New York Court Says Daily Fantasy Sports Betting Law Is Unconstitutional

Lawmakers legalized DFS betting. The state’s top justices say that’s not allowed.

The future of fantasy sports betting in New York is unclear after a state court ruled today that a law legalizing the industry violates the New York state constitution.

New York's constitution contains a ban on most gambling, with some exceptions: state-run lotteries, horse races, approved casinos, and various low-level community charitable gambling activities. In 2016, after making sure that New York's government would get a nice cut of the revenue from fantasy sports games, lawmakers passed legislation amending state gambling law to allow for fantasy sports betting.

Daily fantasy sports betting (DFS for short) is similar to the fantasy sports leagues hosted by sites like Yahoo! and ESPN (old-fashioned rotisserie leaguers may remember keeping score with pen and paper). The two major differences are these: instead of drafting a team of real-life athletes whose stats you count over the course of a year in order to beat your friends and coworkers, DFS betting lets you put together a roster for just one day or night of games. The other major difference is that DFS betting sites and apps let you put real money behind your lineup.

But it turns out there's a problem with the state's law legalizing DFS betting (what New York refers to as "Interactive Fantasy Sports" or IFS). In order to bypass the state constitution's ban on gambling, lawmakers had to declare that fantasy sports betting is not a form of gambling. In other words, they didn't create an actual exemption for DFS betting in the law, the way the state constitution has done for horse racing; legislators simply declared that DFS betting is not gambling.

The law was challenged in White v. Cuomo by plaintiffs looking to stop its implementation. Today, the state's Supreme Court Appellate Division ruled in favor of the plaintiffs. In a somewhat technical ruling, the judges rejected the state lawmakers' attempt to redefine DFS betting. Such contests "are not excluded from the constitutional meaning of 'gambling' merely because the Legislature now says that it is so," reads the ruling.

A good chunk of the decision is based around how much of DFS betting relies on chance. While the ruling acknowledged that there's skill involved in playing fantasy sports, there's still a "material degree of chance" because outside, uncontrollable forces may affect the outcome: "Among other things, player injury or illness, unexpected weather conditions, poor officiating, a selected player having a particularly bad day or an unselected player having a surprisingly good day."

And because chance influences the outcome of DFS betting, it is gambling. And because most gambling is outlawed by the state's constitution, lawmakers can't get around the ban by claiming that DFS betting doesn't count as betting. With only Justice Stan Pritzker dissenting, the New York Supreme Court Appellate Division declared the law invalid.

This does not immediately mean the end of fantasy sports betting in New York. Rob Rosborough, who writes about the legal fight for a blog devoted to covering New York's Appeals Court, notes that the state will automatically be granted a stay if it appeals the ruling. That would mean FanDuel and Draft Kings and other sites like them could continue operating.

But if the ruling is upheld, New York would need to amend its constitution. That process requires both houses of the state legislature to pass the amendment, which would then go before voters in the form of a ballot initiative.

Watch more about the complex DFS betting fight from ReasonTV below:

Comments

[Rev. Arthur L. Kuckland]

I see your shwartz are as big as mine

[Sometimes a Great Notion]

Wow not allowing a legislature to amend a constitution by simple vote, haven't they heard that constitutions are living and not suicide pacts?

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

Too bad they aren't so quick to bat down other legislative amendments, like the SAFE act or rent control.

[Earth Skeptic]

Or just by wishing (or whining) really hard.

[Sometimes a Great Notion]

That's why I donate to the IJ. While Im working to bring heating, cooling, water and sanitation to my customers, they can be out fighting government overreach.

[MoreFreedom]

I donate to the IJ as well. A great organization to litigate against government abuse of power, of which there's way too much.

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

I wonder what we have come to where no one blinks at government sticking their nose into everything. I know low-tech and little change was the order of the day in 1776, but how much did governments butt in to daily life? Yes, gambling was a sin, alcohol was a sin, etc -- but would the founders think all today's nanny rules are perfectly fine? Did they have the same knee jerk reaction that their first response would be pass a law rather than just leave things be?

Just a rhetorical question. Just seems so strange to have no one speak up and say Stop! or take the default position that you need a really REALLY good reason to pass some of these ridiculous laws.

[Diane Reynolds (Paul.)]

All of it was pretty much legal in 1776 and I don't think the founders were particularly concerned with 'sin'. Gambling was mostly legal from the federal level. It wasn't really until the 19th century that gambling laws started to be passed around the country in earnest.

[Overt]

"I wonder what we have come to where no one blinks at government sticking their nose into everything."

Bat an eye? How about sing the governments' praises to high heaven. I was at a conference with a co-worker from Manhattan a few years back when New York declared war on AirBNB. I basically asked the same question- how did we get to the point where the government is regulating who we can rent a room from or call for a ride. This guy jumped down my throat insisting that a city like New York would utterly fall apart if the government didn't care and feed for anything. He pointed out how many consumers complained about AirBNB and Uber, and how wonderful it was that the government protected them- why he had just read that the city was knocking down crime by linking together all the ATM and other closed circuit video in the city.

To put it mildly, I realized that I would never, ever be on the same page or even the same book as this guy.

[Longtobefree]

"are not excluded from the constitutional meaning of 'gambling' merely because the Legislature now says that it is so," reads the ruling.

So if a legislature says, oh for instance, men are women and women are men, that does no make it true? Or is it true until a judge somewhere say it is not true?

