A Look at the NYRA Re-privatization Issue and a Reality Check

By Karl J. Sleight

The Triple Crown season is now behind us, and in New York that means the historic Saratoga Race Course is getting ready to host some of the greatest thoroughbreds in racing beginning on opening day Friday, July 22. While racing in Saratoga is seasonal, so too it seems is the question surrounding the future of the New York Racing Association (NYRA). In 2012, the New York state government exerted its influence in the form of the NYRA Reorganizational Board, a purported three year custodial arrangement. Four years later, the NYRA re-privatization issue is now in full bloom.

Much of the discussion around “re-privatizing” NYRA includes the government notion that NYRA must be financially self-sufficient rather than rely on the influx of money from a small percentage of Video Lottery Terminal (VLT) revenue generated from the state’s racinos. That position, at best, fails to appreciate the horse racing and breeding industry in 2016, or at worst, is disingenuous. In October 2012 we wrote a piece on the venerable Churchill Downs Inc. where we uncovered candid comments in a U.S. Securities and Exchange Commission filing by its CEO and Chairman Robert Evans, where he described Churchill: “To millions of people worldwide, ‘Churchill Downs’ means…The Kentucky Derby, Thoroughbred racing. But, while that’s what our brands mean, it is no longer our business model, meaning how we will grow and earn an acceptable return on our shareholder’s investment. Our business model has changed dramatically.”  Translation: Horse racing alone is not a money-making business.

The juxtaposition of those who understand and are invested in the equine industry versus full-time government officials who periodically circulate in and out of the issue can be telling. In September 2012 we wrote about the government’s view of the future of racing. The government in the form of the Franchise Oversight Board issued the following statement as part of their annual report, “[f]urther, NYRA must establish a long-term financial goal to end its reliance on VLT subsidies and immediately develop plans on how it will meet this goal.” Why this is a government imperative remains a mystery. Although NYRA has publicly reported that it is operating with a surplus, as we first reported in 2014, a closer look reveals that VLT revenues may be excluded from these calculations.

The enormous chasm between the reality of the racing and breeding industry and the government view is simply breathtaking.

Despite the fact that the NYRA racing product and breeders’ award program is the envy of every other state in the country, the industry and the government remain in a struggle that seriously threatens the industry. The state has a hardened position to take away VLT revenue from NYRA, and redirect that money to its preferred projects outside of the equine industry. Keep in mind, the VLT revenue is the result of gambling losses, not taxpayer dollars which is a significant distinguishing factor though not acknowledged as such by the government. Moreover, the government’s view also ignores the agreement between the state and NYRA which led to clarity and state ownership of the real estate for the tracks at Saratoga, Belmont and Aqueduct, which includes a court approved bankruptcy plan. A simple issue this is not.

On the other side, the industry suffers an underserved stereotype that comes with the “Sport of Kings” – that it is an elitist endeavor benefitting only the rich and famous. An early morning walk on the backstretch of any NYRA track, populated by the hardworking trainers’ staffs, which include many immigrants and first generation Americans will dispel that notion in a moment. At the same time, building and growing a base of fans and owners remains a vexing issue for those in the racing industry that not even American Pharoah could solve.

And while these themes remain material components of the larger problem, at the core of the current NYRA discussions is one concept: control. The government has long chaffed at not having sufficient control over NYRA, and NYRA has resisted government influence, sometimes suffering near fatal wounds in the process.

The matter of the future of NYRA will not be resolved in an effective manner until government truly understands the complexities of the industry in the 21st century and until NYRA and its supporters are able to win the argument of why returning to its non-profit, private model is a superior solution compared to the government’s status quo.

In our annual The Year in Preview blog post, we forecast what we believe will happen and not happen in the world of racing and gaming. In January 2016, we made the following observation and prediction: “In horse racing, the real attention getter this year will be with the status of the NYRA franchise. Recall, the NYRA Reorganization Board was supposed to issue a report in April 2015 with recommendations and was scheduled to end its reign in October 2015. Those deadlines expired and now NYRA is expected to release these reports and recommendations in 2016. There has been a slow but steady drumbeat by some state legislators that it is now time to end the government control that comes with the Reorganization Board and return it to its original non-profit non-governmental status. We remain skeptical that the state will soon return NYRA to a non-governmental non-profit model, as there are few examples of the state ceding control of anything once they have it. Expect to hear about how well NYRA has been managed by the Reorganization Board and its reported ‘profitability’ when those looking for a reversion to non-profit status speak up in 2016.”

