New York, once a battleground in the fight over whether fantasy sports are legal, has returned to the spotlight once again. Those who have watched this issue may recall that the New York legislature passed a law legalizing and regulating fantasy sports in 2016. This ended a legal fight between fantasy operators and the New York Attorney General’s Office and cleared the way for legal fantasy sports operations by DraftKings, FanDuel, and others in the state. The law declared fantasy sports to be games of “skill” rather than “chance” and therefore not illegal “gambling” prohibited under the state penal code, providing what many viewed as a final resolution to the matter. Under the new law, fantasy sports operations flourished in New York, and spending on broadcast and other forms of advertising promoting them increased. But now a New York state court has called into question whether the legislature had the power to legalize fantasy sports given a provision in the state constitution, renewing the debate over the legal status of fantasy sports contests – and whether such contests can be legally advertised – in the state.
The New York Constitution prohibits “pool-selling, book-making, or any other kind of gambling,” but does not define these terms. On the other hand, the New York penal law, from which the 2016 law exempted daily fantasy sports, defines “gambling” as a contest in which a person “stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome.” Although the 2016 law included legislative findings that fantasy sports contests involving entry fees are not games of chance and do not constitute wagers on future contingent events, the court disagreed. Instead, the court found that such contests constitute “gambling.” Having reached that conclusion, the court further found that “sports gambling cannot be authorized absent a constitutional amendment.”
At the same time, the court did not strike down New York’s fantasy sports law in its entirety. Despite finding that fantasy sports could not be authorized without a constitutional amendment, the court upheld the portion of the law that excluded fantasy sports from the scope of criminal prohibitions on gambling. This aspect of the decision clouds its ultimate impact, and it appears likely that the state will file an appeal and/or pursue a constitutional amendment.
In the meantime, broadcasters should consider the court’s decision when deciding whether to keep running ads for daily fantasy sports on stations licensed in the state of New York. Although daily fantasy sports contests still cannot give rise to criminal liability under New York law, federal law prohibits broadcast advertisements for contests that involve consideration (including monetary payments) and offer prizes based “in whole or in part upon . . . chance.” New York stations should therefore take into account the court’s holding that daily fantasy sports contests involve at least “a material degree of chance” when deciding how to approach fantasy sports ads.