Strike Two For New York Daily Fantasy Sports: Court Rules 2016 Law Is Unconstitutional

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NY fantasy sports appeal

The future of regulated daily fantasy sports is very much in jeopardy in New York.

The NY Supreme Court on Thursday upheld a decision from Acting Justice Gerald W. Connolly, who previously ruled DFS is unconstitutional in the state. In his 2018 decision, Connolly held that the state unlawfully expanded gambling in 2016 by classifying the activity as a game of skill.

Read the appellate decision here.

New York DFS in legal danger

Lawmakers in New York are not free to expand gambling as they see fit. Per the state constitution, any such expansion must go to the ballot box for voter approval. That is, for instance, how upstate commercial casinos became legal in 2013.

After years of litigation against DFS operators serving NY customers, the legislature finally legalized what it calls interactive fantasy sports (IFS) in 2016. Rather than sending a new law to voters, however, lawmakers instead carved IFS out from existing gambling prohibitions. It is, by law, a game of skill in New York.

Following THE passage of the amended act, a group of private citizens sought an injunction against the state of New York and Gov. Andrew Cuomo. Even in the face of a statutory “presumption of constitutionality” for legislative enactments, the state Supreme Court ruled the new law invalid.

From the appellate decision (in-line citations removed for clarity):

Because “[p]ublic policy continues to disfavor gambling,” exceptions to the constitutional prohibition on gambling must be strictly construed to ensure that they do not consume the rule itself… As Supreme Court aptly observed, allowing the Legislature unfettered discretion to determine what is not gambling would render meaningless the constitutional prohibition on “lottery or the sale of lottery tickets, poolselling, book-making, or any other kind of gambling” because this area would devolve to being governed by statutory law and not by the constitutional provision… Thus, IFS contests are not excluded from the constitutional meaning of “gambling” merely because the Legislature now says that it is so.

As the court additionally notes, the state constitution does not expressly define the meaning of “gambling.”

Instead, lawmakers and jurists historically rely on the definition from the penal code that lays out the three key elements of gambling games: prize, chance and consideration. That same section of code also clarifies that an element of chance must only exist to “a material degree” for a game to be classified as gambling.

What does it mean for DFS in New York?

As for what to expect going forward, appellate court journalist Rob Rosborough is as familiar with the context as anyone:

As was the case following the 2018 decision, it’s still business as usual for DraftKings and FanDuel in NY for now.

FanDuel offered this statement:

“We expect that there will be an appeal and we’ll be able to continue to offer contests while that appeal is decided.”

And DraftKings:

“We believe the legislative action authorizing fantasy sports in New York was constitutional and in the best interests of taxpayers and fantasy sports fans.”

Interestingly, DraftKings and FanDuel both have deals in place to provide sports betting in New York and run retail sportsbooks for a pair of upstate casinos.