The Law Of Unintended Consequences For New York Fantasy Sports Regulations

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The New York law legalizing and regulating paid-entry fantasy sports has an interesting provision that could keep out smaller operators that took a legally conservative approach to the state, in addition to relatively new operators in the space.

What the NY law on DFS says

The law just signed by Gov. Andrew Cuomo allows all fantasy sports operators to apply for a license in the state.

However, it also makes provisions for operators to serve the market almost immediately via a temporary permit. Here’s the relevant section of the law:

Any operator that was offering contests to persons located in New York state prior to the tenth of November, two thousand fifteen, may continue to offer contests to persons located in New York state until such operator’s application for registration has been approved or denied in accordance with section fourteen hundred three of this article, provided that such operator receives a temporary permit pursuant to subdivision two of this section and files an application for registration with the commission within ninety days of the promulgation of regulations to effectuate this article.

That November date is when NY Attorney General Eric Schneiderman issued cease-and-desist orders to FanDuel and DraftKings.

NY law and the operator application

The above passage is reflected in the New York State Gaming Commission application for a temporary permit, which at least some of operators have already submitted.

Who is eligible for a temporary permit?

Any operator of an interactive fantasy sports platform wishing to administer, manage, or otherwise make available an interactive fantasy sports platform offering contests to persons located in New York State who has also offered such a platform prior to November 10, 2015.

Exhibit 1 to the application states:

Please provide evidence that the applicant offered interactive fantasy sports contests to persons located in New York state before November 10, 2015.

Why is the passage in the law, and why is it not the best idea?

When lobbying for the bill — and when lawmakers were considering it — they were trying to make sure the companies operating prior to Schneiderman’s order could get back into the state, without issue.

Steven Eichorn, an associate at Ifrah Law, said he believes the gaming commission erred in implementing the law on this point.

“The NYS Gaming Commission has apparently confused a sufficiency and necessity requirements,” Eichorn told Legal Sports Report. “The point of the bill, which was likely pushed by DraftKings and FanDuel, was to ensure they — even though they operated in New York prior to the legalization of DFS — would still be eligible to receive a temporary permit after DFS was legalized.”

The intent of the law, if not the explicit language, was not to exclude operators that weren’t in NY before that date, Eichorn went on.

“Nowhere does the DFS bill require prior operations in NYS (in violation of the law) to obtain a temporary permit,” he said.

Most operators in the DFS industry would obviously not agree that prior New York law was even a gray area legally prior to the new law. But it’s at least an open question that will no longer be answered in the court, as part of a settlement involving Schneiderman, DraftKings and FanDuel.

But there are at least some smaller operators that steered clear of the New York market based on the law as it existed previously.

It would also stop any relatively new operator — one that launched after the November date — from being in the state immediately. (It’s not clear there are even any DFS operators in the latter set, as launching a US-facing site after November was not something on almost anyone’s radar.)

“The Gaming Commission’s application has made the prior operations a necessity, which borders on the absurd,” Eichorn said. “This requirement of having offered DFS to NYS residents is punitive to operators that clearly complied with NYS law by not offering DFS prior to its passage of this bill.”

The Missouri DFS example

The Missouri law — and the regulations being promulgated in the wake of its passage — seem to take a more common-sense approach to sites being able to operate in the state on an interim/temporary basis.

The law says sites that sites operating before April of this year may continue to do so if they file a timely fashion. However, any company — even those that did not operate before April — can also file a timely license application and be immediately eligible to offer DFS.

A reverse ‘bad actor’ provision?

The New York law stands in stark contrast to online gambling bills and laws in other jurisdictions, that seek to keep out operators that were serving a state’s residents during a “gray” or “black” period. For example:

In state legislatures, there has been little talk of suitability language in DFS vis a vis jurisdictions served prior to a law being enacted. The states that have passed laws have generally taken the tack that they are clarifying, from a legal standpoint, that paid-entry fantasy contests are legal (and should have been previously).

The DFS laws generally do have requirements for registration/licensure, saying to receive or retain a license, they must be in good standing in other jurisdictions.

In New York, though, regulations appear to make it more difficult for any operator who was staying out of NY, for fear of the law and how it could have been applied to DFS.

It’s not clear how keeping those operators out of the state, on a temporary basis, is in the best interest of any regulatory scheme.