawsuit, Schneiderman's office said "the law here is clear," that the daily fantasy sites were causing "social and economic harms," and he promised, "We will take action to enforce state law."
21st Century Fox owns more than 10 percent of DraftKings after investing approximately $150 million into the company in July. DraftKings has also committed to $250 million in advertising on Fox through 2017.
Other entertainment companies with a stake in DraftKings and its competitor FanDuel are Time Warner, Comcast and Google, plus Major League Baseball and the National Basketball Association. In recent months, daily fantasy sports operators have poured tens of millions into advertising. In fact, it's been estimated that this industry now constitutes more than 1 percent of the total ad market on television, with a commercial appearing on air averaging every 90 seconds.
As mentioned in an earlier story, the decision to classify daily fantasy sports operators as illegal gambling could hold secondary implications to the media industry. In 2003 the Department of Justice sent a letter to the National Association of Broadcasters warning that entities that ran advertisements for gambling sites could be pursued criminally for aiding and abetting illegal activities.
Reportedly, at Madison Square Garden this morning, workers have been removing DraftKings signage in advance of a New York Knicks and Cleveland Cavaliers game.