DFS Betting Deemed Illegal in New York

A New York State appeals court has overturned a law that allowed daily fantasy sports (DFS) betting in the state after finding its legalization unconstitutional. The move is set to deal a blow to companies like DraftKings and FanDuel, as New York is one of the largest markets for the activity in the nation.

A full crowd at Yankee Stadium watches baseball, with a batter warming up.

A New York appeals court has determined that Daily Fantasy Sports constitute gambling, deeming them illegal due to the state’s prohibition on gambling activities. ©Free-Stadium

The law in question was signed in by Governor Cuomo in August 2016, and deemed that fantasy sports did not constitute gambling, which is defined by the state as wagering on outcomes based on chance. In turn, daily fantasy sports have been regulated and taxed across the state, including enforcing consumer safeguards.

Two months later, the law was challenged by four New York residents who had each been affected by problem gambling. The lawsuit argued that the law was an illegal bypass of the State Constitution’s prohibition on gambling. To legalize, they argued, would require a voter-approved constitutional amendment.

In 2018, Acting Justice Gerald W. Connolly of Albany County Supreme Court found that while the law violated the Constitution’s prohibition on gambling, the Legislature was right to exclude daily fantasy sports from the penal code. However, this week the New York Supreme Court’s Appellate Division found the ruling to be unsatisfactory and determined both that the law was unconstitutional and that DFS betting should adhere to the penal code.

This was due to the initial court’s finding that although successful DFS betting did require skill, there is still an element of chance that could affect the outcome of events. The court stated that “although participants in IFS contests may use their skill in selecting teams, they cannot control how the athletes on their IFS teams will perform in the real-world sporting events”.

“For example, those performances could be affected by such disparate circumstances as… player injury or illness, unexpected weather conditions, poor officiating, a selected player having a particularly bad day or an unselected player having a surprisingly good day.”

In another criticism of the New York law, the Appellate Division wrote that the Legislature does not have “unfettered discretion” to decide what constitutes gambling and agreed with the plaintiffs that it would need to be decided by the constitutional amendment process.

The Stakeholders React

Due to the controversy surrounding gambling expansion in the state, opinions on the ruling have been varied. In response to the ruling, both FanDuel and DraftKings, who are the largest daily fantasy sports operators in the nation and have been rapidly expanding over the last year, put out statements expressing their disappointment.

In its statement, FanDuel said, “we expect that there will be an appeal and we’ll be able to continue to offer contests while that appeal is decided.” DraftKings added that it retained the belief that “the legislative action authorizing fantasy sports in New York was constitutional and in the best interests of taxpayers and fantasy sports fans.”

State Senator Joseph Addabbo, a proponent of expanding gambling in the state, also expressed his disappointment in a statement. “While the ruling from the New York Appellate Division, Third Department, was unfortunate, the legislature clearly considered fantasy sports to be a game of skill when it passed the law, and I expect the Court of Appeals to reverse the decision,” Addabbo said.

“While I believe this decision to be a temporary setback for fans of daily fantasy sports and companies like FanDuel and DraftKings, it has no bearing whatsoever on the legality of advancing mobile sports betting in the state of New York, and I will continue to push for New Yorkers to have a safe, legal, and convenient way to bet on sports in their own state.”Joseph Addabbo, Senator, New York State

On the other hand, Cornelius D. Murray, who represents the four New Yorkers who brought the lawsuit, expressed his satisfaction with the new ruling. “As of today,” he said, “the legislation purporting to legalize daily fantasy sports is unconstitutional, so the penal law prohibiting it remains on the books.”

For the time being, DFS contests are still allowed in New York as the case heads to its next and final battle at the Court of Appeals. According to Richard Azzopardi, a senior adviser to Governor Cuomo is taking the matter seriously, in addition to focusing on proposing a constitutional amendment to legalize online sports betting.

According to research and consulting firm Eilers & Krejcik Gaming, DraftKings and FanDuel accounted for almost all of the $390 million in revenue generated by daily fantasy sports in 2019. New York remains one of the three largest DFS markets in the US, alongside California and Texas.

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