New York DFS Lawsuit Update: Plaintiffs Seek Summary Judgment that DFS Law Violates New York’s Constitutional Ban on Gambling

Gambling is gambling is gambling, the plaintiffs argue. Whether it’s wagering on horse racing at Saratoga, playing poker or roulette in one of New York’s 4 new casinos, or playing daily fantasy sports at DraftKings or FanDuel, it’s all prohibited by the New York Constitution’s ban on gambling. The only difference is that the Legislature has carved out exceptions to the constitutional ban for horse racing and casinos and tried to avoid doing the same in New York’s DFS law. The two-year process to amend the constitution was too long to wait for DFS, apparently. And now, the plaintiffs in White v Cuomo have asked the trial court to declare New York’s law authorizing interactive fantasy sports unconstitutional.

As I wrote about when the trial court denied the State’s motion to dismiss the case, this case asks the Court to construe the scope of the New York Constitution’s ban on “gambling” to decide whether DFS can be allowed by mere legislative amendment, or if an amendment to the New York Constitution is necessary. In particular, Article I, § 9 of the New York Constitution provides, in relevant part: “no lottery or the sale of lottery tickets, pool-selling, book-making, or any other kind of gambling, except [the State lottery, betting on horse races, and casino gambling] shall hereafter be authorized or allowed within this state.” The Constitution, however, doesn’t define the term “gambling.” So, the question that remains, and the one the Court needs to resolve, is whether DFS is prohibited “gambling” under the New York Constitution.

The plaintiffs have now moved for summary judgment to bring that issue before the Court for a decision on the merits. A copy of the plaintiff’s memorandum of law in support of the motion can be found here.

First, a primer on the DFS law and the Legislature’s justification for why DFS is not gambling. As the plaintiffs point out in their papers, throughout history, the New York Attorney General has opined that the Constitution’s ban on gambling includes sports betting. To try to get around that interpretation, the DFS law “declared that interactive fantasy sports are not games of chance, but rather, ‘fantasy or simulation sports games’ based upon ‘the skills of contestants’ and are not based on the current membership of an actual team” (Plaintiffs’ MOL, at 15, quoting Racing, Pari-Mutuel Wagering and Breeding Law § 1400[1][a]). The Legislature also found that the fantasy players get to choose their own teams, so the outcome of the DFS contest depends on who they choose, not on events outside of their own control.  The workaround the Constitution’s plain language, the plaintiffs’ argue, misses the mark.

In support of their argument, the plaintiffs assert that the Constitution does not give the Legislature the power to create exceptions to the ban on gambling without following the constitutional amendment process. Indeed, they note, the Legislature has authorized 4 exceptions to the constitutional ban by amendment: betting on horse racing, games of chance like bingo and lottery run by non-profits, state-run lotteries, and the casinos. The Legislature has not amended the Constitution to permit DFS, and can’t do so merely by legislation.

In enacting [the DFS law], the Legislature has done exactly the opposite of what Article I, § 9 of the Constitution commands. Instead of passing laws to prevent gambling, it has enabled it. It has also provided a tortured interpretation of the term “gambling” that defies its ordinary meaning while violating the principle that exceptions to constitutional prohibitions should be strictly construed (Plaintiffs’ MOL, at 25).

Next, the plaintiffs argue, the best evidence of what the Constitution’s ban on “gambling” prohibits is the statute it adopted immediately after the 1894 amendment that added the ban. In that statute, the plaintiffs’ argue, the Legislature prohibited “any contest involving gambling on ‘the skill, speed, or power of endurance of man or beast’ involved ‘any unknown or contingent event whatsoever'” (Plaintiffs’ MOL, at 26-27, quoting Penal Law § 351). That’s exactly what DFS is, the plaintiffs argue. It’s betting on the performance of an athlete over which the bettor has no control. That’s prohibited gambling, as the Legislature defined it in 1894. And the Legislature can’t change its interpretation of the term “gambling” now after 122 years, the plaintiffs argue.

The plaintiffs then try to take apart the Legislature’s finding that DFS is a game of skill, not game of chance. The plaintiffs acknowledge that DFS players put together a team of individual athletes and that takes some skill, but that alone doesn’t take DFS outside of the realm of prohibited gambling under the Constitution.

Here’s why: although the New York Constitution doesn’t define “gambling,” New York’s criminal code does. That definition could be what the Court will look at to decide whether DFS falls within the scope of prohibited gambling. The Penal Law defines the term “gambling” as risking something of value (e.g., money) “upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome” (Penal Law § 225.00[2]). Getting a little into the weeds, a “contest of chance” is then in turn defined as “any contest, game, gaming scheme or gaming device in which the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein” (Penal Law § 225.00[1]).

So, breaking it down, gambling in New York has been defined as a game where a player risks money (or something else of value) on the outcome of an event that he or she doesn’t control and that involves a “material” degree of chance, even if some skill is required to win. That’s why the plaintiffs argue that the amount of skill that it takes to put together a DFS team doesn’t make it any less gambling. In the end, the DFS player doesn’t have any control over how his or her players performs, and winning therefore depends on a material degree of chance. It’s a pretty strong argument, I think.

The plaintiffs also acknowledge that the Legislature could decline to criminalize what the State has previously called “incidental” gambling, like small office pools or family and friends card games. But, DFS is not that, they argue. The DFS industry is a multi-million dollar business, where the operators make their money by taking a “rake” from the pot of entry fees. Thus, the only route to legalize DFS in New York, the plaintiffs contend, is through an amendment to the New York Constitution.

If the plaintiffs are right, their win will not only devastate DFS in New York, but also online poker, sports betting, and maybe even full season fantasy sports.  Because, as they argue, there’s no difference between putting together a fantasy team for one week or the whole season (Plaintiffs’ MOL, at 3 “[interactive fantasy sports] itself can take many forms, with some contests lasting all season long (e.g., baseball fantasy sports lasting the entire baseball season), or weekly, but also ‘daily fantasy sports’ (‘DFS’), a relatively more recent iteration which is extremely popular in which contests are conducted on a weekly or daily basis”]). If one falls, so falls the others.

As the New York Legislature considers authorizing online poker and sports betting, this case hangs as a cloud over those deliberations. There too the Legislature seems to be urging that it can get around the express constitutional ban on gambling with mere wordsmithing. Until Judge Connolly decides this case, though, the risk of authorizing more forms of online gaming seems to me too steep to take. But that’s why I’m an attorney, not a representative in state government.

The State now has until the end of February to respond in defense of the DFS law, to argue that the interactive fantasy sports authorized by the New York Legislature do not run afoul of New York’s constitutional ban on gambling. It will be a tough task, no question, made more difficult by the Attorney General’s prior case against DraftKings and FanDuel. But, the State does have one thing on its side: a heavy presumption that an act of the Legislature is constitutional.

After the State’s submission and the plaintiffs get a chance to reply, the case will go to the Judge on one legal question: does the New York DFS law violate the New York Constitution’s ban on gambling? The answer to that question will undoubtedly have a huge impact on the landscape for fantasy sports in New York well into the future.

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