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Long odds for fantasy sports bettors challenging New York law

Fantasy sports platforms like DraftKings have been legal in New York state for the last few years, but a case before the high court could soon render those platforms illegal.

ALBANY, N.Y. (CN) — New York state may be facing a hard bet if it is hoping for the state’s high court to resuscitate its legalization of fantasy sports betting.

The case is the result of anti-gambling citizens who claim sites like FanDuel and DraftKings are essentially gambling havens granted an illegal carveout in the New York Constitution, which bans most forms of gambling. Trial and appellate courts already have ruled as such, and based on arguments on Tuesday it is likely the Court of Appeals will follow suit.

A number of justices used various analogies as to whether sports betting constitutes gambling, but it was Justice Eugene Fahey who kept likening the activity to poker, which has been illegal under state law since 1894.

“When you play poker, if somebody deals you a royal flush you’re gonna win the hand,” Fahey said, adding that “if you have Tom Brady as your starting quarterback on fantasy football, the odds are” you will win the weekly contest.

Paladino continuously tried to assuage justices by saying studies have shown fantasy football is primarily skill-based.

“It’s the luck of the draw, just like it’s the luck of the draw in poker,” Fahey continued, “and it’s hard for me to see any rational distinction at all between the two.”

New York state legalized fantasy sports in 2016, after a battle between then-Attorney General Eric Schneiderman and online gambling sites. The new law, known as Article 14, declared that fantasy sports contests were not games of chance but games of skill and knowledge and instituted a number of regulations on the contests.

Scheiderman had previously labeled the businesses a “multibillion-dollar scheme intended to evade the law and fleece sports fans across the country,” following reports that insiders at FanDuel and DraftKings had rigged the games with sophisticated algorithms. Earlier in 2016 New York County Supreme Court Judge Manuel Mendez sided with the attorney general and banned fantasy sports operations, despite arguments that the websites offered games of skill.  

The companies also faced class-action lawsuits from gamblers, who claim they were lured in by misleading advertising with promises of turning $1 or $2 into tens of thousands of dollars within weeks. Many of the suits also alleged that “bots” used by professional players would game the system to beat out novice players, while another claimed insiders at DraftKings used privileged information to win contests.

One of those suits, against DraftKings, was settled earlier this year for $8 million, though the majority of the payout is to be in DraftKing currency that can be used only on the website. Both companies have since about 2015 banned employees from participating in fantasy sports contests.

After fantasy gambling was finally legalized in New York in 2016, the state issued a number of regulations but also stated that fantasy sports did not constitute gambling under Penal Law 225, eliminating criminal penalties for violations. The state had previously made exceptions for state-run lotteries, betting on horse races, and state-authorized casinos.

Shortly after the law was passed, however, four New Yorkers led by Jennifer White brought a lawsuit that said allowing fantasy sports violates the state’s ban on gambling.

A state judge ruled on their behalf, noting fantasy sports are “contests of chance” and not games of skill, noting there “is little, if any, identified difference between complex gambling practices,” such as poker, and fantasy sports gambling.

Yet Judge Gerald Connolly also upheld the portion of the new law that eliminated criminal penalties for fantasy sports, noting “the legislature has the full authority to define and limit such offenses in the context of an anti-gambling statute.”

Last year, an appellate panel largely upheld Connolly’s ruling 4-1, finding that interactive fantasy sports [IFS] betting is essentially gambling. It reversed the portion of Connolly’s decision that essentially decriminalized fantasy sports contests, though.

“Moreover, as part of the same legislation that decriminalized IFS, the legislature clearly intended that IFS contests be heavily regulated,” Justice Robert Mulvey wrote in the 12-page ruling. “Hence, we conclude that the legislature, if it had envisioned the possibility that courts would invalidate the majority of article 14, would not have wished to preserve the decriminalization of IFS.”

Before the high court on Tuesday, attorney Cornelius Murray, who represents the plaintiffs in the underlying case, said the lower courts were correct and that language of the state constitution clearly prohibits bookmaking and “any other kind of gambling.”

Murray also argued the state was “bending over backwards” to camouflage fantasy sports, and that the betting platforms’ argument that they charge only an entrance fee is merely a euphemism for a bet. “It’s a rake, it is a vig, whatever you want to call it,” he told the court.

In another analogy during oral arguments, Justice Jenny Rivera said fantasy sports betting was similar to a single bet on an All-Star game, where players are selected based on certain criteria.  “I’m still having difficulty getting past how this is so different from gambling when it comes to looking at the All-Star game,” Rivera said.

Other judges also likened sports betting to Wall Street. Justice Rowan Wilson repeatedly asked why portfolio managers shouldn’t be considered bookmakers or gamblers in their own right?

Paladino said the stock market isn’t considered gambling because of the historical carve-out granted to Wall Street. Murray agreed, noting that Wall Street had a “positive public role” and that it would turn the financial world upside down if investing was considered gambling.

Fahey said the crucial difference between the stock market and fantasy sports is the key element of chance in sports. “The ball is not bouncing in a funny way to determine the outcome of whether stocks go up and down,” he said, calling such a comparison sophistry and near-Orwellian.

“War is peace, freedom is slavery, you know, fantasy sports betting is not gambling, it’s really like the stock market,” Fahey said.

“You see I think we can allow this,” the justice continued. “But you can only allow it one way. People of the state of New York need to vote on whether or not this should be allowed.”

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