New York set to legalize and regulate daily fantasy sports

In the last several months’ daily fantasy sports (DFS) sites have had a tumultuous time with a few states that indicated they will be passing laws to make DFS explicitly illegal in their jurisdictions because the Attorney Generals in those states believe DFS violates anti-gambling law. Chief among those states is New York where AG

In the last several months’ daily fantasy sports (DFS) sites have had a tumultuous time with a few states that indicated they will be passing laws to make DFS explicitly illegal in their jurisdictions because the Attorney Generals in those states believe DFS violates anti-gambling law. Chief among those states is New York where AG Eric Schneiderman issued a cease and desist order against DraftKings and FanDuel last October from offering their services to New York residents stating that DFS violates New York law. FanDuel agreed to adhere to the warning but DraftKings stated it planned to fight the order. Schneiderman sued both sites and in December the case went before a district New York court, where the judge stated he would make a ruling “soon”. In the meantime, the judge told the sites they could continue to operate in New York until a decision was made.

Clearly what the judge deems as “soon” is different than how most businesses would interpret that word since over three months later there still hasn’t been a ruling.

The length of the delay is particularly surprising since lawyers I spoke to at the time of the court announcement indicated they expected a ruling within days rather than weeks, let alone months, but the delay on the ruling could be for a valid reason. According to some analysts to that are close to the situation they seem to believe that the judge was prepared to rule in favor of the DFS sites last month with reservations, but Schneiderman wanted a chance to save face. The New York law that Schneiderman referred to in his case was apparently far too vague to override the UIGEA, which permitted fantasy sports, so the judge was prepared to rule in favor of the DFS sites, but also deride the DFS sites for some of their business practices. As such Schneiderman likely proposed a settlement to FanDuel and DraftKings that would benefit both sides. Namely, Schneiderman wanted a chance to declare a form of victory but also pass a law that would explicitly legalize and regulate daily fantasy sports in his state.

Schneiderman’s “victory” speech came last week when he stated: “As I’ve said from the start, my job is to enforce the law, and starting today, DraftKings and FanDuel will abide by it.”

Under the terms of the agreement if legislation is not passed prior to September then the state appeals court will take up the case at that time. Until that time, however, neither DraftKings nor FanDuel can accept bets from users with New York IP addresses and must withdraw their New York clients’ balances within seven days of being asked to do so. The sites agreed but only because they were secretly told that a law will be passed to legalize DFS after the state budget passes to legalize the activity. J. Gary Pretlow, a Democratic state assemblyman also hinted at this when he told the Associated Press that draft legislation to legalize DFS will happen in June.

So what will this about face and concession cost the DFS sites?

That’s yet to be seen. Under the terms of the agreement Schneiderman’s charges against both sites for false advertising and consumer fraud will not be affected, so more than likely the state will come up with a deal similar to what the Feds did with PokerStars. In better words, FanDuel and DraftKings will plead no contest to the charges and agree to pay a fine to the state to cover any perceived wrongs and also the Feds will help draft rules relating to fantasy sports, including prohibiting minors from playing, adapting strict advertising rules, prohibit employees from wagering on any DFS site and put in some sort of tax to beef up state coffers. This will be in addition to a percentage of the profits which will be given to the state. With those concessions DFS will then be deemed legal and both DraftKings and FanDuel will be able to once again freely cater to New York residents, likely in time for the start of the NFL season. The amount of money these sites make from their product during football season alone is more than enough to justify the concessions.

It’s also likely that both FanDuel and DraftKings are expecting that the New York decision will be used as a precedent to help draft similar legislation in Illinois, Georgia and several other states that are indicating they want to ban DFS and possibly even the initial states like Louisiana and Arizona which both sites blocked residents of from the beginning. The reason is simple. The vast majority of Americans (i.e. voters) favor daily fantasy sports and don’t want it to be illegal, the majority of sports teams don’t want DFS to be illegal because it provides them a significant amount of revenue and fan interaction and the states really don’t want to ban it because it offers a great opportunity to bolster state coffers without a dreaded tax increase.

The expected ruling is a win-win for all and in due time expect every state, except perhaps Utah and Hawaii, to offer legal daily fantasy sports to all residents.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley’s RUMOR MILL!

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2 Comments

  • tylersill
    March 28, 2016, 9:35 pm

    Sorry Dopey – Almost every state (including NY, CA, TX and VA) cannot legalize or regulate DFSB. Because Draftkings and Fanduel operate pool betting based upon athletic performance – it is sports betting.

    Federal laws prohibit states from regulating sports betting.

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  • iesnare
    September 7, 2016, 4:59 am

    Awesome article and well worth the read!

    It’s about time they done this too!

    REPLY

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