DraftKings Beats Back Most Claims in California Illegal Gambling Suit, But Injunction Threat Survives

A federal judge has dismissed most of the claims in a class-action lawsuit accusing DraftKings of running illegal gambling operations in California, but the ruling leaves open a path that could ultimately force the company to stop offering paid daily fantasy sports contests to residents of the state. U.S. District Judge Charles Breyer tossed claims seeking to recover gambling losses directly, ruling that public policy generally bars courts from enforcing recovery of gambling debts. But the door remains open for injunctive relief — a court order that could bar DraftKings from operating its paid fantasy contests in California altogether.

The case dates back to June 2025, when lead plaintiffs Zhicheng Zhen and Jonathan Smith sued DraftKings, alleging the company misrepresented the legality of its daily fantasy sports contests to California users. Their complaint leans on California’s Unfair Competition Law and its Consumer Legal Remedies Act, arguing that DraftKings marketed contests as lawful when, in the plaintiffs’ view, the state’s gambling statutes prohibit them.

How We Got Here

The dispute follows a pivotal moment for the daily fantasy sports industry in California. In July 2025, California Attorney General Rob Bonta issued a formal opinion concluding that both “pick’em” and traditional draft-style fantasy contests amount to illegal sports wagering under the state’s penal code, regardless of where the operator or its technology is based. Governor Gavin Newsom publicly disagreed with Bonta’s read of the law, and operators like DraftKings and FanDuel have continued running contests in the state in the months since, arguing their games are contests of skill rather than wagering.

Breyer initially dismissed the case in December 2025 with leave to amend, finding the plaintiffs had not shown that monetary damages alone would be inadequate to support the equitable relief they were seeking. The plaintiffs refiled, and at a hearing in late July 2026, Breyer signaled he was skeptical of DraftKings’ motion to dismiss the amended complaint, telling the parties he believed the plaintiffs had adequately alleged an economic injury and that the contests at issue were likely prohibited under California law.

What the Ruling Actually Does

Wednesday’s order narrows the case significantly. Breyer tossed the claims tied to recovering gambling losses, citing the long-standing principle that California public policy prevents courts from enforcing gambling debts in either direction. “The public policy against gambling loss recovery bars plaintiffs’ claims to the extent they seek recovery of their losses in any form, whether it is damages or restitution,” Breyer wrote. That knocks out a chunk of the plaintiffs’ original theory of monetary recovery.

What survives is arguably the more consequential piece for DraftKings’ business in California: the claims under the Unfair Competition Law and Consumer Legal Remedies Act, which could support an injunction rather than a damages award. Breyer has indicated that if the surviving claims hold up, the next step would be considering a preliminary injunction that could bar DraftKings from offering paid fantasy contests to California residents — a scenario that would strike directly at one of the company’s largest state markets, given California’s size and DFS’s decade-plus presence there without a formal regulatory framework.

Why This Case Matters Beyond DraftKings

California has never passed a law explicitly legalizing or banning daily fantasy sports, which is exactly what has allowed operators like DraftKings and FanDuel to run large-scale paid contests there for more than a decade. Bonta’s 2025 opinion was the first time a top state law enforcement official formally declared those contests illegal, but an attorney general’s opinion carries no binding legal weight on its own — it takes a court ruling, an injunction, or new legislation to actually change what operators can do. That’s what makes Breyer’s case different: it’s a live federal lawsuit with the plaintiffs and DraftKings’ outside counsel at Coblentz Patch Duffy & Bass LLP actively litigating and a judge already telegraphing where he’s inclined to land, rather than just an advisory position lawmakers may or may not choose to enforce. If Breyer eventually grants a preliminary injunction, it would be the strongest legal action yet taken against DFS operators in the state, and other fantasy platforms serving Californians would be watching closely for a signal of how enforceable the state’s gambling statutes actually are against pick’em and draft-style contests.

What’s Next

DraftKings has denied that its contests violate California law and is expected to continue defending the case as it moves toward the injunction question. The company has not signaled any plan to alter its California operations following this ruling, and its paid contests remain live for California users as of this week. With sports betting legalization in California stalled and unlikely to reach voters before 2028, daily fantasy sports and prediction markets remain among the only legal outlets for Californians looking to engage financially with sports outcomes — making the outcome of this case, and any eventual injunction ruling, one of the more closely watched legal fights in the industry heading into the back half of 2026.