A new piece of fantasy sports legislation has surfaced in New York, signaling that the state appears to be ready to get serious about regulating daily fantasy sports.
New York, of course, is one of the hotbeds for the legal status of daily fantasy sports, as DraftKings and FanDuel are currently engaged in a court battle with New York Attorney General Eric Schneiderman.
The new DFS bill, not like the old bills
A host of other DFS legislation had been introduced in the past couple of months, but none of those bills had had so much as a committee hearing.
The new bill from Sen. John Bonacic — S 6793 — takes a much different tack than the bills so far introduced (tracking here, full text here). Previous bills had sought to:
- Simply legalize DFS.
- Legalize DFS with light regulation.
- Give the state’s gaming commission complete authority with very little language in the actual bill.
- Amend the state constitution to allow for DFS.
This one takes a more rigorous approach to regulating the industry. The summary of the bill indicates as much, as it would “amend the racing, pari-mutuel wagering and breeding law and the financial services law, in relation to interactive fantasy sports.”
Sen. Bonacic offered this statement to Legal Sports Report on the introduction of his bill:
“I have met with numerous individuals with disparate viewpoints regarding interactive fantasy sports, and have introduced this legislation to begin an open discussion on the regulation of fantasy sports operators. We need to ensure there are adequate consumer protections are in place to assuage the concerns of most, while also providing that those already in business can continue to operate. I look forward to working with my colleagues in both the Senate and the Assembly to ensure that this bill receives fair and timely consideration.”
A look inside the bill
What does the bill do? It diverges from the light regulation that is moving forward in many states, but takes a more stringent approach like in Florida and a handful of other states, where legislation has evolved through amendments.
Here is a look at the main provisions in the bill:
- The bill creates the Fantasy Sports Contests Division within the Financial Frauds And Consumer Protection Unit to promulgate regulations and license operators.
- DFS sites that had already been operating in the state before Nov. 10 (the state’s AG issued cease and desist letters to DraftKings and FanDuel on that date) may continue to do so while their registration is considered.
- Licensed operators must pay a one-time fee of $500,000. That fee can be applied, in whole or in part, against an operator’s tax obligation for a 36-month period after receiving its license.
- Operators are taxed at a rate of 15% on gross revenue generated by players in New York.
- A minimum age of 18 is established for players.
- DFS may not involve any contests involving collegiate sporting events or horse races.
- DFS is exempted from the part of the NY penal code dealing with gambling.
The bill sets up consumer protections, including restricting employees from playing paid-entry fantasy sports, requiring that data that could affect fantasy contests is secure and problem gambling measures, among others.
The bill also accounts for segregation of players’ funds, saying they must be “protected from corporate insolvency, financial risk or criminal or civil actions against the registrant.”
The most concerning aspect for the industry might be the registration fee and taxes. Even with the 36-month offset of taxes, it might be difficult for small operators to commit to New York with $500,000 needing to be paid, a figure DraftKings and FanDuel likely wouldn’t blink at.
Why this bill is likely to move forward
Conventional wisdom says that the other bills active in the legislature are likely to fall by the wayside, and that Bonacic’s bill will be the vehicle to consider the legalization and regulation of the industry.
Why? Bonacic chairs the Racing, Gaming and Wagering committee in the Senate. If he had liked the approach of one of the other bills, he likely would have:
- Introduced a Senate companion bill;
- Or signed on as a co-sponsor of existing legislation;
- Or allowed an existing bill to be heard in committee.
The fact that DFS had not been considered seriously via a bill had started to become conspicuous in New York, as legislative efforts in more than a dozen other states have picked up steam. And Bonacic’s committee even considered and passed a bill that would authorize online poker in the state before a vote had been taken on any DFS bill.
The fact that a bill has surfaced from Bonacic likely means this legislation will be the starting point for the DFS conversation in the legislature.
Any chance of passage before the court case?
The fantasy sports industry would love to see a bill passed before the final outcome of a court case in New York, which will be argued in the state Supreme Court’s appellate division, likely this spring.
DraftKings and FanDuel just made filings this week in the case (viewable here and here) arguing against the attorney general’s assertion that DFS constitutes illegal gambling in the state.
How much momentum this bill will have is a matter of speculation, but an educated guess would have Bonacic doing some behind-the-scenes work on the legislation. (For instance, there is an obvious hat tip to the horse racing industry in preventing fantasy contests based on horse races.)
No matter what, New York remains the most important battleground for the DFS industry, and one it can ill-afford to lose.
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