On February 6, 2020, the New York Supreme Court’s Appellate Division, Third Department upheld a lower court ruling from 2018 which held that daily fantasy sports (DFS) contests amount to illegal gambling, and are thus unconstitutional in the state. In light of this decision, the New York DFS operations of popular companies like FanDuel and DraftKings will be called into question at the same time that legal sports betting is in its relative infancy in the state.
New York’s Constitution provides that “no lottery or the sale of lottery tickets, pool-selling, book-making, or any other kind of gambling . . . shall hereafter be authorized or allowed within this state.” However, the constitution does not include a definition of “gambling,” and the legislature and courts have instead looked to the New York Penal Code’s definition, which states that “[a] person engages in gambling when he [or she] stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his [or her] control or influence, upon an agreement or understanding that he [or she] will receive something of value in the event of a certain outcome” Penal Law section 225.00(2). There has been ongoing debate as to whether DFS, which involves an arguably skill-based element of assembling a lineup of a fantasy team (namely, a group of players that do not actually play together) to win contests based on the performance of that team’s players, qualifies as such a “contest of chance.” That debate has reached both the New York legislature and the courts.
The February 6 decision in White v. Cuomo, N.Y. App. Div., No. 528026, stems from the legislature’s 2016 amendment to New York’s “Racing, Pari-Mutuel Wagering and Breeding Law,” which sanctions certain forms of gambling. The 2016 amendment excluded DFS contests from the definition of gambling, and formally qualified DFS contests as games of skill rather than games of chance. Stop Predatory Gambling, an anti-gambling organization, filed the lawsuit in an effort to invalidate the amendment, arguing that DFS is, in -fact, gambling, and thus the legislature’s decision to exclude DFS from the definition of gambling violated New York’s constitution. So far, New York courts have agreed with this assessment.
The ruling leaves the status of DFS uncertain, and highlights separate legal issues in the potentially even more lucrative mobile sports betting market in New York. DFS may no longer be legal, but more traditional in-person sports betting on the outcome of actual sporting events is currently legal and operational at New York’s brick-and-mortar commercial and Native American upstate casinos. While the debate over whether DFS is gambling or not continues, New York legislators are considering whether and how to operationalize mobile sports betting, which could raise different constitutional issues regarding whether or not the 2013 bill that allowed sports gambling at brick-and-mortar casinos can be stretched to include online operations, and could require a separate constitutional amendment to legalize if such legislation cannot pass. In the meantime, DFS may continue to operate until the case is fully decided.
The state may still appeal the decision to the New York Court of Appeals, New York’s highest court, which would automatically stay the Appellate Division’s order. In the event an appeal is filed, it could mean business as usual for DFS customers until the Court of Appeals rules. However, in the event that the state decides not to pursue an appeal (or the appeal is lost), companies offering DFS services in New York will need to quickly reevaluate how to approach their operations in New York, and may consider alternatives such as pursuing a constitutional amendment to formally recognize legalized DFS, or pivoting their focus to nearby markets, like New Jersey, where mobile sports betting and DFS have been legal and operational since 2018’s Supreme Court decision in Murphy v. NCAA, which invalidated a federal prohibition on state-authorized sports betting and opened New Jersey for the betting business in casinos and online.