New York DFS Players Could Face Same Lure To New Jersey As Sports Bettors Already Have

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Will New York-based sports bettors who currently cross the Hudson River by car, train, bus, bicycle, or on foot into New Jersey at some point find themselves rubbing shoulders with daily fantasy sports players in New York who also have been shut out of legal action in that state?

A few dozen students at the University of Pennsylvania Law School received analysis on that topic, and a variety of others, from three gaming law experts on Friday.

A New York appeals court earlier this month became the second state court to overturn regulations implemented in 2016 after the legislature specifically declared that daily fantasy sports — or, “interactive fantasy sports,” as the law oddly describes the activity — cannot be deemed “gambling.”

Mark Conrad, a sports business professor at Fordham University, explained at the 7th annual Penn Law Sports and Entertainment Law Symposium that New York’s laws on the issue are, well, complicated.

“New York has a very broad definition of gambling, and that is part of the problem,” Conrad said. “Most would think that if something is more a game of skill than chance, that’s not gambling. But New York doesn’t see it that way.

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“It sees it instead as if there is a significant level of chance — even if there is more skill — it still could be gambling. This is a unique New York problem that has reared its head.”

Cory Fox, counsel for policy and government affairs for DFS giant FanDuel, said that the courts have decided that previous definitions of gambling by the legislature should be followed.

“But the legislature also has said [more recently]  that fantasy sports are not gambling,” Fox said. “So to me, it’s a flawed decision, and I think the attorney general will have some luck with this.”

Next — and last? — court stop for NY DFS

The long-running DFS saga in New York next heads to its third and final destination: the New York Court of Appeals. While that seemingly would provide some sort of closure, City University of New York gaming law professor Marc Edelman says it’s not that simple.

Edelman explained that the two courts reached “somewhat different conclusions.”

In 2018, the confusingly named New York Supreme Court — actually the first of the three legal stops — overturned the regulations that were put in place two years earlier, while not objecting to the declaration that DFS was a game of skill.

“The more recent ruling [by the New York Appellate Division]  is more adverse to the fantasy sports industry,” Edelman said. “It not only overturned the regulations … but at the same time it said that [the legislature’s]deeming of fantasy sports to be a game of skill was not permissible as well.”

If the New York Court of Appeals agrees with the lower courts, Edelman said that will bring a return to the “chaotic market” of 2015.

“Even if it all gets overturned, it doesn’t mean with certainty that daily fantasy sports is illegal in New York,” Edelman added. “It would mean that certain formats probably are illegal, and for many others, it’s right back to where we were in 2015. We’ve never had a final resolution over what constitutes illegal gambling.”

Kenneth Jacobson, Marc Edelman, Cory Fox, and Mark Conrad discuss DFS legality and other topics at the University of Pennsylvania on Friday

DFS legal question is a national issue

Edelman said that about five years ago, he advised a number of DFS companies on what states the burgeoning industry could most safely operate in based on each state’s gambling laws. That’s because DFS contests generally require an entry fee, there is competition with other contestants, “rosters” are chosen from the star players of each league’s teams, and cash prizes go to the highest-achieving rosters.

Is that gambling?

“Purely based on the different definitions between skill and chance, the exact same game could be completely legal in Rhode Island, questionable in New York, almost certainly legal in California — and then a felony in Arizona,” Edelman said.

FanDuel and DraftKings each now operate in more than 40 states — but not in Arizona, obviously — and for the most part they have avoided controversy.

But not in New York, where in 2015 then-Attorney General Eric Schneiderman declared that DFS was gambling.

By March of 2016, the two DFS giants agreed to stop accepting customers in New York. Just three months later, the legislature passed a bill declaring DFS games to be legal because they do not constitute gambling.

That ran into objections from anti-gambling forces, who in 2017 sued to try to prevent DraftKings and FanDuel for a second time from doing business in New York.

While those plaintiffs are now 2-0 in court, the games have continued pending further appeals — but only with those two DFS companies.

FanDuel, DraftKings and so-called “jumping the gun”

Edelman criticized the 2016 law for allowing what he called “gun-jumpers” FanDuel and DraftKings to obtain temporary licenses to offer DFS, while forcing others to wait until a full registration process was in place.

Edelman said that the DFS giants “were operating in the state of New York when we were not sure if it was legal or not,” leading Fox to good-naturedly interject, “We were sure!”

“There were all sorts of reasons why you might not have been in the marketplace at that time,” Edelman said. “Maybe you didn’t have the idea yet, maybe you weren’t ready — or maybe you thought you were complying with a law that said you weren’t allowed to do it.”

Making matters worse, Edelman said, has been inaction by the “horrendous” New York Gaming Commission.

“You would expect that sometime in 2016, 2017, 2018, 2019, or 2020 that the gaming commission would have looked at the registration applications and started licensing new companies,” Edelman said. “More competitors are good for the marketplace. And second, if some companies arguably jumped the gun, why reward them by giving them a permanent monopoly?

“Well, five years later how many new companies do you think have been registered by the New York Gaming Commission?” Edelman asked the audience. “How about an ‘over/under’ of one? … It’s the ‘under.’ It’s zero.”

Fox replied that he “rejects” the gun-jumping description, adding that “I think all companies went on the basis of rational legal opinions.”

Fox added that FanDuel has worked with the gaming commission, which has developed draft regulations “that were never finalized, which I think has to do with New York state politics and the governor’s office, more than anything else” — as opposed to what Edelman described as “incompetence” by the commission.

Fox agreed with Edelman’s premise that other DFS companies ought to be allowed to enter the marketplace.

Because FanDuel and DraftKings have yet to be allowed to obtain a permanent license, Fox said that when his company has wanted permission to add additional sports to their DFS offerings, “we have had to beg the gaming commission for approval … They have started to do that, because they can see that these regulations are never going to be finalized.”

Is a referendum the solution?

The clearest way to settle the issue would be for voters to agree in a statewide referendum that DFS is not gambling. A 2013 law that came after such a referendum paved the way both for construction of four upstate casinos and also eventually for sports betting because that was part of the ballot question.

But if DraftKings and FanDuel decided to exit New York during what would be at least a three-year process — and Edelman said the most adverse final ruling would make it “incredibly risky” to continue — that could create problems for DFS nationwide.

Most state legislatures, arguably in part due to extensive lobbying by FanDuel and DraftKings, have left the DFS industry free to operate without controversy.

But if New York State — not one of the pioneering states for various forms of gambling like Nevada, New Jersey, Delaware, and Mississippi — stops being part of the DFS landscape, the industry risks having legislators elsewhere reconsider their own approvals.

And while there no doubt would be more lobbying to come by the DFS side, a favorable ruling for anti-gambling groups in New York would lead to plenty of lobbying on that front as well.

For those living in Manhattan, however, a solution to the legal squabbling once again would only be a short trip to the Garden State.

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John Brennan

John Brennan has covered NJ and NY sports business and gaming since 2002 and was a Pulitzer Prize Finalist in 2008, while reporting for The Bergen County Record.

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