The beginning of football season inevitably means that fantasy sports shift into high gear, which makes this the perfect time to talk about the New York Court of Appeals’ decision in White v. Cuomo, No. 12, 2022 WL 837573 (N.Y. Mar. 22, 2022).

The question before the Court was whether the legislature violated article I, § 9 of the New York Constitution when it enacted article 14 of the Racing, Pari-Mutuel Wagering and Breeding Law, authorizing certain interactive fantasy sports (“IFS”) contests in New York. The Court  determined that the New York State Legislature carefully considered whether IFS contests constituted “gambling” within the meaning of New York’s constitution before “reasonably conclud[ing]” that they did not. The Court agreed with the New York Legislature’s determination that IFS contests are not games of chance or bets or wagering because they are “skill-based competitions in which participants who exercise substantial influence over the outcome of the contest are awarded predetermined fixed prizes by a neutral operator.”

Another victory for the fantasy sports community! Well, somewhat hooray! because like so many other areas of advertising law, the devil is in the details. If you are familiar with the many variations on fantasy sports, you’ll know that not all fantasy sports games or contests may meet this definition.

Specifically, the Court describes IFS contests as follows:

Participants of IFS contests create virtual “teams,” drawing from their knowledge of the sport                 and  athlete performance to draft rosters comprised of simulated players based on professional     athletes. These virtual teams— composed of athletes who play for different real-life teams—         compete against virtual teams compiled by other IFS contestants. The performance of simulated           players on an IFS roster corresponds to the performance of the real-life athletes—that is, participants of IFS contests earn fantasy points based on how their selected athletes perform specific acts in actual sporting events that occur after the IFS contest has closed. However, the outcome of an IFS contest does not mirror the success or failure of any real-life athlete or sports team.

This is because IFS rosters do not replicate real-life teams, IFS scoring systems are premised on an     aggregation of statistics concerning each individual athlete’s performance on specific tasks, and IFS contests pit the rosters of participants against one another rather than tying success to the           outcome of sporting events. IFS contestants pay entry fees to participate, and the pre-set prizes           paid to the most successful participants—along with operator revenues—are typically drawn from         those entry fees.

This description is important because it allowed the Court to “hang its hat” on a few different legal arguments.

The first is the “dominating element” test. The “dominating element” is used to determine whether a game is “chance-based,” and therefore constitutes gambling. It’s conducted by evaluating whether the element of skill or chance predominantly controls the result. The Court relied on recent studies that showed “that rosters of skilled human players were more successful in IFS contests than randomly generated lineups over 80% of the time” to conclude that the outcomes are predominantly skill-based, and therefore, not gambling. The Court stated that “the facts here bear out that IFS competitions involve a significant exercise of the participants’ skills. Participants draw from their knowledge of the relevant sport, player performance and histories, offensive and defensive strengths of players and teams, team schedules, coaching strategies, how certain players on opposing teams perform against each other, statistics, strategy, and the fantasy scoring system in order to exercise considerable judgment in selecting virtual players for their rosters. Although participants are not able to influence athlete performance in actual sporting events, their skill nevertheless plays a substantial role in the outcome of the IFS contest—that is, the competition between IFS participants as to whose roster will yield more fantasy points, a contest which is scored through a metric different from that of the actual sport.”

The Court rejected the “material degree” test, which analyzes whether chance is involved in the game to a material degree. According to the Court’s decision, the “material degree” test does not comport with the standard New York courts have historically applied in determining whether a particular activity constitutes a game of chance. 

The Court also rejected the claim by the plaintiffs (who either have gambling disorders or have been harmed by others' gambling disorders) that the entry fees for IFS contests are ““bets or wagers” on future events outside of the contestants’ influence or control” stating that “‘[i]llegal gaming implies gain and loss between the parties by betting…(id. at 539, quoting People v Sergeant, 8 Cow. 139, 141 [Sup Ct 1828]),’an element that is notably lacking when entrance fees are fixed, and predetermined prizes are awarded by a neutral party whose monetary stake is limited to the payment of the prize,” as required by Article 14 of the Racing, Pari-Mutuel Wagering and Breeding Law. It goes on to say that ”[t]he outcome of an IFS contest turns—not on the performance of real-life athletes, as it would with respect to a bet or wager—but on whether the participant has skillfully composed and managed a virtual roster so as to garner more fantasy points than rosters composed by other participants.”  

Accordingly, the Court determined that the New York State Legislature reasonably concluded that IFS contests are neither games of chance, nor bets or wagers on sporting events but, rather are independent contests of skill over which the participants exert influence. Therefore, plaintiffs did not meet their heavy burden to establish that article 14, authorizing IFS activities, violates article I, § 9 of the New York Constitution.

One of the takeaways here is that the Court’s decision is based on a very specific definition of what it views IFS contests to be. It is not one size fits all. The game you create must fit within a very specific set of facts in order to be legal.

Finally, not all states have legalized IFS contests, including Montana and Washington. That means that whether you can conduct a IFS contest, and where, is still a state-by-state analysis, making it prudent to seek legal assistance prior to finalizing your structure.