I think we can safely say that that prediction has come true.

FinCEN’s Casino Crackdown Results in $1Million Penalty Against Sparks Nugget, Inc.

Enforcement Action Also Creates Issues for Casino’s Successor Owner

By Allen E. Molnar

As forecast in our ongoing blog coverage of the federal anti-money laundering (AML) enforcement initiative targeting racing and gaming interests – “FinCEN’s Casino Crackdown, Part I” (January 7, 2015), “Part II” (January 21, 2015), and “Part III” (March 6, 2015); “On Vetting Junket Operators and Junket Patrons (April 27, 2015)”; and “FinCEN’s Casino Crackdown Hits Vegas’ Poker Tables (May 7, 2015)” – yet another casino has been hit with a civil money penalty for AML violations, creating further as-yet unresolved issues for the establishment’s successor owners and individual members of management.

On Tuesday April 5, 2016, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced its civil penalty assessment against Nevada’s Sparks Nugget casino for multiple violations of the Bank Secrecy Act’s AML compliance program requirements, including failure to maintain an effective AML protocol, and to observe reporting and recordkeeping mandates.  (Read FinCEN’s Assessment of Civil Money Penalty). FinCEN’s findings include:

  • The casino’s AML compliance officer “was routinely disregarded by her managers”;
  • Sparks regularly collected significant data about its patrons, but used that information solely to advance business interests while recklessly neglecting to employ it “to develop risk-based policies and procedures to assess and minimize AML risks”;
  • A “blatant disregard for AML compliance” resulted in no Suspicious Activity Reports being filed (a) after a county official was arrested for embezzling some $2.2 million in public funds, nearly half of which were spent at the Sparks casino, and (b) after the casino’s own former general counsel was arrested for stealing approximately $3 million from Sparks itself, and
  • For years the casino failed to comply with AML recordkeeping requirements.

FinCEN’s assessment notes that these and other violations occurred from at least 2010 to 2013, with the Sparks operation being sold to new owners in December 2013.  However, those successor owners will not be covered by the government’s offered Release to the Sparks corporate entity unless the successor owners themselves agree to comply with its conditions, including guarantying payment of the $1 million civil penalty, and agreeing to not make public statements contradictory to FinCEN’s findings.  (FinCEN’s released findings unfortunately do not address what degree of due diligence Sparks’ new owners performed on their intended acquisition.)  Moreover, any current or former member of Sparks management or staff not named in the government’s Release remains subject to individual investigation and prosecution.

Finally, FinCEN’s formal assessment and Release is not automatically determinative of civil claims that may arise, such as among Sparks’ former and present owners under their sales documentation or at common law, having the potential for an entirely different layer of legal proceedings with which to deal.

Daily Fantasy Sports Companies Reach Settlements with New York State Attorney General

By The Editorial Team

Today, daily fantasy sports operators DraftKings and FanDuel reached settlements with the Office of the New York State Attorney General concerning the companies’ operations in New York state. The “Provisional Settlement Agreement” essentially is a “time-out” for the ongoing litigation, with parties to potentially resume their dispute following the end of the legislative session by the New York State Senate and Assembly.

The provisional settlement requires both DFS companies to block all users within New York state from entering into any paid contests. In addition, the settlement requires the parties to ask New York’s mid-level appellate court (where an appeal is pending) to adjourn the appeal to the court’s September term—which is after this year’s budget negotiations and legislative session.

If the New York State Legislature and Governor Andrew Cuomo enact legislation legalizing DFS paid contests prior to June 30, 2016, then the New York State Attorney General will terminate all of its claims against the DFS companies other than the consumer protection claims alleging false advertising.  However, if DFS is not legalized by June 30, 2016, New York’s mid-level appellate court will have the opportunity to rule on the pending appeal during the court’s September term.  If the DFS companies lose at the appellate level, they must terminate their actions against the New York State Attorney General as well as give up the opportunity to appeal to New York state’s highest court, the Court of Appeals. If the New York State Attorney General loses at the appellate level, it is required to terminate all of its claims other than the consumer protection claims.

