Fantasy sports contests have been declared illegal in at least one state, but the issue appears far from resolved. Although the New York Supreme Court’s Appellate Division upheld a lower court ruling that fantasy sports contests violate that state’s constitutional ban on gambling, ABA Section of Litigation leaders believe further litigation is inevitable in New York and elsewhere.
Article 1 Section 9(1) of the New York State Constitution outlaws “lottery or the sale of lottery tickets, pool-selling, book-making, or any other kind of gambling.” The clause continues by stating that “. . . the legislature shall pass appropriate laws to prevent offenses against any of the provisions of this section.” In 2016, the New York State Assembly amended Article 14 of New York’s Racing, Pari-Mutuel Wagering and Breeding Law to declare that fantasy sports betting should not be included in the definition of gambling.
A few months later, several individuals who claimed their lives were negatively affected by gambling filed a lawsuit for declaratory judgment in White v. Andrew Cuomo, et al. They claimed the law violated the state constitution and demanded that the court enjoin its implementation. The trial court granted partial summary judgment in favor of the plaintiffs, agreeing that the 2016 law was unconstitutional.
On appeal, the Supreme Court’s Appellate Division rejected defendants’ argument that the standard from a New York Court of Appeals case People ex rel. Ellison v. Lavin should control. The Ellison standard defines “gambling” as whether an element of chance or an element of skill is the dominating element that determines the outcome of the activity.
Instead, the appellate court looked to the New York Penal Code to define the word “gambling” as used in the state constitution. Under the penal code, gambling refers to risking something of value in a “contest of chance” in hopes of receiving something of value in return in the event of a particular outcome. In contrast to the Ellison definition, the penal code defines “contest of chance” as a contest in which the outcome depends in a material degree upon an element of chance, despite the fact that skill may also be a factor.
The court reasoned that the penal definition of “contest of chance,” separately adopted by the state legislature, rejects the argument that chance must be the dominating element. Under that definition, fantasy football contests are “gambling” within the meaning of New York’s constitution. In its opinion, the court observed that fantasy football participants convey value by paying an entry fee to participate in the contest. The goal of fantasy football contests is for the participant to win something of value in return for performing well.
The court explained that although that skill is helpful in winning at fantasy football, chance is still a material factor. Fantasy football participants select teams of professional football players. A participant’s fantasy team is comprised of players from various real-world teams. Participants compete against other participants to see which fantasy team earns the most points. Fantasy team players earn points based on how successful their real-world counterpart is in a given game.
Skill is certainly a factor, the court recognized, given that research shows fantasy football lineups chosen by participants consistently beat those chosen at random. Also, a relatively smaller percentage of participants win a much larger percentage of the prizes. However, fantasy football participants cannot control how the athletes will perform. Injury, illness, weather conditions, and poor officiating may play a substantial factor in a particular player’s success. The court concluded that although skill may be a factor in the outcome, it cannot outweigh the element of chance.
The future of fantasy football contests is uncertain in New York, and “it is unclear how this ruling might affect other jurisdictions,” says Tracy A. DiFillippo, Las Vegas, NV, cochair of the Section of Litigation’s Pretrial Practice & Discovery Committee. “The court’s ruling is tied to its unique state constitution and statutory law,” she adds.
Adam E. Polk, San Francisco, CA, cochair of the Section’s Class Action & Derivation Suits Committee, explains that “fantasy football is a very lucrative business.” Polk believes the New York legislature attempted a law change “to allow fantasy sports companies like FanDuel and DraftKings to operate in an extremely profitable market,” given that “people of New York presumably comprise a significant portion of that revenue.”
Though the attempt was initially unsuccessful, Polk expects that “the issue will be litigated considerably and this specific case will be appealed.” Meanwhile, fantasy football companies will be able to operate in a number of states while those appeals are pending.
