Fantasy Sports Passes the Test: New York High Court Rules Fantasy Sports Are Legal

Fantasy Sports Passes the Test: New York High Court Rules Fantasy Sports Are Legal

By Steven Eichorn, of Ifrah Law
In the lull of a midweek break from March Madness, New York’s highest court made noise Tuesday when it finally handed down its fantasy sports ruling, confirming that fantasy sports contests are legal in the state.

Fantasy sports players might not have even noticed it was a question: Tens of millions of people play fantasy sports in the United States and Canada alone, and the U.S. Congress seemingly recognized the ubiquity of the games when it carved out a fantasy-sports exemption from the Unlawful Internet Gambling Enforcement Act of 2005. But for the industry, the case of White v. Cuomo meant win-or-go-home—or at least go somewhere other than New York.

In late 2015, as daily fantasy sports began to proliferate, then-Attorney General Eric Schneiderman issued cease-and-desist letters to fantasy companies across the state, arguing that their offerings violated the state’s constitutional gambling prohibition. Shortly thereafter, the New York State Legislature pushed back, passing a law stating that fantasy sports do not constitute gambling under the state’s constitution or criminal law, citing the role skill plays in determining fantasy sports players’ success. The New York State Gaming Commission granted temporary licenses to entities that had previously offered fantasy sports in the state, though it refrained from finalizing a long-term licensing system.

In the meantime, a group of New York residents brought suit against then-Governor Andrew Cuomo and the State Gaming Commission, seeking both an injunction on  implementation of the fantasy sports statute and a declaration that the law violated Article 1, § 9 of the New York Constitution, which generally bars gambling in the state. In 2018, the New York Supreme Court—the state’s trial court—sided with the plaintiffs, concluding that fantasy sports constitute gambling and that the 2016 law was therefore unconstitutional. Two years later, the Appellate Division upheld the lower court’s ruling, observing that fantasy contests should not be excluded from the definition of gambling “merely because the Legislature now says that it is so.”

The government appealed once more, and more than five years after the plaintiffs filed their complaint, the Court of Appeals has spoken. Following briefing and two separate oral arguments—separated by the departure and replacement of one judge who appeared primed to affirm the appellate court’s ruling—the state’s high court has determined that the state constitutional ban on gambling does not apply to fantasy sports contests because they are “skill-based competitions in which participants who exercise substantial influence over the outcome of the contest are awarded predetermined fixed prizes by a neutral operator.” The court explained that New York case law applies the predominant factor test when considering whether a particular activity is a game of chance or a game of skill. Further, the state legislature made a factual determination that fantasy sports were games of skill, which was based on evidentiary hearings, expert testimony, and studies indicating that skilled players were significantly more successful than unskilled players. In light of the reasonableness and support for the legislature’s finding that fantasy sports are games of skill, the court deferred to that factual finding and therefore concluded that fantasy sports were not gambling (because they are games of skill, not chance, when applying the predominant factor test).

In a way, this decision represents the full evolution of the professional leagues stance towards wagering on their games. During the course of the litigation that eventually led to the Supreme Court’s overturning the Professional Amateur Sports Protection Act (“PASPA”) and opening the floodgates for sports bettingthe professional leagues vigorously opposed any further legalization of sports betting due to alleged concerns such as game integrity and controls on bad actors. However, a mere few years later, the leagues have collectively embraced the fantasy sports and sports betting industries and are in support of the expansion and legalization of fantasy sports. As the New York court favorably noted: “many professional sport leagues support fantasy sports, viewing the virtual games as a way to engage fans and partnering with IFS operators to promote the competitions.”

Hopefully, the New York legal decision will further cement the legality of fantasy sports as games of skill in other states and lead to the increased legalization and regulation of all forms of online gaming.