After a long legal ordeal between the Daily Fantasy Sports (DFS) operators, FanDual and DraftKings, and the New York State Attorney, Eric Schneiderman, the public now have a clear indication of how the state plans on handling matters of Fantasy Sports within the state boundaries.
The Senate passed an online gaming bill for the Assembly’s consideration, earlier last month, with little time left before the state’s legislative body was scheduled to adjourn for the season on the 16th of June 2016. With strong opposition from the casino industry and The New York Gaming Association (NYGA), it was uncertain if the bill would be passed in time; however, the state’s legislative session was extended by an extra day and the Assembly passed their version of the bill on the 18th of June 2016 and the State Senate followed with a positive vote, on the 19th of June 2016, with the Senate Bill. The future of the law now rests in the hand of State Governor, Andrew Cuomo, who has ten days to approve or veto the bill.
DFS Market in New York
A study conducted by the Fantasy Sports Trade Association, has revealed that fantasy sports and particularly DFS is still gaining popularity at an incredible rate across USA. Individuals are spending close to USD 500, each year on their electronic hobby.
Further research by Eilers & Krejcik Gaming suggests that more than 3 million New Yorkers participated in fantasy sports and were responsible for 10 per cent of the country’s DFS income. In 2015, $268.3 million was paid by New York players in DFS entry fees; the state is only second to the market in California.
History of the New York Lawsuit
Fantasy sports itself is not a modern concept; but using the internet to capitalise on a wide player base is certainly a fresh take on the idea. Daily Fantasy Sports was modelled after online poker almost a decade ago, to give customers a way to enjoy a season long gaming event in a much shorter time frame.
Taking advantage of certain legal loopholes, FanDuel was set up on the 21st of July 2009; and another two and a half years later, in February 2012, DraftKings was born. Both the companies went on a spree to secure venture capital investments from various sources; both the companies grew in stature by acquiring smaller DFS companies. In July 2015, FanDuel and DraftKings were each valued at $1 billion. The companies began to peruse advertising and endorsement deals with sports franchises in a bid to reach the masses and by 2015, the DFS industry was in the crux of a major growth in mainstream popularity.
By this time, it was not only the fans that were taking note of the growing businesses; first in August 2015, DraftKings was hit with a lawsuit for false advertising. This was followed by reports of a DraftKings employee using inside trade information to win USD 350,000 on FanDuel contests. This event triggered an investigation by New York Attorney General Eric Schneiderman; on the 6th of October, he opened an investigation and on the 14th of October the FBI launched theirown investigation into the same matter. In the wake of the scandal, both the companies were barraged with multiple class-action lawsuits from around the country.
To the shock of the three million DFS players of New York, on the 10th of November 2015, Schneiderman issued a cease and desist order to both the DFS operators, DraftKings and FanDuel, claiming that DFS was illegal under the state law of New York. Schniderman further accused the DFS industry for being a scheme that could cause the same public health and economic issues associated with traditional gambling.
On the 13th of November 2015, the DFS operators filed their own lawsuits against the state of New York, in response to Schneiderman. They argued the games they offer were in fact ones of skill and Scheniderman did not have the authority to order them to leave the state.
On the 16th of November 2015, the two companies tried to request a temporary restraining order to prevent Schneiderman from enforcing the cease and desist but the state judge on the case, declared their request was premature.
While a spokesperson for the Attorney General then declared that he could file a formal lawsuit against the two sites very soon; backed by the lobbying efforts of the gaming companies, State senator, Michael Ranzenhofer, introduced a bill to explicitly classify DFS as a game of skill in New York.
On the 17th of November 2015, the Attorney General filed a request for a temporary injunction to stop paid services by the two companies in the state; in the filing, Schneiderman argued that DFS was merely a re-branding sports betting. As a result, FanDuel agreed to restrict services in the state but DrafKings continued to serve the residents, stating that Schneiderman’s decision was based on a “misapplication of the law.”
The Attorney General also issued a subpoena to a third DFS brand, Yahoo!, for information regarding their daily fantasy services.
During the hearings on the 25th of November 2015, Judge Manuel Mendez disputed assertions by the DFS operators but on the 11th of December , the temporary injunction was granted and the DFS operators were forbidden from accepting entry fees, wagers or bets from New Yorkers. However, Mandez granted a temporary stay to them following requests for an appeal.
On the 31st of December 2015, before they met with the appeals court, the Attorney General amended the lawsuit to demand that both the DFS companies also return all the money collected from customers in New York State over the past few years.
On the 11th of January 2016, both DraftKings and FanDuel weres granted permission to stay; they could continue to serve New York residents until the outcome of the appeal was declared. However, payment processing services stopped processing payments for DraftKings and FanDuel in New York, waiting for the courts to delivered a decision.
On the 21st of March 2016, the lawsuit was partially settled and DraftKings and FanDuel agreed to cease offering paid games in the state; Yahoo voluntarily agreed to comply with the settlement and cease paid game services too.
Hearings had been schedules for September 2016 to determine whether the DFS operators will be charged with payment of restitution; this was provided that DFS was not legalised before that time. However, the false advertising claims were still being pursued.
New York DFS Bills
Senator John Bonacic presented his Senate Bill, S6793A – An act to amend the racing, pari-mutuel wagering and breeding law and the financial services law, in relation to interactive fantasy sport, in a Senate Racing, Gaming and Wagering Committee meeting, which was held on the 15th of May 2016. The committee voted in favour of the bill and it progressed to its next stop, the Senate Finance Committee.
