Daily Fantasy Sports Suffers Huge Loss

Yesterday, Acting Supreme Court Justice Gerald W. Connolly ruled that daily fantasy sports (“DFS”) games are a form of gambling. In 2016, Article 14 was added to the New York statute that governs Racing, Pari-Mutuel Wagering and Breeding Law (“RPMWBL”). The purpose was to essentially provide a carve-out for “interactive fantasy sports.” The legislative findings stated:

Interactive fantasy sports are not games of chance because the teams are selected based on “the skill and knowledge of the participants, and not the current membership of an actual team that is a member of an amateur or professional sports organization.” Additionally,

“[IFS] contests are not wagers on future contingent events not under the contestants’ control or influence because contestants have control over which players they choose and the outcome of each contest is not dependent upon the performance of any one player or any one actual team.”

Racing, Pari-Mutuel Wagering and Breeding Law § 1400(1)(b)

Based on their findings, the legislature determined that interactive fantasy sports do not constitute gambling in New York as defined in Article 225 of the Penal Law.

A person engages in gambling when he stakes or risks something of  value upon the outcome of a contest of chance or a future contingent even not under his control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome.

“Contest of chance” means any contest , game, gaming scheme, or gaming device in which the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein.

Penal Law § 225

The above section makes it quite clear that the legislature did not have any experience with fantasy sports competitions when coming up with its definition. While there is no argument that some level of skill is required in fantasy sports, the argument that IFS is not gambling because it requires some level of skill ignores the statutory definition of “contest of chance.”

The number of individual fantasy team owners who have lost due to an individual player’s performance is unquantifiable. It has been happening since the inception of fantasy sports and continues to happen regularly.

In his decision, Justice Connelly also noted that the relevant provision of the New York constitution prohibits gambling unless a specific exception applies, and tasked the legislature with passing laws to prevent those offenses. NY Const art. I, § 9. The mandate was to pass laws preventing offenses, not to redefine “gambling” or “contest of chance” in order to accommodate a specific industry.

Specifically, with respect to IFS and sports betting generally, Justice Connelly (while noting the deference accorded to the legislative findings) accepted that IFS requires more skill than chance. The Justice then went through the history of Article 9 and the prohibition against gambling and determined that the prohibition included sports gambling.

Since it is included in the prohibition, sports gambling cannot be authorized without a constitutional amendment. Focusing on the application to IFS, the defendants’ argument that the prohibition only applies to games of pure chance is clearly against the intention of the drafters, noting that the language implies a broad reading for application of the prohibition. The court failed to recognize any discernible difference between the skill involved with IFS and that of poker, horse handicapping, and typical sports betting.

In the end, the court held that while Article 14 of the RPMWBL was not in violation of Article 1, §9 of the New York State Constitution by excluding IFS from the Penal Law’s definition of gambling, it is a violation insofar as it authorizes and regulates IFS, and in practice, IFS is like any other skill-based gambling prohibited by Article 1, §9.

What this means for daily fantasy sports is uncertain. Following the decision, calls for DFS to be shut down immediately were heard. While an appeal from the State is almost guaranteed,  DFS advocates have to be concerned about the prospect of having to amend the New York State Constitution to continue in business in New York State, as well as concerns with how internet gambling will be regulated moving forward.

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