With the provisional settlement, both parties’ lineups are now set. The legality of daily fantasy sports in New York state will now be dependent upon how the issue plays out in the New York State Legislature and—if  necessary—by order of New York state’s mid-level appellate court.

NY Appellate Court Grants Stays to DFS Companies

By The Editorial Team

Today, the New York Supreme Court Appellate Division for the First Department granted a stay that will continue to allow DraftKings and FanDuel to operate during the pendency of their appeal.  The decision follows an earlier order at the trial court level directing the companies to cease operations, which was followed by an emergency injunction halting enforcement of the order for the time being.

The immediate impact of today’s decision from the First Department is that both DFS companies may continue operating until their appeals are heard and decided.  More specifically, the appellate court ruled that the motions are granted to the extent of staying the order on condition that the appeals be perfected for the May 2016 term—which means a final decision is not expected until late 2016. In our “2016 Year in Review” post, we predicted “that NY whoever ultimately wins the early round issue of injunctions and stays will be the winner for 2016. If DraftKings and FanDuel can maintain the status quo and turn this into a long term legal battle that could make its way to the highest court in the state, the New York Court of Appeals, they will have a happy 2016.”

Draft Kings Decision

 

2016: The Year in Preview

By Karl J. Sleight @KSleight_HB

Welcome to our fourth edition of our annual installment “The Year in Preview.” As we look back on past editions, we are heartened to see that our track record for predicting key issues in the world of gaming, equine racing and breeding is pretty darn good. For 2013 we predicted passage of a comprehensive gaming act. For 2014 we predicted that the casino siting board would select its winners by December 2014. And for 2015 we predicted that the 37-year draught would end and we would see a Triple Crown. Thank you American Pharoah for making that fearless forecast come true. We had a couple bumps in the road, including the prediction that roulette and black jack tables might be operational by the end of 2014, but hey, nobody is perfect. As we turn to 2016, here’s what we see as the major events and happenings, with a few predictions for gaming and racing in New York and beyond.

Casinos

With newly minted gaming facility licenses from the state Gaming Commission in hand, the three gaming facilities recommended by the Gaming Facility Location Board, Montreign Resort Casino (Sullivan County), Rivers Casino & Resort at Mohawk Harbor (Schenectady) and Lago Resort & Casino (Seneca County) will be in full construction mode throughout 2016 leading to the employment of thousands of construction workers and trades people in Upstate New York.

In addition, and flying under the radar screen, is the prospect of a fourth gaming facility license that may be awarded to Tioga Downs Casino & Racetrack in Nichols (Tioga County, New York). If that facility does receive a license, four of the seven gaming facility licenses allowed in New York under the 2013 amendment to the State Constitution will have been used, leaving no more than three remaining licenses in play for development downstate and in the metro New York City area. The New York City region is off limits for full-fledged casinos until five years after the recently licensed upstate casinos start gaming operations.

With a requirement that all of the casinos are to be up and running within 24 months from March 1, 2016, look for these facilities to be rolling dice in March 2018 and for some possibly sooner than that end date.

Off Track Betting / Video Lottery

The year 2015 was a rough one for the Nassau County OTB, which along with Suffolk County was granted permission to establish 1,000 Video Lottery Terminals (VLTs) in a late addition by the State Legislature as part of the 2013 gaming law. The problem was (and still is) finding a location that was supported by the surrounding community. After rejections of various sites, there are current reports that Nassau OTB is seeking to house 1,000 VLTs at Belmont Park—first in a temporary facility on its grounds with plans for a more permanent $75 million renovation in the grandstand. Belmont is now owned by New York state thanks to a previous deal between the state and the New York Racing Association (NYRA) that allowed NYRA to extend its franchise over the Belmont-Saratoga-Aqueduct racing circuit. With the property now owned by the state, the issue of local approvals evaporates but the issue of local opposition likely remains. Already, reports are surfacing that petitions with thousands of signatures in opposition of such a move have been generated. Moreover, with NYRA currently under the control of the NYRA Reorganization Board with a majority of its seats filled by appointees of Governor Andrew Cuomo, this plan would need approval from many public bodies outside the control of Nassau OTB. A truism in government is that the more approvals that are required, the less likely something is to actually happen.

