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The future of daily fantasy sports is suddenly in jeopardy in New York.
The ruling by New York Acting Supreme Court Justice Gerald W. Connolly holds that DFS contests — and their enabling legislation — fall under constitutional prohibitions against gambling.
NEW: state judge in New York declares daily fantasy sports contests to be gambling, not games of contest. Cornelius Murray, lawyer who brought the #DFS case, says state should immediately shut down the contests in New York. Awaiting word from NY attorney general.
— Tom Precious (@TomPreciousALB) October 29, 2018
(Precious presumably means “not games of skill” in this tweet.)
Last week, fantasy sports operators won a significant decision in Indiana regarding their right to use statistics and other in-game information. This week, they’re fighting for the right to operate at all in New York, a market of much greater significance.
New York has been a focal point of fantasy sports legislation and regulation for several years. At issue is whether or not the activity qualifies as gambling — and whether or not the legislature has the power to decide.
In 2015, then-Attorney General Eric Schneiderman issued cease and desist orders to DraftKings and FanDuel seeking to stop their operations in the state. The “big two” of DFS filed for injunctive relief, which the state Supreme Court denied. Fantasy sports, the court agreed with Schneiderman, was gambling under existing law.
Operators were forced to abandon their NY customers, but their absence was short-lived.
Months later, lawmakers changed that existing law by legalizing fantasy sports as a game of skill. Here is the relevant excerpt from the bill:
Interactive fantasy sports are not games of chance because they consist of fantasy or simulation sports games or contests in which the fantasy or simulation sports teams are selected based upon the skill and knowledge of the participants and not based on the current membership of an actual team that is a member of an amateur or professional sports organization.
An anti-gambling coalition subsequently hired attorney Cornelius Murray to help fight the new law, arguing that legalization required a constitutional amendment via voter referendum. Their efforts found a foothold; first reported by the Buffalo News, the group has won the first battle.
For now, it appears the industry will be unaffected in the short term, at least. New York still has enabling legislation on the books, and shutting sites down would take more intervention. The decision will no doubt be subject to appeal, too, which entitles the state to an automatic stay.
DraftKings responded to the decision via a statement from outside counsel David Boies:
“We are pleased that the court upheld the New York legislature’s decision to decriminalize daily fantasy sports contests and that DraftKings can continue to offer their services to players. We are continuing to study the court’s decision invalidating the regulatory structure and are committed to working with the legislature.”
FanDuel also provided a company statement:
“The decision makes clear that the New York legislature’s decision to exclude fantasy contests from the definition of illegal gambling cannot be challenged in court. Accordingly, we will continue to offer fantasy sports to New Yorkers. We also believe in the benefits of regulation and will cooperate with efforts to permanently restore regulatory oversight.”
A plausible scenario would see the operators join a state-level challenge to the ruling. New York daily fantasy sports is a booming business, after all, generating around $5 million in annual taxes on much-larger total revenue. Both of the largest operators have had relationships with sports leagues and teams based in NY, too.
Attention now turns to current AG Barbara Underwood, who might need to weigh in on the matter for the first time. Despite her predecessor’s 2015 actions, Schneiderman wholeheartedly maintained that the state exercised its proper authority in regulating fantasy sports.
Acting as counsel in this very case, the former AG previously asked the court for dismissal:
Although Article I §9 does not define gambling, the delegation to the Legislature of the responsibility to “pass appropriate laws to prevent offenses … “necessarily gives the Legislature latitude to determine what conduct constitutes (and does not constitute) impermissible gambling in New York.
The court did not dismiss the case, however.
Monday’s decision undermines Schneiderman’s own opinion as the state’s top legal mind, likely the first of several rulings to come from the courts. As noted last year, appeals are a foregone conclusion when a “substantial constitutional question is at the heart of the case.”