New York Supreme Court Justice Manuel Mendez denied the temporary restraining order sought by daily fantasy companies DraftKings and FanDuel against New York Attorney General Eric Schneiderman on Monday night.
The DFS firms filed motions early Monday arguing Schneiderman had unilaterally and unconstitutionally determined their product was illegal within the state and, after sending cease-and-desist letters Tuesday, began contacting partners of the sites to stop doing business with them.
After DraftKings, FanDuel and Schneiderman's office argued their cases, Mendez ruled from the bench, wary of restraining the enforcement power of Schneiderman.
Schneiderman is now expected to memorialize what he said in the letters by filing for an injunction to stop the companies from accepting business from customers in the state. The two are then scheduled to argue the merits of their case in court Nov. 25.
In the meantime, DraftKings said in a statement that it would continue doing business with New York customers.
"We look forward to our day in court," Josh Schiller of Boies, Schiller and Flexner, part of the legal team arguing on behalf of DraftKings, told ESPN.com. "Daily fantasy sports are not an illegal gambling operation, and there's no credibility to the argument that season-long fantasy could be legal while daily fantasy isn't. Daily fantasy requires more skill and less chance."
DraftKings' attorneys also said in the statement that Schneiderman had "assured the Court he will take no action against DraftKings or its business partners before" the hearing.
Schneiderman's office took issue with that view and said the attorney general's next move would be to formally challenge the sites' ability to legally operate.
"We can file a lawsuit as soon as tomorrow," Matt Mittenthal, a spokesman for the attorney general's office, said, as quoted by The Boston Globe. "We have issued a cease-and-desist letter saying we are going to file a lawsuit. That's still the case. We have not done that yet. You can look out for it in the next few days."
The office of the attorney general did not previously speak to the motion filed by DraftKings on Monday but did react to the proposal of a new daily fantasy bill.
"DraftKings and FanDuel have hired a fleet of lobbyists to convince the Legislature to legalize their gambling operations," said Matt Mittenthal, a spokesman for Schneiderman. "How does that square with these companies' insistence that their sites are presently legal?"
Schneiderman contends the daily fantasy sites violate the statute of New York Penal Code (225.0), which states "a person engages in gambling when he stakes or risks something of value upon the outcome of a contest of chance or future contingent event not under his control or influence."
In its case to prove daily fantasy is not illegal because it involves a dominating element of a game of skill, DraftKings said a study by Gaming Laboratories International revealed lineups selected by skilled fans beat randomly generated lineups more than 80 percent of the time in all four major sports. In NBA games, the skilled player's lineup beat the random one 96.1 percent of the time.
On Monday, New York State Sen. Michael Razenhofer introduced a bill that seeks to clarify that daily fantasy games should be considered games of skill, and therefore not gambling, within the state. If passed by both houses of the legislature and signed by the governor, the bill would take effect Nov. 1, 2016.
Furthermore, DraftKings lawyers argue a daily fantasy entry fee doesn't constitute a bet, leaning on a case law from New Jersey -- Humphrey v. Viacom -- that established that distinction. As for DraftKings itself, it can't be considered a bookmaker, the filing argues, because the company is a third party that doesn't make more or less with any action. DraftKings takes a percentage of the action and only makes more through more entry fees.
DraftKings also argues Schneiderman's unilaterally deciding daily fantasy is illegal and seeking to shut down the businesses of DraftKings and FanDuel is unconstitutional. Schneiderman, it says, doesn't have the legislative and judicial power to do that.
DraftKings says New Yorkers make up at least 7 percent of its customers and have paid $99 million in entry fees in 2015, which has resulted in $10 million in revenue.