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Fantasy Sports Battle in New York Could Be Boon for New Jersey

Feb. 10, 2020, 9:45 AM

Fantasy sports companies like DraftKings and FanDuel might have to pivot from a key market in New York to New Jersey if the latest obstacle to the industry’s legal standing holds up.

Sports-loving New York accounts for an estimated 10% of the total daily fantasy sports market, which generated $390 million in revenue in 2019, according to research firm Eilers & Krejcik Gaming LLC. A New York appeals court ruling that deemed fantasy sports illegal, however, is putting that business in jeopardy, which could drive diehard fantasy fans into adjacent New Jersey, where regulated sports betting is legal.

The court’s ruling shouldn’t pose an existential threat to fantasy sports, but “it’s tough to ignore how big of a market New York is,” said John Holden, a business professor at Oklahoma State University who studies sports betting. “It should be eye-opening to DraftKings and FanDuel,” Holden said.

Online wagers are location-dependent, so some New Yorkers are already crossing into New Jersey to bet on events like the latest Super Bowl, said Robert Rosborough, a partner at Whiteman Osterman & Hanna LLP in Albany, N.Y.

“That could happen in daily fantasy sports too,” Rosborough said.

C.J. Fisher, a partner in Fox Rothschild LLP’s gaming law group in Atlantic City, N.J., likewise said New York could face “an exodus” of fantasy contestants headed for New Jersey, which hasn’t seen a similar challenge to its law.

Daniel Etna, co-chair of the sports law group at Herrick Feinstein LLP, doesn’t think DraftKings and FanDuel will leave New York. But they might have to “think outside the appeal box” and mount a public campaign to amend the state’s constitution instead, Etna said.

Constitutional Challenge

New York’s attorney general previously confronted fantasy firms for facilitating illegal gambling, ordering them in 2015 to stop accepting bets in the state. The pushback led state lawmakers to authorize fantasy sports betting a year later, a law that’s in question after the New York Supreme Court’s Appellate Division deemed it unconstitutional on Feb. 6.

An anti-gambling group called Stop Predatory Gambling sued to challenge the law on behalf of taxpayers, arguing it violates the state constitution’s prohibition on gambling. The industry’s legal battle in New York likely isn’t over yet, since the case is expected to be kicked up to its highest court, the New York State Court of Appeals.

FanDuel says it anticipates business-as-usual during an appeal. DraftKings said it believes the law authorizing fantasy sports in New York was constitutional and “in the best interests of taxpayers and fantasy sports fans.”

DraftKings and FanDuel offer online and mobile betting on a fantasy lineup of professional players, in what Eilers & Krejcik’s Chris Krafcik called a “close cousin” to sports betting on live events.

The case is White v. Cuomo, N.Y. App. Div., No. 528026, 2/6/20.

—with assistance from Sam McQuillan and Jeffery Leon.

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bloomberglaw.com

To contact the editors responsible for this story: Seth Stern at sstern@bloomberglaw.com; Jeff Harrington at jharrington@bloombergtax.com