New York Court Ruling Jeopardizes DFS, Online Sports Betting

New York Court Ruling Jeopardizes DFS, Online Sports Betting

A New York court Thursday clouded the future of daily fantasy sports when it agreed with a 2018 ruling that the games were illegal under the New York constitution. The decision could effectively ban the games in New York, hinder the state's fledgling online sports betting legislation and have far-reaching impacts for regulated gambling overall.

Under the New York constitution, voters must approve new forms of gambling via a referendum. Since New York’s DFS laws passed without a ballot measure, they are, under the court’s interpretation, now illegal in the state.

Thursday’s decision was itself an appeal of a prior ruling, and top DFS providers such as DraftKings and Manhattan-based FanDuel, will await as the government (the defendant in the lawsuit that sparked Thursday's ruling) appeals the appellate court’s decision, a process that could take months or even years.

In the meantime, daily fantasy games are now technically illegal in New York, John Holden, an assistant professor at Oklahoma State University, said in an interview with Gambling.com. New York law mandates the state's highest court hear lawsuits against the state government, such as the DFS case that led to Thursday's ruling, and the DFS games will be allowed to operate once a request for a stay of execution is granted.

However, it could take days before the stay request is submitted by the New York government. DFS providers, several of which are applying for more expansive gambling licenses in other states, may not be willing to risk larger consequences by taking DFS players during the current legal malaise.

"I wouldn't be surprised, especially given how their handle has shifted over to gambling and that the future of the business," Holden said. "I wouldn't be shocked if they do just press pause on New York for whatever period this is."

Background

States took vastly different approaches to daily fantasy sports when their presence was everywhere after a deluge of advertising in 2014 and 2015. Some officials deemed the games as games of skill, and not luck, allowing them to exist without further legislation. Others took a hands off approach, allowing players to enjoy the games freely, though they weren’t technically covered by law.

  • Original Ruling: The New York attorney general’s office took a hard stance on the games, deeming them illegal forms of gambling. This caused headaches in the early days of DFS. One of the nation’s most populated states was effectively outlawed from offering the games, even as the companies were investing millions of dollars in promotions.
  • Bills: In response, lawmakers in Albany legalized the games in 2016, arguing the state constitution’s gambling restrictions wouldn’t apply. Elected officials determiend daily fantasy was a game of skill, and a voter referendum wouldn’t be needed. That law was challenged by anti-gambling advocates, leading to a 2018 ruling by acting Supreme Court Justice Gerald Connolly, who deemed the games incorporated enough elements of luck as to qualify as a form of gambling.
  • Appeal: Following the ruling of Supreme Court, which is the court of general jurisdiction in New York, the government took their case to the Appellate Division, which agreed with the earlier ruling.

Next Steps

Daily fantasy players in the state probably won’t face legal consequences for setting a lineup Thursday, but the newest decision could force DFS companies to stop taking New Yorkers as the matter is in limbo. It could also prevent them from doing so entirely in the coming years.

  • DFS: The government will now be able to take this ruling to the New York Court of Appeals, the highest court in the state. It could be several years before the seven-person Court of Appeals hears the case, but their determination could effectively outlaw DFS games in New York until when or if they are approved directly by voters.
  • Sports Betting: Mobile wagering legislation remains stalled in the legislature, but even if it did pass, the recent DFS court ruling does little to help its fate. Bettors now cross the border to wager at New Jersey sportsbooks, costing New York millions. Lawmakers have portrayed mobile betting as a permitted exception under the constitution, unlike their approach to DFS, which they said was not a form of gambling. Still, it can’t be encouraging to wavering legislators to approve widespread online single-game wagering when a court has just shot down daily fantasy contests.
"You never want to read too much into how a court sits, but this isn't good for the viability of expanding in sports betting in any way that isn't via a referendum and constitutional amendment," Holden said.
  • Larger Consequences: DraftKings and FanDuel are also applying for sportsbook operating licenses in multiple other states. Holden said the ruling could force them to stop taking DFS players: Applicants are asked if they are compliant with all state and federal laws, which they technically wouldn't be. As a precaution, they could stop taking New York DFS customers until the legal challenges are resolved.
  • Worth Noting: The two leading DFS companies have partnerships with licensed brick-and-mortar sportsbooks in the state. Retail sports betting was specifically approved by voters in a 2013 referendum that also allowed four upstate commercial casinos, but it nevertheless creates an interesting dichotomy when the state has, for the moment, ruled those companies’ flagship DFS products illegal.
  • Bottom Line: There are months and months of legal battles over DFS, and possibly sports betting, to come, but Thursday’s court ruling reiterates the hurdles New York faces. The fourth-largest state by population and the center of the nation’s largest metropolitan area, New York remains a focal point of both industries, but politicians — and now the courts — are not making things easy.

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