Like other brick and mortar OTB facilities that were created in the 1970’s, these public benefit corporations – initially designed to supplant the illegal bookmaker and generate revenue for local municipalities – are struggling to find a way to compete for new customers who bet via smart phones and tablets, and against bigger and more sophisticated Advance Deposit Wagering (ADW) platforms. There is no clear path to success and future viability for the OTBs, which explains why the OTBs are trying to get into the VLT game. When New York City OTB went bankrupt several years ago, some in “Chicken Little” fashion exclaimed that the betting sky in horse racing world fall apart in the Big Apple. In truth, the bloated pension system and an outdated business model were its demise. As all uncompromising and declining business models ultimately do, New York City OTB closed up shop and went the way of the buggy whip factory.  Figuring out how to avoid a similar fate will again remain job one for the remaining regional OTB’s in 2016.

Daily Fantasy Sports (DFS)

2016 will define the future of Daily Fantasy Sports (DFS) as we know it in New York and around the country.

As of this writing, attorneys for the New York Attorney General and DraftKings and FanDuel, far and away the market leaders in the industry, are in a pitched battle over the underlying petition filed by the attorney general and a stay of a trial court judge in Manhattan that, if not maintained, could have severe consequences for DraftKings and FanDuel. Just a few days ago, the attorney general amended his petition seeking to disgorge profits and “lost wagers” made by customers of these DFS companies. This amendment is as much a public relations strategy as a legal strategy. Many observers saw the filing of the attorney general’s lawsuit as riling up tens of thousands of DFS players in the state against the attorney general. Recall the picketing by DFS players outside of the Manhattan offices of the attorney general. This recent amendment of the petition seems designed to curry favor with many of the DFS players, especially those who may have lost money and see this litigation as a way to get paid back on a losing “bet.” Time will tell who ultimately wins the battle for the hearts and souls of the DFS players in New York.

At this juncture, both DraftKings and FanDuel received a reprieve from the guillotine when New York’s mid-level appellate court granted a preliminary stay, allowing the companies to operate pending a decision by the trial court on the merits of the case. However, a full panel of the appellate court will review the decision to stay the trial court ruling, and that will likely be made in January (oral argument is scheduled for January 4 on the issue). If DraftKings and FanDuel are not successful, their options are significantly narrowed and the pending decision at the trial court level on the core issue of whether DFS is illegal gambling under New York law will be decided. Because of their business model — which requires continuity and participating in daily sporting events – the DFS companies cannot afford a hiccup in the legal process (i.e., loss of the stay of the trial court order), which would be a major disrupter to their businesses. While that decision will likely be appealed regardless of the outcome, significant legal maneuvering will continue to take place. If DraftKings and FanDuel do not consistently run the table of legal successes, they could find themselves in the unenviable situation of legal fits and starts that creates volatility and may make it difficult for the companies to run their business.

While all of the lawyers will be hard at work to keep DraftKings and FanDuel in business in the various state courts, the companies’ legislative agenda to change the law to allow DFS will be in overdrive. The hitch here is that Attorney General Schneiderman has argued that the DFS violates the State Constitution, and if in fact DFS is unconstitutional in New York there is no law that can remedy that finding.

Our forecast is that whoever ultimately wins the early round issue of injunctions and stays will be the winner for 2016. If DraftKings and FanDuel can maintain the status quo and turn this into a long term legal battle that could make its way to the highest court in the state, the New York Court of Appeals, they will have a happy 2016. If not … Stay tuned.

