NY Daily Fantasy Sports Suit: Plaintiffs Argue that a Rose is a Rose and DFS is Gambling, Notwithstanding the Legislature’s Attempt to Say Otherwise

What kind of world do we live in, the Plaintiffs in White v Cuomo want to know in their constitutional challenge to New York’s Interactive Fantasy Sports Law that authorized and regulated daily fantasy sports games in New York for the first time. “[A] Shakespearean world inhabited by Romeo and Juliet where substance trumps form, and a rose is, in fact, a rose; or . . . in a parallel universe of alternative facts, like the one inhabited by Humpty Dumpty—and now by the New York State Legislature—where ‘gambling’ is not ‘gambling’ simply because the Legislature has decided to call it something else” (Plaintiffs’ App Div Brf, at 2). To the Plaintiffs, a rose is still a rose, and DFS is wagering money on real life athletes in real life games over which the bettors have no control. That’s gambling, they argue, and barred by Article I, § 9 of the New York Constitution.

In the Plaintiffs’ opening brief to the Appellate Division, Third Department, they make four principal arguments in support of Justice Connolly’s decision declaring the IFS Law unconstitutional: (1) DFS falls within the Penal Law’s definition of prohibited gambling, and the Legislature’s rationale for an opposite finding ignores the realities that DFS is a game involving a material degree of chance and are wagers on future contingent events; (2) the New York Attorney General admitted that DFS is prohibited gambling when it prosecuted DraftKings and FanDuel before the IFS Law was adopted; (3) DFS looks like gambling and is regulated like gambling, so it must be gambling; and (4) the Legislature was not free to define gambling to exclude DFS because it had applied the constitutional gambling ban to all forms of sports wagering over more than 100 years. Let’s take a closer look at each of the arguments.

DFS is Gambling Under the Penal Law Because it Involves a Material Degree of Chance and Wagers on Future Contingent Events

The Plaintiffs start with the Penal Law definition of gambling. Under Penal Law § 225.00(2), “[a] person engages in gambling when he stakes or risks something of value 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.” According to Plaintiffs, that means “[t]he key elements, therefore, of gambling are (1) whether a contestant stakes or risks something of value, (2) upon a contest of chance or a future contingent event not under his control or influence, (3) with the understanding he will receive something of value in the event of a certain outcome” (Plaintiffs’ App Div Brf, at 32).

DFS fits all three, they argue. DFS players pay an entry fee to the companies to participate—that’s something of value. The players have absolutely no control over how the athletes they select for their fantasy teams perform in the real life games—that’s a wager on a future contingent event not under their control. And if their fantasy team outperforms others, they win a prize—that’s receiving something of value in the event of a winning outcome. So, the Plaintiffs contend, DFS is gambling as the Legislature has defined it in the Penal Law.

The Legislature’s opposite conclusion in the IFS Law, they argue, lacks a rational basis and shouldn’t be accorded the presumption of constitutionality on which the State strongly relies. Attacking the Legislature’s rationale, the Plaintiffs first argue that DFS is a game of chance. There is no real distinction between the fantasy DFS game and betting on a real sports contest, the Plaintiffs contend, because the performances on which DFS is based are real life athletes in real games on any given night over whom the DFS players have absolutely no control. An athlete they choose for their DFS team could get hurt in the first inning, or have an off night shooting the ball, or could miraculously score the game winning goal in the Miracle on Ice, but in the end, the DFS player’s performance is all based on things well outside of his or her control.  There’s unquestionably a material degree of chance involved, they contend. And just like poker, the mere fact that the players use their skill to play their hands, or for DFS to assemble their teams, doesn’t eliminate that material degree of chance.

But even if DFS didn’t involve a material degree of chance, as the Legislature found and the State contends on this appeal, the Plaintiffs argue that DFS is nevertheless a wager on future contingent events over which the DFS players have no control, and so it is prohibited gambling. As the Plaintiffs put it, “it is indisputable that the outcome of any IFS contest must inevitably be based upon a future contingent event—the performance of real-life athletes in real-life games. It is equally indisputable that an IFS contestant has absolutely no control over how those athletes will perform in those games, as the State itself has stipulated” (Plaintiffs’ App Div Brf, at 47). Indeed, the Plaintiffs argue, the mere fact that those real life players are being used in a fantasy game doesn’t magically transform the bets on their performances from gambling to not gambling. Supreme Court, therefore, properly declared the IFS Law unconstitutional, the Plaintiffs assert.

The New York Attorney General’s Prior Admissions

Unsurprisingly, the Plaintiffs support much of their argument with citations to the New York Attorney General’s position and public statements that DFS is gambling prohibited by the New York Constitution in People v DraftKings. Back before the adoption of the IFS Law, the Attorney General commenced criminal proceedings against DraftKings and FanDuel for what the Attorney General claimed was illegally offering DFS games that constituted prohibited sports betting. In particular, the Attorney General told the New York Daily News:

Daily fantasy sports is much closer to online poker than it is to traditional fantasy sports … FanDuel and DraftKings take a bite out of every bet. That is what bookies do, and it is illegal in New York … In fact, as our court papers lay out, these companies are based on business models that are identical to other forms of gambling . . . Consider the final moments of a football game where the outcome has been decided and the winning quarterback takes a knee to run out the clock and assure victory. Let’s say it’s Eli Manning, and the Giants are defeating the Eagles or the Cowboys. Statistically, this play would cost the quarterback one yard – a yard that could make the difference between someone on DraftKings or FanDuel winning or losing tens of thousands of dollars. What did that have to do with the bettor’s skill? It’s the classic risk involved in sports betting. Games of choice involve some amount of skill; this does not make them legal. Good poker players often beat novices. But poker is still gambling, and running a poker room – or online casino – is illegal in New York (Plaintiffs’ App Div Brf, at 50).