At the same time, a vote on Assemblyman Gary Pretlow’s bill, A10473 – An act to amend the racing, pari-mutuel wagering and breeding law, in relation to the registration and regulation of interactive fantasy sports contests was discussed at the Assembly’s gaming committee meeting. The majority of the Senate committee voted “aye with reservations.”
Both the fans and the fantasy sports businesses were keen on getting the bills passed into law before the end of the legislative session in New York. The session was scheduled to be adjourned on Thursday, the 16th of June 2016, but was extended to Friday and lasted into the early hours of Saturday, the 18th of June 2016. The officials worked around the clock to pass the bills.
On Friday, the 17th of June 2016, the State Assembly approved Gary Pretlow’s Fantasy Sports bill, A 10736, by a vote of 91-22.
In the final hours of the last day of the legislative session, at 2:38 a.m., on Saturday, the New York Senate passed the bill, S8153. The bill clarified the legality of fantasy sports. The senate bill had identical language to the Assembly bill that was passaged earlier.
Nigel Eccles, the CEO of FanDuel, said in a statement, “New York fantasy sports fans rallied with more than 100,000 emails and thousands of phone calls to legislators and legislators heard them and responded. The bill represents a thoughtful legislative process, where bi-partisanship and willingness to compromise carried the day, and we are extremely hopeful Governor Cuomo will sign this bill. We decided long ago to build FanDuel in New York because it's the sports capital of the world and a thriving home for tech start-ups, a natural fit for fantasy sports. Our success is due in no small part to the people, infrastructure, partnerships and opportunities here, which very few locations in the world can offer.”
Jason Robins, the CEO of DraftKings, said in a statement, “I would like to thank the leadership of both chambers, especially our bill sponsors, Assemblyman Pretlow and Senator Bonacic, as well as the hundreds of thousands of New York fantasy sports fans who made their voices heard through emails, social media, and phone calls to let their legislators know they love DraftKings and want to see their favorite hobby return to New York. We are grateful for your loyalty and hard work in helping get this bill passed. You made all the difference.”
The fate of the bill is now in the hands of the State Governor; who will have ten days to veto or sign the bill into law. Cuomo, who has worked on the language of the bill, is expected to sign it, following which, the law will take effect immediately. Companies such as DraftKings and FanDuel that were offering paid fantasy contests in New York before November 2015 could re-enter the market as early as the 1st of July 2016.
Overall, this marks a massive victory for the fantasy industry; Cuomo signing the bill would alleviate much some of the legal pressure from the DFS giants. New York, being one of the largest revenue producers for fantasy sports, is viewed as a leading indicator for things to come in other states.
Schneiderman also released a statement on Saturday, where he said, “As I have said from the start of my office's investigation into daily fantasy sports, my job is to enforce the law. Today, the Legislature has amended the law to legalize daily fantasy sports contests, a law that will be my job to enforce and defend. We will nevertheless continue to pursue our claims that DraftKings and FanDuel previously engaged in false advertising and consumer fraud.”
“This was about the fans,” said New York Assemblyman Gary Pretlow, one of the sponsors of the bill.
However, it was not easy with the strong opposition from the New York Gaming Association (NYGA), who lobbied against the bill right until the very end.
“If it looks like a duck, it swims like a duck, it quacks like a duck, it's a duck,” said Senator Liz Krueger.
“This is another gambling bill,” she added.
Besides the NYGA, the bill faced opposition from the Independence Party of New York and the Conservative Party.
State Assemblyman, Andy Goodell, who is related to NFL commissioner, Roger Goodell, also opposed the bill, saying during Friday's vote that Fantasy Sports is “clearly gambling.”
Details of the New Law
The New York bill primarily clarifies the legal status of fantasy sports in the state; after a call from the State Attorney General to classify them as illegal gambling, the bill states that fantasy sports will not be considered a form of gambling; rather it will be classified as a game of skill.
The bill also offers consumer protection clauses such as a minimum age requirement for players. All DFS participants must be at least 18 years of age to take part in the virtual contests.
In a bid to protect the youth, the bill also prohibits DFs operators from offering any matches based on college and high school level sports.
Any person, such as an employee of a fantasy sports company, a professional athlete or officials who could impact the gaming events that the contests are built upon, will be prohibited from taking part in fantasy sports matches and the use of third-party computer scripts are also is not allowed; the operators must handle sensitive data with care, so as not to give one player an unfair advantage over another in any way.
The regulation of the DFS industry will also bring tax revenues for the state. Licensed operators will be subject to a 15 percent tax on gross revenue generated within the state; this includes all income from their contests, less the money given away in prizes; additional regulatory fees and costs will also be added on top of these taxes. The income generated from these taxes will contribute to funds dedicated to education.
New York Assemblyman, Dean Murray, who was also a co-sponsor of the bill, said, “That was some of the heaviest, hardest lobbying I've seen in my time in Albany. I'm thrilled. I think we did the right thing for the millions of fans, for the state of New York, for education. All the way around, I think we did the right thing.”
DFS Legislation is Other States
Since October last year, ten other states have classified DFS as a form of illegal gambling. Nevada ruled that DFS operators would need to acquire a gambling license in order to keep operating in the state. In addition, the DFS giants DraftKings and FanDuel are also in legal battles with attorneys general in Illinois and Texas.
However, some states have taken the opposite approach; Fantasy Sports have been legalised in Colorado, Indiana, Missouri, Mississippi and Virginia, while Massachusetts has issued regulations for the industry.