Horse Racing and Breeding

2015 was all about American Pharoah and New York was right in the middle of it. NYRA hosted the Belmont Stakes where Pharoah clinched the sport’s first Triple Crown winner in 37 years. NYRA scored again and hosted Pharoah at the Travers Stakes at Saratoga. In the Travers, the venerable Saratoga Race Course reinforced its reputation as “The Graveyard of Favorites” as Pharoah lost a hard fought battle to Keen Ice. Pharoah was not tarnished in the slightest by the upset, as he was game as ever coming off of a short rest at the Haskell and travelling across the country to take on the field. Perhaps the most remarkable day was the once in a lifetime event, in which NYRA hosted a public workout (gallop) for Pharoah a few days before the Travers that was attended by approximately 15,000 fans. The Associated Press voted Pharoah’s Triple Crown the sports story of the year. Pharoah also finished in the top three for male sports figure of the year behind only Stephen Curry of the NBA world champion Los Angeles Clippers and golf professional Jordan Spieth who won both The Masters and the U.S. Open. That’s pretty good company.

The New York breeders continue to be a part of the best structured thoroughbred breeding program in the country. The model is the envy of other states and has had tremendous success with more high-caliber New York-breds racing at the elite levels of national racing than ever before. One noticeable characteristic of the natural evolution in the program is that some modest level breeders may become a victim of the program’s success. With more high-end operations and mares coming to New York, the modest operations and low to mid-range breeders will have an increasingly difficult time breeding to the sales auction market. Over the last several years, the overall sales auction market below the $50,000 yearling purchase price has dragged well behind as market demand is changing. New York-breds were not immune from that characteristic. With fees for commercially viable stallions increasing and as the New York restricted races become more competitive, there will be pressure to breed more commercially viable thoroughbreds and a premium on the better New York-breds. Simply put, the program is doing exactly what it was intended to do from the start – produce higher quality New York thoroughbreds.

So what does New York racing do for an encore in 2016 and what do we predict? First, unlike last year, we are predicting that there will not be a Triple Crown winner in 2016. So much for repeating our 2015 bold prediction!

In horse racing, the real attention getter this year will be with the status of the NYRA franchise. Recall, the NYRA Reorganization Board was supposed to issue a report in April 2015 with recommendations and was scheduled to end its reign in October 2015. Those deadlines expired and now NYRA is expected to release these reports and recommendations in 2016. There has been a slow but steady drumbeat by some state legislators that it is now time to end the government control that comes with the Reorganization Board and return it to its original non-profit non-governmental status. We remain skeptical that the state will soon return NYRA to a non-governmental non-profit model, as there are few examples of the state ceding control of anything once they have it. Expect to hear about how well NYRA has been managed by the Reorganization Board and its reported “profitability” when those looking for a reversion to non-profit status speak up in 2016.

Lurking down the road is the prospect of the state trying to sell the thoroughbred racing franchise. While the value of the franchise is highly speculative, keep in mind that there are at least three remaining casino licenses available. Since historic Saratoga is a non-starter, and Genting already operates Resorts Word at Aqueduct, the notion of siting a world class gaming facility at expansive Belmont Park could be a very enticing idea for both government and the major players in the gaming industry. Although this would not all be accomplished in 2016, we expect to see some subtle movements that would lay the foundation for this to happen in the future.

If pressed, we would predict 2016 in New York racing and gaming will be most notable for the storyline of daily fantasy sports, and that may be decided early in the year for practical purposes. The impact of the future of DFS will be followed closely by the rising steel and construction from the new casinos in the state.  New York racing will enjoy the 2015 residual excitement courtesy of American Pharoah, and we expect to see jockeying for the future of the NYRA franchise heat up this year, particularly after release of the long awaited NYRA Reorganization Board report.

Of course, this is New York, and despite our fairly sound record of forecasting from past years, we caution that we could be dead wrong and this could turn out to be a wild and whacky year. In racing parlance, you can call that our “saver bet.”

Best wishes for a safe and healthy 2016!

New York Appellate Court Allows DraftKings to Continue in New York

By The Editorial Team

Shortly after a New York state trial court ordered DraftKings and FanDuel to cease operations in New York, the New York State Appellate Division—New York’s mid-level court—stated DraftKings could continue pending its appeal.  The court granted DraftKings an immediate stay of the preliminary injunction issued Friday morning by the supreme court.  The ruling will enable the company to continue operating in New York while it fights the legal action by New York State Attorney General Eric Schneiderman, who is alleging its daily fantasy sports (DFS) contests are a form of illegal gambling under state law.

