New York Daily Fantasy Sports Suit: State’s Opening Brief Makes a Strong Pitch that the Legislature Rationally Determined that DFS is Not “Gambling” Under the NY Constitution

The game for the fate of daily fantasy sports in New York is on, and the State has scored first. Ok, ok. In appellate litigation, the losing party below always gets the ball first. And the State certainly lost below in this one. Judge Connolly of Supreme Court, Albany County held that daily fantasy sports were “gambling” prohibited by Article I, § 9 of the New York Constitution. But oftentimes the appellant’s opening brief leaves much to be desired, and much for the Court to decipher.

Not so here. The State has called on its stable of ready appellate lawyers, picked a great one—I know from personal experience because he’s beaten me in a case at the Court of Appeals before (still hurts now three years later)—and articulated a very strong argument for why the New York Legislature has the power to define what is and what is not gambling prohibited by the Constitution, how the Legislature exercised that power rationally here in deciding that the mixed skill and chance DFS games are not gambling, and how the courts should defer to that rationally supported legislative choice.

To recap quickly, back in 2016, there was a huge push to allow daily fantasy sports contests in New York, but the New York Attorney General said that the games violated New York’s constitutional ban on gambling. The DFS industry in response started a full court press to lobby for legislative authorization of the games. The industry didn’t want to wait the two-plus years it would have taken to amend the New York Constitution. The result: Chapter 237 of the Laws of 2016, known as the Interactive Fantasy Sports Law, which attempted to exempt “interactive fantasy sports” from the New York Constitution’s ban on gambling. Specifically, it provides:

A number of plaintiffs challenged the law as a violation of the constitutional gambling ban, and they won. At least in part. Judge Connolly held that DFS was gambling and struck down most of the IFS law, but held that the Legislature acted within its power to decriminalize the games. So, as we stand now, DFS is unconstitutional gambling, but if the games are offered in New York nevertheless, the operators can’t be brought up on criminal charges.

In the State’s opening brief challenging Judge Connolly’s holding that the IFS Law is unconstitutional, the State makes the case that because the Constitution leaves the term “gambling” undefined, and specifically authorizes the Legislature to implement the constitutional ban, it has to be up to the Legislature to fill the gap by defining what is and what isn’t prohibited gambling. Specifically, the State builds its case on traditional notions of judicial deference to rational legislative decision making. The State points out that the Court of Appeals has repeatedly held that where the Constitution provides broad and undefined powers to the Legislature to implement a constitutional provision, as here, the courts must defer to the Legislature’s factual findings and rational implementations of that power. The State’s constitutional duty to care for the “needy” and to provide a “sound, basic education” are two such examples. Neither constitutional provision actually spells out what standard the State is required to meet, and so that job is left to the Legislature to undertake.

So too here, the State argues. Article I, § 9 of the Constitution bans “gambling” but expressly delegates to the Legislature to pass laws that carry out that command. Because the Legislature has outlined what prohibited “gambling” looks like in the criminal statutes, and undertook an extensive fact finding process in enacting the IFS Law, the State argues that it’s not for the courts to undermine the Legislature’s rational conclusion that DFS games are not prohibited gambling. As the IFS Law specifically found, they are not games of pure chance, but are instead based on a player’s skill in assembling a roster of real life athletes to compete against everyone else’s chosen rosters. DFS games, therefore, are not predominately contingent upon games outside of the player’s control, but on his or her player selection and roster management abilities.

Notably, the State points out a number of examples of times when the Legislature has in the past declared that a certain activity is not prohibited gambling, including the selling of insurance and commodities trading. The strongest example, however, is that in 1995, the Legislature specifically exempted horse race handicapping tournaments from the constitutional ban: 

As the State sees it, therefore, the IFS Law is just the Legislature’s latest exercise of its constitutional power to implement Article I, § 9 by defining what is and what is not prohibited gambling. That finding and policy judgment, which is based on extensive record evidence from the pre-enactment legislative hearings, is entitled to deference from the courts, the State argues.

The State also contends that Judge Connolly confused which constitutional standard should apply to evaluate whether DFS is a prohibited “game of chance.” From the adoption of the constitutional gambling ban, the State argues, the standard for deciding whether a game is prohibited has been whether skill or chance predominates while playing. Judge Connolly, however, used the “material degree” test that is derived from the statutory definitions of gambling under the Penal Law, not the dominating element standard required by the Constitution. Judge Connolly held that DFS was prohibited gambling because a material degree of chance was involved, notwithstanding that the players’ skill predominates. This was reversible error, the State contends. Because Judge Connolly accepted the Legislature’s factual finding that skill predominates over chance in DFS, that should have been the end of the Court’s inquiry and the IFS law should have been upheld.

For good measure, the State even argues that the law satisfies the statutory material degree standard, because the “Legislature heard a wealth of expert opinion, witness testimony, and statistical studies supporting the view that skill was such a dominant element in success at interactive fantasy sports contests that the role of chance was ‘overwhelmingly immaterial'” (State’s App Div Brf, at 34). The Legislature was entitled to credit that evidence, and the Court should defer to it as well, the State contends.

Next, the State argues that Judge Connolly’s conclusion that the DFS players exercise no control over the sporting events on which DFS is scored focuses on the wrong contest. It’s not the real world games that DFS players are playing in. They’re playing in separate contests over which they exercise substantial control. They choose which undervalued players to roster, which stacks to try to take advantage of, and which potential overvalued busts to avoid. In doing so, they meaningfully influence the outcome of the DFS games in which they play. Thus, the State argues, the Legislature rationally decided that DFS games “are not wagers on future contingent events not under the contestants’ control or influence,” which would be prohibited (State’s App Div Brf, at 35, quoting Racing Law § 1400 [l] [b]).

Finally, the State asserts that the Legislature rationally found that DFS is a bona fide contest for prizes where the players are required to pay an entrance fee to play and use their skill to influence the outcome. This, the State contends, is not gambling, and is just like when the owner of a horse pays an entrance fee to race the horse for the chance to win the purse. The Court of Appeals has held that that isn’t unconstitutional gambling, and thus neither is DFS, the State argues.

Coming into this appeal, I wasn’t very confident about the State’s chances to have Judge Connolly’s decision reversed. But the State’s reframing of the issues to ones focused on legislative policy making and the deference owed to those decisions by the court, so long as they are rational, has considerably strengthened their case. If the State succeeds in convincing the Appellate Division that this case is all about a legislative policy choice to allow DFS in New York, a decision with which the judiciary shouldn’t interfere, the State has a strong case to defend the IFS law and have Judge Connolly’s decision overturned. Indeed, given the very heavy burden that the plaintiffs face to show that the law is unconstitutional beyond a reasonable doubt, and the strong case for judicial deference that the State has made, this is turning out to be a much closer case than I had originally thought.  I’ll be watching closely to see how the Plaintiffs now respond.