Run a fantasy football league in New York state? Well, if you collect an entry fee — the state government would like a word with you.
Governor Andrew Cuomo and the New York state legislature conspired to create a fantasy sports law that will require you to register with a state agency, submit to finger printing, submit to a background check, and, of course, pay a fee based on the money you collected from other league members.
New York wasn’t the only state to adopt bad fantasy sports legislation. While most folks weren’t paying attention this spring, scores of lll-informed and uninformed lawmakers in numerous states effectively criminalized fantasy sports. Or crippled the marketplace by passing legislation with onerous fees and regulations — the results of which will be to kill competition and minimize the number of companies that can offer fantasy sports games and contests. That is especially and painfully true of companies that offer season-long games.
(New York was simply the highest profile of such “fantasy sports laws.” States like Virginia, Missouri and Indiana passed far more egregious laws —heaping new taxes and regulatory compliance, that in some cases, will cost more than the taxes themselves).
The DFS Predicament
Daily Fantasy Sports (DFS) giants FanDuel (launched in 2009) and DraftKings (launched in 2012) operated without much social or political attention until the fall of 2015.
Then a tidal wave of scrutiny and scandal rocked the industry:
Both DFS companies executed a TV ad blitz that rivaled the likes of Nike and McDonalds. There was nothing inconspicuous about the lure of million-dollar winners, and all the glitz and glamour surrounding it.
But what eventually precipitated the criticism of the two fantasy monoliths was a very public scandal that prompted claims of “insider trading” by politicians and media outlets. On one NFL Sunday, a Draft Kings employee inadvertently released data that revealed player ownership. Since DraftKings lineups don’t lock until each individual game time, a user could utilize this info to differentiate his lineup(s). If that weren’t enough, the DK employee won $350,000 in a single contest that week on rival FanDuel. Despite the optics, an external investigation cleared this person of any wrongdoing.
No matter. By late 2015, DraftKings and FanDuel caught the attention of New York Attorney General Eric Schneiderman. He called DFS “gambling” in a cease and desist letter he sent to both companies. He also claimed the companies’ commercials “seriously misled” residents about the odds of winning. Schneiderman also opined that DFS creates the “same public health and economic concerns as other forms of gambling … including addiction.”
Yeah, really. New York, which shamelessly pimps the state’s numerous lottery games, was claiming DFS created a public health concern. But to his credit, Schneiderman went on to note a distinction between DFS and traditional season-long games:
“We believe there is a critical distinction between DFS and traditional fantasy sports, which, since their rise to popularity in the 1980s, have been enjoyed and legally played by millions of New York residents. Typically, participants in traditional fantasy sports conduct a competitive draft, compete over the course of a long season, and repeatedly adjust their teams. They play for bragging rights or side wagers, and the Internet sites that host traditional fantasy sports receive most of their revenue from administrative fees and advertising, rather than profiting principally from gambling. For those reasons among others, the legality of traditional fantasy sports has never been seriously questioned in New York.”
Schneiderman eventually agreed to a settlement in March which allowed the New York State legislature to consider legislation making DFS legal in the state. He was punting a political football to the state’s lawmakers, hoping they would bring legal clarity and certainty to the issue of DFS.
But the irony was about to get deeper. A bill ostensibly meant to legalize, regulate and tax DFS companies, eventually included the traditional season-long fantasy games that had been specifically excluded from Schneiderman’s cease and desist letter.
In a phrase, companies that provided season long games were the proverbial dolphins caught in the tuna net. Once run without the sanction of government, all season-long fantasy sports games are now forced to endure just that in New York state.
Any person or small business that wants to run a fantasy league for New York residents must register with the state, submit to finger printing and a background check — and, of course, pay a fee to the state for the privilege of being pushed around…
Laws Are Like Sausages…
As the Prussian statesman Otto Von Bismarck once famously said, “Laws are like sausages, it is better not to see them being made.” The case of the New York fantasy sports bill is proof of that axiom.
The list of “ingredients” included:
1. A conga line of lobbyists for Fan Duel and Draft Kings.
2. More lobbyists from opposing gaming interests in the state.
3. An Attorney General who said DFS was gambling according to the state Constitution.
4. A state legislature that said DFS was not gambling.
5. A majority of legislators who were wholly ignorant of fantasy sports.
6. A Governor who insisted on including season-long games in the law.
7. A Fantasy Sports Trade Association (FSTA) that publicly said bad legislation was better than no legislation.
8. A rag tag group of small fantasy businesses — that represented the dolphins in the tuna net — fighting for their jobs and existence.
In the end, the legislation will effectively give FanDuel and DraftKings a duopoly by raising the cost of entry into the marketplace in New York. (A fine “thank you” considering what precipitated the legislation). And season-long operators will either leave the state, or pay a 15% tax on their gross revenue. Pick your poison.
For some reason, most states have decided to pass fantasy sports laws that are hostile to small fantasy sports businesses. The exception is Colorado, where lawmakers exempted any company with fewer than 7,500 participants from having to comply with regulations or pay taxes.
It begs the question of how other state legislatures, like New York, were influenced or pressured to target smaller fantasy companies….