Explained: The New York fantasy case relied on by the Karnataka Advocate General

In the ongoing saga before the Karnataka High Court concerning the recently enacted online gaming ban law, the Advocate General referred to a New York case wherein it was held that fantasy sports violated the New York State constitution’s prohibition on gambling and betting.

So what is the New York fantasy case?

In August 2016, then Governor Andrew Cuomo signed into law a bill to officially legalize and regulate the interactive fantasy sports industry in New York. The law imposes a mandatory registration requirement for fantasy sports operators with the New York State Gaming Commission (“NYSGC”). The law declares that fantasy sports do not constitute gambling as defined under the State’s penal law.

The law known as Article 14 was challenged that year by New York residents who claimed that they had been harmed by gambling and argued that the law carved out an illegal exemption violating the State’s constitution ban on betting and gambling.

In 2018, the trial court delivered a judgement agreeing with the plaintiffs that the law violated the constitutional ban on gambling. The Court found that fantasy sports “involves, to a material degree, an element of chance, as the participants win or lose based on the actual statistical performance of groups of selected athletes in future events not under the contestants. . . control or influence.” 

The trial court held that the State cannot be authorised in absence of a voter referendum approving an amendment to the state constitution. The trial court, however, held that the legislature is within its powers to exempt daily fantasy sports from the penal code.

On February 6, 2020, a New York appellate court agreed with the trial court’s ruling, and also held that fantasy sports cannot be exempted from the penal code.

Moreover, as part of the same legislation that decriminalized IFS, the legislature clearly intended that IFS contests be heavily regulated,” Appellate Court Judge Robert Mulvey wrote in the 12-page ruling. “Hence, we conclude that the legislature, if it had envisioned the possibility that courts would invalidate the majority of article 14, would not have wished to preserve the decriminalization of IFS.” Following this, the State has appealed to the Court of Appeals – the highest court in the State.

The case relied on a legal standard known as the ‘material element’ test, where ‘gambling occurs even if skill is the dominant factor, as long as chance is a material element.’ While the ‘predominance’ or ‘dominant factor’ test is the most commonly adopted test, the material element test is also relied upon in the US. The Karnataka Advocate General raised this argument during the hearing.

Read here: Leading expert I. Nelson Rose explains the tests involved in gaming cases

In October this year, the Court of Appeals heard the matter but ordered reargument indicating a deadlock in the bench. A bench of 7 came down to 6, an even number after Judge Michael Garcia recused himself from the case. He was part of a 2015 internal advisory board appointed by FanDuel, a fantasy sports operator to examine allegations against an employee for participating in fantasy sports with access to insider information.

During the hearing before the Court of Appeals, the bench appeared hostile to the operators and the State. As reported by Casino.org, Judge Eugene Fahey was highly skeptical of the state’s oral arguments:

You’re arguing that I cannot place a bet [online] on whether the Buffalo Bills win their next game, but I can place a bet on whether or not their lead receiver Stefon Diggs catches the ball ten times or six times,” asked the judge.

Reported by Casino.org

It’s almost an Orwellian argument,” Judge Fahey continued. “It’s like saying from 1984, ‘War is peace. Freedom is slavery. Fantasy sports is not gambling. It’s really like the stock market.’ Those things are directly contrary.”