Analysis: New York Still Chugging Toward Daily Fantasy Sports Regulation

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daily fantasy sports

Step aside, sports betting: daily fantasy sports are back in the spotlight in New York.

Proposed DFS rules were one of the topics up for discussion during Monday’s scheduled meeting of the NYS Gaming Commission in Schenectady. Following another round of input from stakeholders, the Commission refiled its amended regulations for one last round of public comments this summer.

With its rocky past seemingly behind it, New York finally appears to be on the cusp of putting its never-ending DFS saga to rest for good.

Items of note in NY DFS rules

The Commission accepted about a third of the nearly 50 comments submitted prior to last September’s deadline.

Most of the changes operators requested were simple semantic tweaks that would basically allow them to conduct their business in the way they have become accustomed to in New York and beyond.

DraftKings, for example, opposes a rule that would limit its ability to add bonus money to otherwise-fixed prize pools. FanDuel wanted a cleanup in the language surrounding the maximum number of entries in certain contests.

Ticket broker wants a piece too?

Vivid Seats popped up in the comments too.

It operates a product called Vivid Picks in 24 states and the District of Columbia, but it has never been able to offer its games in New York. The proposed rules would make registration available to companies that are not yet active in the state, and Vivid Picks requested an exemption to launch on a temporary basis prior to obtaining full approval.

There are 15 fantasy sports operators currently authorized with temporary permits in NY, including market leaders DraftKings and FanDuel.

Fantasy sports legislation stalled

A 2022 bill from Sen. Joseph Addabbo would have given Vivid Picks what it’s now asking the Commission for, but it failed to move from the committee he chairs. As it stands today, the proposed rules do not allow such an exemption.

Another fun tidbit: Yahoo asserted in its comments that it will not offer DFS in any jurisdiction that requires financial disclosures from officers, directors, and owners not involved with their fantasy product. That includes New York, at least as proposed under the draft rules.

Vivid Picks is fantasy sports?

Here’s the thing about Vivid Picks, though: it’s not really what most people think of as DFS.

Rather than using an adjusted scoring system, Vivid Picks contests involve direct speculation on the actual statistical performance of players. It is a lot closer to a form of parlay prop betting than it is to a traditional fantasy contest.

Whether or not this type of gaming falls under the statutory definition of fantasy sports is a tricky question. Given careful construction, it probably could, but it is also clear that the version of DFS that has surfaced in recent years is entirely different from the game lawmakers originally envisioned.

Take it to the limit

Operators in this space certainly have a history of testing the definitional limits of DFS, but this particular sleight of hand is starting to raise some eyebrows across the industry.

Here is the text of the proposed rule that Vivid Picks objects to:

Contests shall not be based on proposition betting or contests that have the effect of mimicking proposition betting. Contests in which a contestant must choose, directly or indirectly, whether an individual athlete or a single team will surpass an identified statistical achievement, such as points scored, are prohibited.

Whatever you call these types of games, regulators in New York do not seem to want them in their state, at least not under the label of daily fantasy sports. Though the Commission’s response is redacted, the updated draft retains this prohibition on prop-like contests.

NY daily fantasy sports trek resumes

The rulemaking process is not particularly interesting, but this one is somewhat noteworthy in that it represents a long-awaited step forward on the winding road to regulated daily fantasy sports in New York. It has been quite a journey.

The General Assembly first authorized DFS back in 2016 – several years later than most states – compelling regulators to issue temporary licenses to companies that were serving customers under gray-market conditions prior to the legislative update. This move was a direct rebuttal to the 2015 threat of enforcement from Attorney General Eric Schneiderman and the subsequent injunction that temporarily forced operators out of the state.

Thanks to the new law, New York began collecting tax revenue from licensed DFS operators for the first time.

Not so fast, my friends

But the law quickly came under fire through private litigation, and it was ultimately stricken from the books in a 2018 ruling from the NY Supreme Court that was subsequently upheld by the Appellate Division. These decisions recriminalized DFS and removed any mechanism for the state to provide oversight and impose taxes. Those temporary operator licenses were never upgraded.

Last year, however, the Court of Appeals reversed the lower courts’ decision and reinstated the 2016 law as written. In a 58-page ruling from Chief Justice Janet DiFiore, the appeals court held that lawmakers did not overstep their Constitutional authority by classifying fantasy sports as a legal game of skill.

With the road once again clear, gaming officials are now fulfilling their obligations and putting the final pieces of the NY fantasy sports industry in place. It has taken the better part of a decade to get to this point.

DFS just a drop in NY revenue bucket

The Commission stopped publishing revenue reports for fantasy sports several years ago, so it is hard to know what sort of potential the market holds. It is pretty small though: some of the last recorded numbers from right around the industry’s overall peak show $4.8 million in tax revenue for the 2017-18 fiscal year.

Governor Kathy Hochul’s proposed budget for the upcoming year therefore seems a bit optimistic with $6 million in projected tax revenue from fantasy sports. That is dead-flat from estimates for the current fiscal year, however, and down marginally from the $6.8 million reportedly collected the year prior.

Considering the state’s total budget exceeds $100 billion, this regulatory process is not about skimming taxes as much as it is about providing the layer of oversight that fantasy players in other jurisdictions have come to expect of the industry.

Meanwhile, tax revenue from NY sports betting continues to surpass expectations. The state collected almost $700 million from the first year of regulated online sports betting at a US-high 51% rate.