Advertising Law Alerts

August 9th, 2016

Legalizing Fantasy Sports in New York: An Interesting Precedent for Advertisers?

While millions of fantasy sports aficionados pumped their fists on the news that New York State had legalized Interactive Fantasy Sports ("IFS"), a quieter debate began taking place in marketing and advertising circles. Here's a summary of the new law from a marketer's point of view.

Background of the Fantasy Sports Dispute

Do IFS constitute illegal gambling? Or are IFS games of skill? That's the key issue in almost every state considering whether to ban or legalize fantasy sports. In 2015, the New York Attorney General issued cease and desist letters to both DraftKings and FanDuel and publicly characterized them as "totally unregulated gambling venues." When the IFS companies fought back, a New York state court ruled against them and ordered them to cease operating. After an appeals court stayed the lower court order, the parties settled, with an agreement that IFS platforms would cease operations in New York. The matter went to the New York State legislature.

The New IFS Law

The New York State legislature determined that "[IFS] do not constitute gambling," or games of chance, and declared that IFS are games of skill and knowledge of the participants. The legislature concluded that the winner of an IFS contest is not based on the outcome of any one team or player; rather, the outcome hinges on fantasy roster choices skillfully selected by participants.

Since IFS do not constitute "gambling" under New York Penal Law, companies like DraftKings and FanDuel can now legally operate IFS platforms within New York State provided that they abide by the IFS Law. The IFS Law establishes a regulatory framework for the New York State Gaming Commission's oversight of IFS. The law implements important consumer protections and safeguards for both players and operators against fraud and abuse ---- including rules on how daily fantasy sports can be advertised to consumers. The law is effective now. Under the law, operators must:

  • register with the NY State Gaming Commission;
  • exclude collegiate or high school sporting events or players;
  • exclude minors from participating in any contest;
  • exclude prohibited players from participating in any contest (the definition of  "prohibited player" includes an employee of an operator or family member of an employee; amateur and professional athletes; sports agents; team employees and referees); and
  • identify all highly experienced players (a "highly experienced player" has entered more than 1,000 contests or won more than $1,000 on at least 3 occasions).

​Advertising Rules

In addition, the IFS Law lays out strict advertising "Do's and Don'ts," which obligate IFS operators to fairly and accurately state any and all information about an IFS platform. Specifically, IFS operator advertisements for contests and prizes, and the main webpages of operator platforms, must follow the key provisions of the law set forth below.

  • Operators shall not directly or indirectly advertise or promote the platform or contests to:

             - minors wherever located; or
             - persons located outside of New York State.

  • When referencing the chances or likelihood of winning in advertisements, and on each IFS platform prior to a player's contest entry, IFS operators must make clear and conspicuous, accurate statements.
  • The main page of the operator's platform must prominently display introductory procedures for players that clearly explain contest play and how to identify a "highly experienced player".
  • Operators shall not directly or indirectly advertise or promote any IFS contests that require an entry fee when conducting IFS contests that do not require a fee.
  • Operator advertisements or promotions shall not make representations or implications about average winnings from contests that are unfair or misleading, and any advertisements about average winnings shall include, at a minimum:

​          - the median and mean net winnings of all authorized players participating in contests offered by the operator; and
          - the percentage of winnings awarded by the operator to highly experienced players within the preceding calendar year.

Take-away

With a raft of disclosure requirements, the new IFS law strongly focuses on safeguards for fantasy sports players. But the finding that IFS are games of skill rather than chance-based illegal gambling may have broader implications for other promotional activities ----  and especially fee-based games ---- conducted by marketers. Whether or not the new legislation will be relevant to activities outside of fantasy sports remains to be seen. We will continue to monitor the law for further developments.

If you have questions about the new New York IFS law, or about other advertising and marketing compliance issues, please contact Terri Seligman at (212) 826 5580 or tseligman@fkks.com, or any other member of the Frankfurt Kurnit Advertising, Marketing and Public Relations Group.