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Fantasy Sports Jeopardized in N.Y. After Court Calls It Gambling (5)

Feb. 6, 2020, 8:17 PMUpdated: Feb. 7, 2020, 2:29 PM

A New York appeals court delivered a blow to companies like DraftKings and FanDuel Thursday, ruling that fantasy sports contests are illegal gambling, and therefore unconstitutional.

But it may be up to the state’s highest court to determine what happens next with a 2016 law that said daily fantasy sports isn’t gambling.

For now, FanDuel said it anticipates business as usual. “We expect that there will be an appeal and we’ll be able to continue to offer contests while that appeal is decided,” a company spokeswoman said in a statement.

DraftKings made $213 million in 2019, and the daily fantasy sports industry made more than $350 million in 2019. Daily fantasy sports contests are legal in some form in 43 states and the District of Columbia.

In 2016 DraftKings and other daily fantasy sports providers received the green light to operate in New York after lawmakers passed the law outlining the “the registration and regulation of interactive fantasy sports contests.” In October 2016, Stop Predatory Gambling, an anti-gambling group, filed a lawsuit challenging the law’s constitutionality on behalf of four taxpayers.

Les Bernal, the group’s national director, called the ruling a “big step” in helping the public recognize what he called New York’s biggest neglected problem.

In Thursday’s ruling, the New York Supreme Court Appellate Division took aim at the 2016 law, referencing the New York state constitution’s prohibition on the “lottery or the sale of lottery tickets, poolselling, book-making, or any other kind of gambling.”

The ruling states that daily fantasy sports contests “constitute gambling if their outcomes depend to ‘a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein,’” Associate Justice Robert Mulvey said.

Appeal Widely Expected

The decision by the state’s second-highest court is a setback for the legality of fantasy sports in New York but it isn’t likely to be the last word since the case could be appealed to the state’s top court, the New York State Court of Appeals.

“It’s a nine inning game and the most significant part of the game has yet to unfold,” said Daniel Wallach, the founder of Wallach Legal LLC, a law firm focused on sports wagering and gaming law. “What ultimately matters is what the state’s highest court says.”

Wallach pointed to the last time New York’s courts looked at gambling in a case challenging video lottery terminals, which were likewise deemed illegal in the lower court but later allowed by the highest court. The fantasy sports suit could follow a similar trajectory, he said.

“Lord knows this will be appealed,” Jaime Miettenen of Miettinen Law PLLC in Michigan said. “There is still time and lots of evidence available for the higher court to rule that this pretty archaic definition from 1965 of ‘contest of chance’ should be reconsidered by the modern day legislatures who can use its constitutionally-given power to decide what isn’t violative of the constitution’s ‘anti-gambling law.”

Darren Heitner, the founder of Heitner Legal, a sports law firm, said it is very likely that the decision will be appealed. If that happens, the decision would be temporarily stopped as the appeals process plays out.

“As such, there may not be much immediate change for fantasy sports in New York. But the decision does not look good for the long-term viability of daily fantasy sports companies in New York,” unless a constitutional amendment authorizes the activity specifically, he said.

“We believe the legislative action authorizing fantasy sports in New York was constitutional and in the best interests of taxpayers and fantasy sports fans,” a spokesperson for DraftKings told Bloomberg Tax in an emailed statement. The fantasy-sports company, launched in 2012, now offers fantasy sports in 42 states, Bloomberg reported in August.

Cornelius D. Murray of O’Connell & Aronowitz, representing the respondent-appellants, and the New York attorney general’s office didn’t immediately respond to requests for comment.

Associate Justice Stan L. Pritzker wrote a dissent, arguing the 2016 law change was “constitutionally enacted.”

The case is White v. Cuomo, N.Y. App. Div., No. 528026, 2/6/20.

—with assistance from Andrea Vittorio.

(Updates Feb. 6 article with comments from Stop Predatory Gambling and DraftKings.)

To contact the reporters on this story: Jeffery Leon in Washington at jleon@bloombergtax.com; Sam McQuillan in Washington at smcquillan@bloomberglaw.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com