NY Court of Appeals Rejects Constitutional Challenge to Daily Fantasy Sports Law, Reversing Lower Court Rulings

White and Williams LLP

On March 22, 2022, the New York Court of Appeals held that the historical prohibition on “gambling” in Article I, §9 of the New York Constitution does not encompass skill-based competitions like daily fantasy sports (DFS) contests, in which participants who exercise substantial influence over the outcome are awarded pre-determined fixed prizes by a neutral operator. (See White, et. al. v. Cuomo, et al., 2022 NY Slip Op. 01954 (March 22, 2022)). In so holding, the court upheld the 2016 state law explicitly authorizing and regulating DFS contests, and reversed the 2018 and 2020 lower court decisions, which held DFS contests qualify as “gambling” under the New York Constitution and could therefore only be legalized through a constitutional amendment.

Article I, §9 of the New York Constitution expressly prohibits any “lottery or the sale of lottery tickets, pool-selling, book-making, or any other kind of gambling” that is not explicitly authorized therein. In its ruling, the court finds that the term “gambling,” as used in the state constitution, was intended to cover “games of chance,” i.e., games in which chance is the “dominating element that determines the result of the game.” (Id. at 15). DFS contests are not “games of chance,” the court reasoned, because outcomes are predominantly based upon skill, with participants “draw[ing] upon their knowledge of the relevant sport, player performance and histories, offensive and defensive strengths of players and teams, coaching strategies,…statistics…and the fantasy scoring system in order to exercise considerable judgment in selecting players in their roster.” (Id. at 17-18).

Notably, the court also drew a distinction between “permissible contests for prizes,” like DFS contests, and the types of illegal gambling activity the constitutional prohibition was intended to address. (Id. at 19-22). Illegal gambling, the court maintained, “implies gains and losses between the parties by betting”– an element that is “notably lacking” from contests for prizes where “entrance fees are fixed, and pre-determined prizes are awarded by a neutral party whose monetary stake is limited to the payment of the prize.” (Id.)

The lawsuit challenging New York’s DFS law was initiated by then-Governer Andrew Cuomo and the New York State Gaming Commission shortly after the law was enacted in 2016.

Notwithstanding the lawsuit and subsequent lower court rulings, the DFS law has remained in effect without disruption since it was first enacted.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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