Throughout the criminal proceedings, the Attorney General took a strong position that DFS was prohibited gambling, for many of the same reasons that Judge Connolly invalidated the IFS Law. The Plaintiffs now use the Attorney General’s own arguments as evidence that DFS remains the same kind of banned gambling that it was then. Indeed, quoting from a former Attorney General’s opinion, the Plaintiffs attempt to equate DFS to straight sports betting, which the Attorney General has long held needed a constitutional amendment to be authorized.

If DFS Looks Like Gambling and is Regulated Like Gambling, It Must be Gambling

What do they say about ducks? If it looks like a duck, and quacks like a duck, then it’s a duck. Well, that’s how the Plaintiffs frame their third argument for why DFS is gambling banned by the New York Constitution.

Listing off a number of factors that make DFS look like gambling, the Plaintiffs cite to the bets on real life athletes in real life games over whom the DFS players have no control, that the DFS operators rake a piece of the prize pool, that the Legislature put the IFS within the Racing, Pari Mutuel Wagering and Breeding Law where other forms of gambling are regulated, and that the law offers protections for “compulsive” players, aka problem gamblers. Although the Legislature excluded “registered” DFS operators from the criminal prohibition, the mere fact of registration does not change the underlying nature of the DFS game. DFS is still DFS whether or not the operator is register, and it’s still gambling, the Plaintiffs argue.

The Legislature Was Not Free to Exclude DFS From the Definition of Gambling

Even though the term “gambling” is not defined in Article I, § 9 of the New York Constitution, that does not grant the Legislature unlimited license to define the term in any manner it wishes, the Plaintiff argue. Words must be construed to have their ordinary meanings, and thus “the Legislature [could not] ignore certain kinds of gambling, let alone pass laws to enable rather than to prevent it, as it has done here . . . Otherwise, as Supreme Court pointed out in this case, the prohibition against gambling, a protection embodied in the Bill of Rights in Article I of the New York Constitution, would exist only at the sufferance of the Legislature” (Plaintiffs’ App Div Brf, at 61-62).

From the 1894 addition of the constitutional ban on gambling, the Legislature and the Attorney General have always understood that sports betting is illegal gambling. DFS is no different than sport betting, because the bets are still placed on real life performances over which the DFS players have no control. Thus, it too is illegal gambling, and the Legislature wasn’t free to ignore over 100 years of history to find otherwise. Indeed, the Plaintiffs argue,

Courts are not required to stand by helplessly while the Legislature interprets the Constitution any way it wants. The difference between what Plaintiffs and the State cite as precedent turns on the distinction between the “interpretation” versus the “implementation” of a constitutional mandate. It is the Judiciary’s sole prerogative to interpret “gambling”; it falls to the Legislature to implement laws to prevent it. Thus, the determination on whether daily fantasy sports falls within the definition of “gambling” is for the Judiciary, not the Legislature, to decide. Supreme Court properly interpreted the term (Plaintiffs’ App Div Brf, at 68).

Plaintiffs’ Cross Appeal

Finally, Plaintiffs argue on their cross appeal of Judge Connolly’s decision that he also should have declared the Legislature’s attempt to decriminalize DFS without substituting some other penalty unconstitutional. As the Plaintiffs view the constitutional commands, Article I, § 9 requires the State to pass laws to prevent gambling. The removal of the criminal sanction in the IFS Law is permitted, therefore, only if the Legislature substitutes some other penalty in its place.  “It could, for example, have enacted a civil law prohibiting gambling and imposing civil fines to prevent any person or entity from operating IFS. Instead, it left a statutory and regulatory vacuum by decriminalizing gambling while not substituting something else in its place to prevent it” (Plaintiffs’ App Div Brf, at 70).

This legal limbo, where DFS has been decriminalized but still violates the constitutional ban, cannot withstand scrutiny, the Plaintiffs’ argue. Either the IFS law falls in its entirety, or it doesn’t. As an example, the Plaintiffs point out that DraftKings and FanDuel are still operating with impunity, and without any statute or regulation to stop them from continuing to violate the Constitution. “This is precisely why Chapter 237 should be struck down in its entirety, and not just partially, as Supreme Court did. The Legislature did not exclude IFS from the Penal Law definition of ‘gambling’ because it intended to substitute in its place some alternative measure to prevent it. Quite to the contrary, it inserted the exclusion for the obvious and sole purpose of enabling IFS to occur, so that the State could regulate and tax it. This is precisely why the exclusion is unconstitutional because it had the effect—an effect that was the Legislature’s deliberate objective—to enable that which is constitutionally prohibited” (Plaintiffs’ App Div Brf, at 72).

Next up in my run through the Appellate Division briefs, a not so surprising application for two DFS titans to participate in the appeal.

 

 

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