Editor’s Note: On March 22, 2022, DFS games were deemed legal in New York by the NY Court of Appeals. Read on for more details here.
As New York continues to inch closer to online sports betting, the legality of daily fantasy sports is finally nearing a judicial resolution.
The NY Court of Appeals revealed Tuesday that it will take on a case regarding the legality of DFS that began in 2016. The NY Supreme Court previously ruled that fantasy sports constitute illegal gambling, voiding the law that sparked the lawsuit.
The two parties will present oral arguments before the state’s highest court on Oct. 5.
Backstory on NY DFS
Like many states, New York’s constitution contains a prohibition on gambling that can only be amended via a referendum at the ballot box. Voters have done so a number of times, most notably in 2013 to authorize commercial casinos in the upstate region.
But the people did not get a chance to decide on fantasy sports.
Rather than putting the question before their constituents, lawmakers in 2016 simply carved DFS out from the definition of gambling altogether. They added a new Article to the state’s Pari-Mutuel Wagering and Breeding Law that reclassified fantasy sports as a legal game of skill rather than a prohibited game of chance.
Passage was rather dramatic and seen as a resolution to the months-long standoff with the Attorney General that forced operators to temporarily exit the state. Although it may have ended one legal battle, however, the new law ultimately spawned a much larger one.
Let the litigation begin
Stop Predatory Gambling, a national anti-gambling organization, threw its support behind a private lawsuit that challenged the constitutionality of the new statute. In their fling, the plaintiffs argued that the skill/chance distinction was “a false dichotomy conjured up in an obvious effort [to] circumvent a clear and unequivocal constitutional prohibition[.]”
The courts agreed.
In December 2018, the NY Supreme Court ruled that DFS contests fall under those constitutional prohibitions. Regardless of what the legislature says, fantasy sports are illegal gambling in New York. The Appellate Division upheld and expanded that ruling to include the enabling legislation in February 2020.
Operators like DraftKings and FanDuel, both of which have offices in the state, still offer DFS to local customers pending the final outcome. Both have also expanded their operation to include legal NY sports betting in recent years.
What’s the future of DFS in NY?
There are essentially two possible outcomes for this litigation.
The first, of course, is that the Court of Appeals could reverse the Supreme Court decision. This would revert the industry back to its post-2016 status quo, with an established regulatory structure governing an industry that is clearly legal.
The second, and perhaps more likely outcome, is that the appellate court upholds the previous decision. In that case, fantasy sports could officially be illegal in New York unless and until authorized by voters. The arduous referendum process means it would take several years of coordinated efforts before the question could even appear on a ballot.
Regulated fantasy sports would not make a meaningful financial contribution to the state, mind you, generating just a few million dollars in tax revenue per year. They do serve a larger purpose, though. DraftKings and FanDuel today use their DFS products as acquisition tools for their more profitable sportsbook offerings.
The duo is, in fact, just days away from a crucial deadline for online sports betting in New York.