New York DFS Law: Appeals Court Upholds Unconstitutional Ruling

Long considered a junk lawsuit, the latest ruling in a case challenging New York’s daily fantasy sports law has placed the law and the New York DFS industry in serious jeopardy. More troubling, the basis of the case could have far-reaching ramifications for other states that have recently legalized online gambling.

The latest development in the case was proffered on February 6 by the Appellate Division, Third Department in New York. As explained by the NYSAppeals.com blog, the Third Department affirmed “a trial court judgment that had held that New York’s Interactive Fantasy Sports Law that declared DFS not to be gambling unconstitutional.” 

NYSappeals.com has a terrific, in-depth breakdown of the opinion for anyone interested.

Quick History on the New York DFS Case

The case stems from New York’s legalization of DFS back in 2016.

The law classified DFS as a game of skill and thereby exempt from the constitutional requirement that all expansions of gambling go before the voters. As NYSappeals.com points out, “the Legislature tried to claim that it had the power to authorize the games by mere legislation, rather than following the 2-plus year process to amend the Constitution.”

The law was immediately challenged by a quartet of plaintiffs, with the backing of an anti-gambling group, Stop Predatory Gambling.

Does the Case Have a Leg to Stand On?

At the time the DFS industry (FanDuel DFS and DraftKings DFS) was dismissive of the lawsuit. In a joint statement, the two companies called the case “a layup”:

“The state constitution specifically gives the legislature the power to define what is – and what is not – gambling, and the legislature has done so a number of times in the past and long before the emergence of fantasy sports. The Attorney General, who certainly has had some strong opinions about fantasy sports, has clearly stated he will enforce and defend this new law. This is a layup – they have no case.”

But as I wrote in 2016, the suit is not without merit.

Unlike the Wire Act, the New York Constitution is quite clear when it comes to what a wager is. As Attorney General Eric Schneiderman wrote in his opinion classifying DFS as gambling [bold mine]:

The New York State Constitution has prohibited bookmaking and other forms of sports gambling since 1894. Under New York law, a wager constitutes gambling when it depends on either a (1) “future contingent event not under [the bettor’s] control or influence” or (2) “contest of chance.”

And so far, the courts have agreed. The next stop would be the New York State Court of Appeals, and as Daniel Wallach, the founder of Wallach Legal LLC, put it, “It’s a nine-inning game and the most significant part of the game has yet to unfold. What ultimately matters is what the state’s highest court says.”

The Problem with Legislative Expediency

Furthermore, the situation in New York should (but likely won’t) cause legislatures to rethink the manner in which they’re expanding gambling. Whether it’s sports betting or online gambling, states are taking liberties with interpreting existing laws in order to find a path of least resistance.

This is particularly true when it comes to online forms of gambling, as most gambling laws predate internet gambling and in some cases the internet.

One example of legislators deciding what a law does and doesn’t cover is Michigan. Lawmakers passed a bill expanding online gambling without a constitutional amendment by qualifying online bets as taking place at the server location rather than where the bettor is located. Therefore, they argue that online gambling isn’t an expansion of gambling, rather it’s simply a new delivery channel for an existing form of legal gambling.

There was plenty of debate surrounding this issue early in the process, but at the end of the day, the Michigan legislature highlighted favorable legal opinions on it and ignored the negative opinions.

The problem is that the argument is entirely unsettled. And by interpreting it themselves, lawmakers are in effect moonlighting as the judiciary.

In New York, they’re passing legislation that defines DFS as a skill game and therefore outside the state’s gambling statutes (New York is taking a similar approach to online poker). In Michigan, they’re deciding where an online bet occurs.

And across the country legislatures passing online sports betting bills are thumbing their nose at the Wire Act. There’s no shortage of debate over whether or not the Wire Act extends to online poker and casino games, but it expressly prohibits interstate sports betting.

So far, no one seems to care. For the most part, the laws have gone unchallenged, so the legislative dictates remain in place. But as New York is finding out, attempts to do things the fast, easy way might not stand up to legal scrutiny.