From the Stanley Cup to the NBA Championship, there were some major sports victories these last few weeks.  Championship cities celebrated with fans flooding their streets for victory parades.  But one sports victory—a win that without question affects far more fans than those in the Steel City and Cleveland—did not occur on the court or ice (nor have fans taken to the streets to celebrate… yet).  This win, instead, transpired on the Assembly floor of the New York State Legislature.

Indeed, on June 17, the final day of legislative sessions for this year, the New York State Assembly (and later the Senate) passed a bill that will legalize and regulate Daily Fantasy Sports (“DFS”) in the state.  The bill, which Governor Cuomo has yet to sign, could be the type of (Cleveland) Cavalier-comeback DFS operators needed in a state that was one of the first vilify the industry.

Over the course of a year, DFS operators faced ever-increasing scrutiny about whether their games constitute unlawful gambling.  State governments embarked on vigorous investigations of notable DFS operators’ practices, resulting in legal battles across the country in both the courts and legislatures.  New York Attorney General Eric Schneiderman (“NYAG”) led the charge in October with cease-and-desist letters demanding that DFS operators DraftKings and FanDuel end their DFS contests.  This set off a firestorm: 10 states declared DFS illegal and many more agreed to investigate DFS operators and their contests.  Amidst the storm of controversy, the advertising industry took shelter—steering clear of associating with DFS operators.

Just recently, DraftKings and FanDuel decided to eurostep the courts by entering into settlement agreements with the NYAG, which stayed their litigation and permitted them to focus their efforts on lobbying the state’s legislature.  New York was a bellwether battleground for DFS operators win the fight to regulate, rather than eliminate, their contests.

And DFS prevailed (in part).  The bill—when signed—legalizes DFS contests and provides much needed stability for the DFS industry and its future.  New York joins the ranks of 10 other states that legalized the contests, as Virginia did not long ago.  Uncertainty, however, still persists.

Although the New York bill is relatively permissive, some burdens might make it cost prohibitive for DFS operators, at least until it is clear they can manage the bill’s requirements and any subsequently promulgated regulations. Take, for example, the bill’s prohibition on a class of “prohibited players” who may not participate in DFS contests.  “Prohibited players” include DFS employees, athletes and officials who could influence the outcome of contests, and minors.  Establishing necessary controls to comply with the “prohibited player” requirement could prove difficult and costly.  The law, like most states to legalize the contests, also requires:

  • Registration: DFS operators may not hold contests or charge players an entry fee unless they register with and obtain a license from the New York State Gaming Commission.
  • Annual Reports: Registrants must submit potentially pervasive annual reports that include “any…information that the [New York State Gaming] Commission deems necessary.”
  • Taxes and Additional Regulatory Costs: Registrants will also be on the hook for a 15-percent tax on in-state generated revenue and “additional regulatory costs” based on the proportion of revenue generated by each registrant.

Though the new bill should end the debate about the legality of DFS in New York, DFS operators are still trying to close out this best of 50-states series. Operators are litigating (including still-pending claims of false advertising and consumer fraud which the NYAG has not dropped) and lobbying throughout the country.  Given the new regulatory hurdles in place and continued nationwide challenges, members of the advertising industry might choose to remain spectators until DFS operators are only concerned with following the rules as opposed to fighting for survival.