[Jerryskids]

So gambling is illegal in New York because there's too little skill and too much luck in picking the winners? So the NYSE is getting shut down as well I guess? I mean, for every buyer there's a seller and for every seller a buyer, each one thinking they got the better end of the deal, and at least half of them are wrong.

There's tons of studies and evidence on managed funds, monkeys and dartboards, random walks, regression to the mean, and all kinds of "systems" that indicate stock trading is indeed a crapshoot. Like many gamblers though, we tend to remember our wins and forget our losses and while we're patting ourselves on the back for being smart enough to pick a winner we forget that there was somebody who knows just as much as we do who sold the stock because he was stupid enough to bet it was a loser. And every time we take a beating on a stock, guess what the guy who sold the stock is thinking about us?

[Square = Circle]

So the NYSE is getting shut down as well I guess?

Beat me to it.

"While the ruling acknowledged that there's skill involved in playing fantasy sports, there's still a "material degree of chance" because outside, uncontrollable forces may affect the outcome"

[IceTrey]

If I sell some stock because I want a new yacht and the person who buys it sees it go up how where either of us wrong?

[n00bdragon]

Gambling is illegal in New York because the constitution says it's illegal. There is no why.

Also, treating investing like gambling is moronic because that's simply the buying and selling of property which gains or loses value. It has no "winning" and "losing".

[Halykan]

If the justices were going to read the relevant language that narrowly then the law probably would've survived challenge. You're just being deliberately obtuse, here.

And the stock market is explicitly different from other kinds of investing in the sense that it is, over short time frames, a strictly zero sum game. So, while the Justices could conceivably allow the strategies that buy and hold (like value investing) to persist, day trading - particularly high frequency trading - is always about finding someone else to take the other side of a bet with you.

Hell, this would probably outlaw hedge funds as well, which would have hilariously devastating effects on the NYC economy.

[n00bdragon]

If the justices were going to read the relevant language that narrowly then the law probably would’ve survived challenge. You’re just being deliberately obtuse, here.
I'm really not. The New York constitution outlaws gambling except for under conditions X, Y, and Z. Anything that is gambling that is not X, Y, or Z is outlawed. Note that the justices do not address why gambling is illegal, only what counts as gambling. Why gambling is illegal is beyond their purview as interpreters of the law and purely the realm of the legislature. But that's not what's being asked here. The question before the state court is whether daily fantasy football counts as gambling despite the fact that the legislature passed a law saying that it's not. Again, this isn't addressing why gambling is illegal, it's addressing whether something that looks like a duck, quacks like a duck, and paddles around in a pond eating pond scum like a duck is, in fact, a duck or if the state legislature can, via the magic wand of law, redefine it to be a goose. The state court has decided that it cannot and that gambling is still gambling even if you pass a law that calls it "surprise mechanics".

As to whether various short term investments are gambling, whether they are effectively zero sum or not is unimportant. The fact remains that, even if for a very short time, you are buying and selling property and you cannot in any good faith call that gambling without damaging the concept of property rights which must necessarily include your right to sell your property. This is fundamentally different from placing a wager because a wager never grants ownership in something and has no intrinsic value beyond its payout. A wager exists solely as a piece of a game that is won or lost. As someone pointed out above, if I sell my property to another person so that I can afford something I want and then the value of it goes up who is the loser and who is the winner? I have the thing I wanted which I could not have gotten without selling my property and the other person has a piece of property that is worth more than what they purchased it for.

[Murray Rothtard]

The stock market is also, very simply, not a zero sum game. Yes, some people are short, but stocks actually exist, meaning vastly more people are long than are short.

If you want to make an argument that futures markets and options markets are zero sum, ill at least listen to the argument, though I'll note you are neglecting the value of risk management. But to call the stock market zero sum is simply to declare ignorance.

[CE]

Buying stock in a company isn't gambling, it's investing. You buy an asset and can sell it later.

Now options contracts are clearly gambling -- you're betting the stock price will go up or down.

[Ornithorhynchus]

'That process requires both houses of the state legislature to pass the amendment, which would then go before voters in the form of a ballot initiative.'

I think you mean referendum. 'Initiative' only refers to ballot questions that are written and submitted by the general public, not by a government.

I love being pedantic.

[Robert]

Not only that, but it has to be passed by two successive legislatures (or a constitutional convention), so the soonest it could go to referendum would be 2021.

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[icannotread]

You could probably make more gambling.

[IceTrey]

Can't they just rule it's immoral for the government to prohibit gambling?

[CE]

The judges are constrained by the state constitution as written. Which is sort of the point of a state constitution.

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[CE]

Bernie already created an honest wage on the campaign trail, 15 bucks an hour or 30 thousand per year.

Andrew Yang said 12 thousand per year was enough for a basic living wage though. I guess that means he's okay with 6 bucks an hour for a minimum wage. No wonder he lost Iowa.

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[CE]

Apparently the test is all math and no verbal portion.

[Kevin Smith]

"there's still a "material degree of chance" because outside, uncontrollable forces may affect the outcome: "Among other things, player injury or illness, unexpected weather conditions, poor officiating, a selected player having a particularly bad day or an unselected player having a surprisingly good day."

Wouldn't that outlaw all professional sports in general? Or at least the playoffs, where players get paid bonuses based on whether they win or lose a postseason game

[Billy Bones]

So, is the New York Supreme Court also going to shut down NYSE? By every definition they just described, NYSE is a gambling organization.

[CDRSchafer]

But the New York lottery is legal of course, because along with the terrible odds you get to fund the overreaching nanny state.

[Bubba Jones]

They claim that picking the winning team is gambling, but picking the winning player is skill?

LMAO

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