Do I break the law by paying 'protection' money for my business? I don't like it, but I don't want to risk getting hurt.

Your question is too vague. Are you paying someone who ultimately hurts another person to protect you? Are you aware of this or consent to this? Are these people whom are being paid threatening you to force you to pay them? Don't answer these questions in a public forum, but consider seeking a consultation as to this issue with an attorney. It appears as if there is certainly something inappropriate, fraudulent or "illegal" (for lack of better terms) going on.