New York has approved a bill legalizing daily fantasy sports

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New York:

Due to the large concentration of daily fantasy sports players in the state (about 10 percent of the national market), New York has always been at the center of the country-wide fantasy sports debate, and is seen as a model for other states in the country.

Plus, New York Attorney General Eric Schneiderman was one of the first public officials to order DraftKings and FanDuel to cease-and-desist operations in the state, saying that daily fantasy sports violated his state’s gambling laws. This was likely the impetus for similar notices from Attorneys General in other states like Texas and Illinois.

This cease-and-desist notice was followed by legal action from both sides. DraftKings and FanDuel jointly filed a lawsuit against Schneiderman then subsequently received a stay to continue operating in the state until the state’s supreme court made a final decision.

But a legal battle was never the goal for the two companies. DraftKings and FanDuel knew that to permanently cement operations in New York (and other states), they would have to fight a legislative battle, getting new laws passed that explicitly legalized their operations and delineated it from sports gambling.

So the companies (and related lobbyist organizations) took their battle to states’ capitals. And it worked. In March, Virginia became the first state to legalize daily fantasy sports and impose state-led oversight of the industry. This was followed by similar legislature in Indiana, Tennessee, Mississippi, Missouri, and Colorado.

And while some other states have declined to explicitly legalize the industry, New York’s actions may send a signal to these states that it is O.K to proceed with new legislation.

Stricter Oversight

The bill can be found here, but it essentially amends the state’s current gambling laws to include “regulated interactive fantasy sports contests with an entry fee”.

Under the new legislation, providers will have to apply for registration with the state before being allowed to operate. But, in another win for DraftKings and FanDuel, companies that offered contests in NY before November 10th, 2015 (the day AG Schneiderman ordered them to cease-and-desist) will be allowed to operate in the interim until their application is approved or denied.

The bill also establishes some safeguards protecting players in the state. These include:

  • Restricting players under the age of 18 from participating
  • Ensure that the accurate odds of winning are actually represented in all advertisements
  • enabling players to permanently exclude themselves from future games (and potential losses) at any time
  • Identifying highly experienced players on the platform

The most interesting restriction is probably the last one, and seems to be designed from having amateurs unknowingly enter contests with professionals, where they presumably have a much smaller chance of winning. This is important because it alludes to the fact that results are impacted by skill, something that differentiates it from luck-based gambling.

The bill also requires operators to pay a 15% tax on gross revenue made from interactive sports contests in NY, which will go to the state lottery fund for education.

These restrictions actually provide a good amount of consumer protection, and may serve as a guideline for future states looking to legalize the industry while providing safeguards to protect participants.

While not yet signed into law, the bill is a promising development for daily fantasy sports operators both in NY and around the country. This bill will undoubtedly lead to similar actions in other states, and is a major win for companies like DraftKings and FanDuel.

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