DraftKings and FanDuel Ordered to Halt New York Operations

By The Editorial Team

As widely reported today, a New York judge ordered daily fantasy sports (DFS) operators DraftKings and FanDuel to cease operations in New York state.  In doing so, Judge Manuel J. Mendez of New York State Supreme Court for New York County found DFS is most likely an illegal form of gambling under New York State’s Constitution and state law.

With this decision, the Office of the New York State Attorney General prevailed in obtaining temporary injunctions against the two well-known DFS operators.  In his decision, Judge Mendez found that DFS is “nothing more than a rebranding of sports betting.”

The issuance of preliminary injunctions against DraftKings and FanDuel is only the latest chapter in what will be a continuing battle over the legality of DFS in New York state.  For the full opinion see below:

AG v. DFS Decision

From Fantasy to Reality: DraftKings and FanDuel versus the New York Attorney General

Breaking down the legal, practical and political issues facing the daily fantasy sports sector in New York

By: Karl J. Sleight

The sudden entanglements facing daily fantasy sports (DFS) industry leaders DraftKings and FanDuel based on the New York Attorney General’s (NYAG) investigation and cease and desist letter is not a surprising development. That is not to say  there is a clear cut right or wrong answer for the latest chapter of government versus free enterprise. The DFS world was built on an interpretation of federal law and had the challenging task of operating a national business platform against the backdrop of a patchwork of state-based gambling laws, regulations and regulatory bodies. The state law question has been smoldering below the industry’s surface for some time. Now the battle is joined as DraftKings and FanDuel have preemptively initiated a legal action against the NYAG. The immediate question is what will happen next?

To understand where the DFS sector is today, a brief primer on its meteoric rise to prominence is helpful.

In a typical DFS contest, the player selects a series of real life players from a major sports league, assembles a lineup and competes against others doing the same. Points per player are earned based on the real life on field performance of the athlete. The scores are tabulated and the outcomes (and payouts) are determined by the highest total score of the fantasy team and ranking or placement in the contest. In short, the better your chosen players do in real life, the better for your fantasy team.

DFS: Game of Skill or Chance?

The federal Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) was drafted to allow the playing of internet fantasy contests based on “relative knowledge and skill of the participants.” An analysis of the historical context and legislative intent behind this linchpin provision that the DFS sector relies on often leads to differing views and opinions among attorneys practicing in the area; however, in this exception was born the legitimizing concept of DFS as a game of skill rather than a game of chance. The federal government has not aggressively challenged the industry’s interpretation.

Mainstreaming the DFS model was a boon for many interested in the fundamentals of changing viewership of major sports league teams. In the past, fan allegiance was hard wired to a particular team. Fans described themselves, for example, as “a Giants fan” or “a Bills fan.” With the advent of DFS, now the individual performance of players in heretofore unwatched games became important and spurred viewership in these games. The model soon spread to other major sports.  To date, the momentum behind the explosive growth of the DFS sector had muted concerns over the federal statute.

The pitfalls and recent difficulties facing the DFS industry are based less on the federal law and far more on the patchwork of state gambling laws, including the widely varied interpretations of gambling, lotteries and related conduct. Gambling has traditionally been a state regulated activity and the extent to which the definition of gambling includes the distinguishing element of chance versus skill varies from state to state. Over the last several weeks, the application of state law to the DFS business has triggered an uneven state-level response, including a reported grand jury investigation (Florida), licensing requirements (Nevada), increased regulation (Pennsylvania) and now bet the company litigation (New York).

NYAG’s Legal Action

The legal action pitting the New York Attorney General against Draft Kings and Fan Duel is no ordinary piece of litigation. A review of the Attorney General’s “cease and desist” letter of November 10, 2015 is insightful. The letter appears to be designed to fulfill the five day notice provisions of the state’s General Business Law. In New York, before the NYAG may sue a company, the company is required to be put on notice, in order to allow the company to offer any reasons why such a lawsuit should not occur.

