In what is potentially a major setback for the industry, a New
York State appellate court recently ruled that the
State's 2016 fantasy sports law violates the State's
constitutional ban on gambling. Along with striking the
portion of the law that legalized and regulated the industry, the
court also invalidated the portion of the law that excluded fantasy
sports from the State Penal Law's prohibition against
Why was the fantasy sports law found unconstitutional?
The appellate court began its analysis by discussing the State
Constitution's gambling prohibition. Under the
Constitution, with certain enumerated exceptions, "no lottery
or the sale of lottery tickets, pool-selling, book-making, or any
other kind of gambling" is authorized within New York.
Because the Constitution does not itself define of gambling, the
court utilized the definition contained in the State Penal Law. The
Penal Law defines gambling as contests in which an individual
stakes something of value to receive something of value based upon
a certain event, the outcome of which depends to a material degree
on chance, notwithstanding that skill may also be a factor.
Employing this definition, the court reasoned that fantasy sports
contests constitute gambling and/or games of chance because,
although fantasy sports contest "participants may use their
skill in selecting teams, they cannot control how the athletes on
their  teams will perform in the real-world sporting
events." In reaching its decision, the court held that the
Legislature did not have the authority to override the Constitution
by determining, in its own judgement, that fantasy sports contests
are not gambling.
The court also invalidated the portion of the law that excluded
fantasy sports from the Penal Law's prohibition against
gambling. Despite recognizing that an activity can be
prohibited but not necessarily criminalized, the court nevertheless
concluded that the Legislature would not have intended to
decriminalize fantasy sports without the ability to heavily
regulate it. Because the court struck down the
Legislature's regulatory power in this instance, it felt that
the most prudent course of action was to, in turn, invalidate the
fantasy sports law in its entirety.
Remaining Compliant with Fantasy Sports Law
The State can, and most likely will, appeal this decision to New York's highest court. Were that to happen, it is anticipated that this decision will be stayed, allowing fantasy sports operators to continue offering contests in the State pending the outcome on appeal. Nevertheless, interested parties face considerable headwinds in New York following this latest setback. This decision serves as a reminder of how the laws and regulations governing fantasy sports continue to grow and evolve across the country. In such a shifting regulatory climate, it remains imperative to engage competent legal counsel to become/remain compliant with applicable law when setting up or operating fantasy sports contests.
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