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Daily fantasy sports now legal in New York state

ALBANY – Daily fantasy sports wagering is now legal in New York state.

Gov. Andrew Cuomo on Wednesday signed the legislation, declaring the contests as “games of skill” and not illegal “games of chance.”

That is what Attorney General Eric Schneiderman called them last year when he halted the games.

The two largest industry players, DraftKings and FanDuel, which control more than 95 percent of the daily contest marketplace, closed their New York operations in March in a deal with Schneiderman so that the Legislature had time to determine if it wanted to make the contests legal.

“Daily fantasy sports have proven to be popular in New York, but until now have operated with no supervision and no protections for players,'' Cuomo said in signing the bill.

The legislation came together in the final hours of the legislative session in June after intense lobbying between daily fantasy sports operators and casino and racetrack-based gambling hall operators.

“This legislation strikes the right balance that allows this activity to continue with oversight from state regulators, new consumer protections and more funding for education,'' Cuomo said of the estimated $4 million in revenues the state will receive from operator fees.

Although the signed legislation ends Schneiderman's court case, he has said still he will pursue consumer fraud and advertising-related abuses by DraftKings and FanDuel.

“The state wins, the consumer wins, the operators win,'' said Assemblyman Gary Pretlow, a Westchester County Democrat who sponsored the legislation in the Assembly.

“The significance is that 3.5 million New Yorkers that have been enjoying fantasy sports can continue, and the operators can also know they are now operating within the law, and consumers are being protected as they weren't before,'' the lawmaker said.

Operators who were in business prior to last Nov. 10 will be able to immediately restart their daily fantasy sports contests for New York residents – pending the issuance of a temporary permit by the state Gaming Commission, which will be the new regulatory body of the contests in New York. The commisson down the road will issue regulations governing the industry and have the authority to grant three-year licenses to operators. Company executives will also have to submit to criminal background checks.

The legislation states that online fantasy sports contests have become a major form of entertainment, and that “any interactive fantasy sports enforcement and regulatory structure must begin from the bedrock premise that participation in a lawful and licensed interactive fantasy sports industry is a privilege and not a right.''

It states regulatory oversight “is intended to safeguard the integrity of the games and participants and the public trust.''

Cuomo's office was involved in the final draft of the bill, though officials had cautioned that Cuomo had not made up his mind at the point.

Others said Cuomo did not want the Legislature to approve the bill but that if it did he would support it.

The approval was expected even by opponents: anti-gambling advocates and casino operators told The Buffalo News last week that they had not bothered to lobby Cuomo to veto the bill.

“This is deeply regrettable,'' Stephen Shafer, head of the Coalition Against Gambling in New York, said shortly after Cuomo signed the bill.

“This is a portal to internet gambling of all kinds, including internet poker, internet casinos and other forms of fantasy sports involving videogames that will make stick-and -ball fantasy sports perhaps look like rather small potatoes. This is a very big bill and it's very ominous,” Shafer added.

The contests have been criticized as adding to the nation's compulsive gambling problems and for favoring experienced players who use analytics and other advantages over less-experienced and more casual users. But fantasy sports players say the contests create a community of sports fans that attract people who view them as everything from entertainment to money-making possibilities.

While supporters say the new law benefits the entire fantasy sports industry, critics say it gives an unfair advantage to larger companies and could hurt some small companies engaged in season-long contests offerings – as opposed to companies like DraftKings and FanDuel , which offer daily and weekly wagering on team sports league games, like NFL and MLB, as well as everything from golf to mixed martial arts contests.

The measure was lobbied by a diverse range of companies. Backers included the two industry giants, as well as Disney's ESPN, Yahoo, and a trade group called Fantasy Sports for All, whose hired former NFL quarterbacks – Hall of Famer Jim Kelly and Vinny Testaverde – who for six days in June were officially listed as “lobbyists,'' according to recent state ethics agency filings. Opposed were some casino operators, such as Caesars Entertainment in Las Vegas, and some racetrack-based casino operators in New York.

The law calls for a 15 percent tax on each operator's online fantasy sports gross revenues, as well as an additional 0.5 percent tax not to exceed $50,000 per year. Operators must also submit an annual report to the state and be subject to audits by the Gaming Commission.

To sell the legislation, the bill's backers in June amended the law so that revenue from fantasy sports goes into a state Lottery Division account that is then tapped each year for public school funding. The account does not add to state education funding, but rather supplants what the state's general fund might otherwise spend for the state's 700 school districts.

The law also includes what backers say are needed consumer protections, including limiting players to one active account and banning teens under age 18 from playing, though critics say that provision is difficult to enforce. Also, operators will have to ensure that “accurate representations” are made in advertisements concerning chances of winning the contests, player “self-exclusion” programs are established to try to deal with compulsive gambling, and “introductory procedures” must be established for new players. So-called highly experienced players must be identified in the contests, and measures must be in place to provide for online security of players and to safeguard their financial deposits with the operators. Many of the specific consumer provisions will be made more specific when the Gaming Commission promulgates the rules to govern the contests.

The daily fantasy sports controversy erupted last November in New York when Schneiderman issued cease-and-desist orders against DraftKings and FanDuel, saying their contests were illegal games of chance and that consumers had been preyed upon by massive advertising claims and deceptive practices. The industry fought back, though New York-based FanDuel immediately shut down its state operations for a time. Both DraftKings and FanDuel stopped doing business in New York in March under a deal with Schneiderman in which the sides agreed to take a pause until at least September in their litigation battle in order to see if lawmakers and Cuomo wanted to declare the contests legal.

On Tuesday, Schneiderman said the new law offers new consumer protections.

“I will enforce and defend the new law,” Schneiderman said. However, he said his false advertising and consumer fraud claims will continued against DraftKings and FanDuel.

Jason Robin, the CEO of Boston-based DraftKings, said his company looks forward “to welcoming New Yorkers back” to the contests and he credited fantasy sports players for outreach efforts in Albany. The industry has said more than 100,000 emails hit the inboxes of lawmakers and the governor.

FanDuel CEO Nigel Eccles said the industry and its consumers have beaten back pundits who “put fantasy sports on death watch.” The industry has come under intense criticism and scrutiny over the past year by states, the federal government and various attorneys generals.

Eccles noted that eight states – including New York – since January have enacted laws legalizing, in some format, the daily fantasy sports contests.

“With the future of fantasy sports affirmed in New York, we expect our legislative momentum will only accelerate as more states address the issue,” he said in a statement.

The two companies have equity deals with the NBA, NHL and MLB, as well as sponsorship deals with teams like the Buffalo Bills.

email: tprecious@buffnews.com

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