However, in asking DraftKings and FanDuel to terminate their operations in New York, the AG heavily cites the New York State Constitution and the state Penal Law. Notably, in New York the AG has very little original jurisdiction over criminal acts, where the prosecution of crimes was ceded more than 100 years ago to the district attorneys in the state’s 62 counties. The AG’s criminal jurisdiction can be triggered by a letter from the head of a state agency (i.e., State Police, State Gaming Commission, etc.) asking for an investigation pursuant to Executive Law § 63(3). Without such authorization, unless the AG can find a violation of the Martin Act or other specific statute granting his office criminal jurisdiction, the AG is left to civil remedies.

The cease and desist letter appears to amalgam the legal position that DFS is illegal gaming to the notion that the company’s statement that it is engaged in a legal activity constitutes a “misrepresentation” and “persistent fraud” under the New York civil statutes.

A pure legal analysis might lead to a conclusion that DraftKings and FanDuel have a fighting chance, although other practical concerns exists, most importantly the published report that the AG is reaching out to the lifeblood of any business model – its payment processors (Pay Pal) and perhaps its financial partners. The heavily regulated financial sector has a traditionally low tolerance for unresolved issues potentially impacting its own compliance obligations. This tactic has become common place in NYAG cases and it will be interesting to see whether these extrajudicial activities draw the scrutiny of a court as the case progresses, and whether boundaries are set in a situation that might rise to the level of tortious interference in a dispute between non-governmental civil litigants.

Also according to published reports, the companies are presumably taking steps to segregate their users by jurisdiction by requiring state driver license information to be inputted as part of the log-in process (DraftKings), and shore up its legal flank by not accepting new deposits into accounts of its New York customers (FanDuel).

Future timelines and final determinations will be dictated by how the litigation is framed. For instance, whether styled as a traditional lawsuit or as a “special proceeding,” a truncated legal action that acts as a summary proceeding or declaratory judgment. Critical to the case will be the resolution of whether DFS is gambling under New York law, and that will drive not only the New York case but the conversation of the future of the DFS industry into the future.

Legislative Push to Change Gambling Law Underway

According to published reports a coordinated public relations and lobbying effort is underway to change the current state gambling laws. Recent trends in favor of gambling in NewYork, including a constitutional amendment to allow commercial casinos  and the passage of regulations designed to allow for wider use of slot-like electronic video lottery terminals (VLTs) suggests a legislative fix may be in the wings. With estimates of 600,000 to a million DFS players in New York, some of whom presumably vote, the politics of the situation cannot be ignored.

The timing of the legislative effort and the court proceedings may be out of sync for the near term. The state legislature does not return to Albany until January, 2016, and if the current court proceedings lead to a temporary restraining order (TRO) prohibiting the DFS companies from operating in New York, DFS fans may be faced with a blackout period in New York that could last for some time.

Karl J. Sleight is the Leader of the Harris Beach Racing and Gaming Industry Team and a former New York State Assistant Deputy Attorney General

Final NYAG Fanduel Letter 11-10-2015

New Jersey Sports Betting Case Will Be Reheard

By Joan P. Sullivan

New Jersey won a victory yesterday (10/14/15) when the full Third Circuit Court said that it will revisit a 2-1 panel decision striking down a law that would legalize some sports betting in New Jersey.  The court vacated a decision rendered this past August which held the state violated the federal Professional and Amateur Sports Protection Act of 1992. The state urged the court to reconsider claiming the ruling is inconsistent with two prior decisions.  Stay tuned….

Karl Sleight’s Perspectives of American Pharoah at the Travers Stakes

By The Editorial Team

It seems as if the Travers Stakes at Saratoga Race Course is dominating the conversation as we draw closer to tomorrow’s race.  This morning on the The Capitol Press Room with Susan Arbetter, Karl J. Sleight, leader of the Harris Beach Racing and Gaming Industry Team, noted the activity this weekend at Saratoga is taking the worldwide destination for racing to a new level with the appearance of Triple Crown winner American Pharoah. Karl had watched with thousands of other fans American Pharoah galloping in preparation for Saturday’s race.  The thoroughbred looked strong.  But Saratoga has a long history of being a competitive course where some of the greatest horses of all time have not won.  Surely, the race will be an attention getter.  Karl will appear on Capital Tonight with Liz Benjamin tonight to talk about Travers and other topics on racing and gaming in New York.