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Fantasy Sports Law $15M Penalty

As our readers are aware, last October, the New York State Gaming Commission (“GC” or the “Commission”) adopted New York Rule 5602.1(a)(4), a law outlawing fantasy sports contests, such as “pick’em games,” that are based on proposition betting. The Commission is the official governing body in charge of overseeing New York State casino gaming, charitable gaming, horse racing, lottery, and video lottery terminals. On February 13, 2024, the GC resolved its first major fantasy sports law enforcement action, entering into a $15m settlement agreement with SidePrize LLC d/b/a Prize Picks (“PrizePicks”). The Commission asserted that PrizePicks was essentially offering mobile sports betting without authorization, in open disregard of the State’s gambling and fantasy sports laws. Per the agreement, PrizePicks will pay the State a penalty of $14,969,688 and cease operations within its borders.

Why were PrizePicks Offerings Deemed Illegal?

Over the past couple of years, major operators PrizePicks and Underdog Fantasy have popularized a new style of daily fantasy sports contests, based on betting the “over” or “under” on certain individual athlete’s statistics. This type of offering, called a “pick’em” contest, is especially popular with younger members of the sports betting community.

New York’s new fantasy sports law, codified in the State Codes, Rules and Regulations Section 5602.1(a)(4), states that: “[c]ontests shall not be based on proposition betting or contests that have the effect of mimicking proposition betting. Contests in which a contestant must choose, directly or indirectly, whether an individual athlete or a single team will surpass an identified statistical achievement, such as points scored, are prohibited.”During the Rules’ promulgation, the Commission commented that “pick’ems” essentially constitute sports betting and are not fantasy sports contests “simply because an operator labels [them] as such.” By amending its fantasy sports regulations, the GC made clear that it viewed “pick’em” contests as sports betting by another name.

PrizePicks has contended that its “pick’em” contests are unregulated games of skill, unlike traditional sports wagering. In open contravention of the updated fantasy sports law, PrizePicks continued to offer its contests without receiving express authorization as a New York State-licensed sports betting operator. Approximately 4 months later, it now finds itself entering into costly settlement terms with the Commission. Pursuant to the settlement agreement, PrizePicks is obligated to: 1) pay $15m to the State; and 2) shutter its operations.

New York is not the first state of the Union to outlaw this popular crossover between daily fantasy sports and sports wagering. As our readers are aware, the Florida State Gaming Control Commission recently sent cease and desist letters to three companies that offer “pick’em” contests to Florida State residents.

Why is the PrizePicks Fantasy Sports Law Settlement Relevant to Your Business?

This massive New York fantasy sports law settlement makes clear that: 1) state authorities will not allow companies to offer “pick’em” contests without proper licensing; 2) fantasy sports and sports wagering are two separately regulated forms of gaming (“pick’ems” fall into the latter category); and 3) operators like PrizePicks may only offer prop bets if they first obtain sports wagering licenses to do so.

Whether your business operates a sports wagering or daily fantasy sports platform, it is necessary to stay current with the most up-to-date regulations. Compliance is not a simple undertaking; as the language of applicable gaming regulations is often complicated.

The attorneys at Klein Moynihan Turco monitor evolving fantasy sports and sports wagering regulations so that clients remain compliant with applicable laws.

If you require assistance with gaming law compliance, please email us at info@kleinmoynihan.com or call us at (212) 246-0900.

The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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Photo by Lesly Juarez on Unsplash

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David Klein

David Klein is one of the most recognized attorneys in the technology, Internet marketing, sweepstakes, and telecommunications fields. Skilled at counseling clients on a broad range of technology-related matters, David Klein has substantial experience in negotiating and drafting complex licensing, marketing and Internet agreements.

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