The split ruling on fantasy sports websites

ALBANY – A state judge delivered a mixed message to New Yorkers who use daily fantasy sports sites like DraftKings and FanDuel: Their hobby is unconstitutional. And there is nothing criminal about it.

In a 28-page decision, acting Supreme Court Justice Gerard Connolly found  “little, if any, identified difference between complex gambling practices,” such as poker or betting on football, and interactive fantasy sports (IFS) sites in which customers wager on players’ performances in the NFL, NBA, Major League Baseball and other sports.

The IFS websites allow customers to select a team of players on a daily or weekly basis – just like fantasy football and rotisserie baseball leagues have done for decades on a season-wide basis. Depending on how e players perform, it could lead to a money prize for customers on FanDuel and DraftKings.

The web sites were approved in state law Governor Andrew Cuomo signed the law on August 3, 2016.

On Monday, Connolly ruled: “The court finds and holds that the constitutional prohibition upon authorization or allowance of pool-selling, bookmaking or any other kind of gambling (also) encompasses IFS.”

Even though IFS games take a degree of skill, it still involves elements of chance, the judge determined.

But he ruled that IFS does not constitute gambling as defined in the state’s penal law, which means anyone engaging in it cannot be prosecuted for illegal gambling. He said the 2016 law appeared to exclude IFS from anti-gambling law.

“It is not within the authority of this court to usurp the Legislature’s authority in fashioning such statute,” the judge stated.

Connolly ruled on a lawsuit brought by four women who had compulsive gambling problems and sued the state over the new law, said their lawyer, Neil Murray, a veteran of legal battles involving gambling in New York.

The state could appeal the decision to the Appellate Division of state Supreme Court, Third Department, based in Albany. Depending on how the midlevel court ruled, the case could end up at the Court of Appeals, the top court in the state.

“Right now, we’re waiting to see how the state reacts to it,” Murray said. “I would assume they are going to appeal but I don’t know that for a fact.”

Rich Azzopardi, a spokesman for the governor, said the judge’s ruling was being reviewed.

The multilayered decision means the future of the sites in New York will now be up to the courts or be dependent on a constitutional amendment.

The soonest the question of a constitutional amendment could be put to voters is in 2021, as it first needs to be approved by two separately elected state Legislatures. It is too late this year for state legislators to return to Albany for a special session before the new Legislature is seated in 2019.

Sen. John Bonacic, R-Middletown, who chairs the Senate Committee on Racing, Gaming and Wagering, said in a statement: “I believe it is premature to discuss a constitutional amendment. I feel that the appropriate path is for the state to appeal this decision. If there is no appeal, or if the decision is affirmed, that would be the time to discuss a constitutional amendment.”

Bob Rock, a commercial litigator for 36 years who works at the Tully Rinckey law firm, said he could not think of an instance where a ruling offered a similar split decision. But he did not believe the two provisions of the judge’s ruling were necessarily inconsistent.

“What he’s really ruling on is what the state Legislature has the authority to do and what they don’t have the authority to do,” he said. “And so he is saying they don’t have the authority without the constitutional amendment to permit this type of gambling in New York state. But they do have the authority under the state constitution to decide whether this activity is going to be criminal in nature or not.”

It remains unclear what the immediate effect of the ruling will be. Civil enforcement, such as penalties, could be issued, but it appears unlikely state regulators would pursue such a route. Practically speaking, the ruling treats interactive fantasy sports as a constitutional violation without a remedy.

“As a practical matter, it does raise a lot of questions,” Rock said. “What happens if these fantasy sports operators continue to operate despite the fact that the judge has said it’s impermissible, not constitutional?”

FanDuel and DraftKings entered the New York market in 2015, prior to the state adopting rules and regulations. They  were met with a cease and desist order from then-Attorney General Eric Schneiderman.

His office argued the operations violated the state constitution’s prohibition on all forms of gambling that weren’t specifically identified in the constitution.

“Our investigation has found that, unlike traditional fantasy sports, daily fantasy sports companies are engaged in illegal gambling under New York law, causing the same kinds of social and economic harms as other forms of illegal gambling, and misleading New York consumers,” Schneiderman said at the time.

A legal battle was averted in the spring of 2016, when the operators agreed to pause their New York operations until the Legislature acted on the issue.

Later that year, the new law defined an “interactive fantasy sports contest” as “a game of skill wherein one or more contestants compete against each other by using their knowledge and understanding of athletic events and athletes to select and manage rosters of simulated players whose performance directly corresponds with the actual performance of human competitors on sports teams and in sports events.”

Murray said it was ludicrous to suggest IFS was not gambling.  He said he was simply interested in the state agreeing to stop partnering with FanDuel and DraftKings.

Attorney David Boies, who represents DraftKings, told Gannett News the ruling allows DraftKings to “continue to offer their services to players.” He said they were studying the “decision invalidating the regulatory structure and are committed to working with the Legislature.”

David Lombardo contributed reporting.

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