New York Court Rules Fantasy Sports Contests Unconstitutional
Authors: Irwin A. Kishner and Daniel A. Etna
In August 2016, the New York State Legislature amended the Racing, Pari-Mutuel Wagering and Breeding Law by adding an article related to the registration and regulation of IFS contests (Racing, Pari-Mutuel Wagering and Breeding Law art. 14) (“Article 14”). Under the statute, the legislature declared that IFS contests do not constitute gambling and further provided for consumer safeguards, minimum standards and the registration, regulation and taxation of IFS providers. As a result, a series of state taxpayers who opposed the law commenced an action seeking a declaratory judgment that Article 14 was in violation of the New York Constitution and sought to enjoin the implementation of the statute. The Supreme Court partially granted plaintiffs’ summary judgment motion holding that Article 14, to the extent that it authorized IFS contests, was void and in violation of the provision of the NY Constitution, Article I, § 9, which prohibits gambling. The matter was then appealed.
The Appellate Division reviewed the lower court’s findings and held that it properly granted plaintiffs’ summary judgment motion, striking down most of the statute. The court also found that the Penal Law’s definition of gambling was appropriate to apply in interpreting the constitutional provision. The determinative question was whether “IFS contests involve a material degree of chance.” While IFS contestants may use their skill in selecting teams, the Court noted that they cannot control how the teams will perform in real-world sporting events. In other words, the court found that the skill level of the participants did not outweigh the role of chance.
The ruling has dealt a setback to fantasy sports companies in the New York market. At this point, given the Appellate Division’s ruling as to the subservience of the legislation at issue to the New York constitution, an appeal of the decision to the New York Court of Appeals may not be fruitful. Accordingly, fantasy sports companies should give serious consideration to seeking a legislative initiative to amend the New York constitution.