New York Fantasy Sports Legislation

[Bronx Yankees]

Looks like both houses of the NY Legislature passed a fantasy sports bill last night that would: (a) make fantasy sports legal in NY, recognizing it as a game of skill; (b) regulate fantasy sports games with a series of customer protections; and (c) of course, tax the hell out of it. The Governor is expected to sign the bill but has not yet done so. Unfortunately, it looks like the legislation applies not only to daily fantasy sports, but season-long contests as well. Most legislators appear to be straining their arms patting themselves on the back for "saving" fantasy sports by approving a pure money grab. The DFS sites appear thrilled to be back in the game in time for football season. It does not appear that anyone was really looking out for sites other than the two big DFS giants and/or season-long operators like the NFBC, who now apparently will be subject to a tax even though it only was DFS that previously was declared illegal in NY. I may be in the minority in not giving a crap about DFS, but am annoyed for the NFBC that it now is subject to new regulations and taxes because of this fiasco played out by giant DFS operators and money-grabbing, attention-seeking politicians. Concluding this rant, I'll be the first to admit that I haven't followed this all that closely and others may have very different (and more knowledgable) perspectives on the situation. Kind of curious what other NFBC'ers think.

Mike

[Bob Enzyte]

I agree with you 100%. I have yet to play DFS and really don't like how it has been lumped with season long games. And it is rarely a good thing when politicians get involved.

[King of Queens]

From Nigel Eccles, CEO of FanDuel:

Earlier this morning, the New York State Legislature passed a law to legalize fantasy sports in our state. As FanDuel's founder and CEO, I wanted to thank you personally for showing Albany that fantasy sports are indeed America's newest national pastime.

But this win isn't ours, it's yours. Make no mistake, today would not have happened without the thousands of fantasy players around the state who stood up and spoke out on behalf of fantasy sports. Together we sent over 100,000 emails to legislators, made thousands of phone calls and rallied the community of sports fans, teams and athletes across the state to protect an important part of the professional sports experience.

We are optimistic that today's victory will allow New Yorkers to resume play soon and look forward to working with Governor Cuomo to approve the measure. If that happens, we hope to be fully operational in New York in time for football season.

Sports teach us that we're only as good as the team around us. We are fortunate that our team is comprised of a community of committed fans dedicated to preserving a game we all love. We look forward to bringing you more of the contests you love, as well as some exciting enhancements to our product, in the near future.

Thanks again,

Nigel

P.S. We also want to thank the bipartisan coalition of legislators — led by bill champions Senator John Bonacic and Assemblyman Gary Pretlow — who stood up to the special interests to take a thoughtful, deliberate approach to regulating fantasy sports and worked hard to create a law that New Yorkers can be proud of.

[King of Queens]

Unfortunately, it looks like the legislation applies not only to daily fantasy sports, but season-long contests as well.

This legislation applies to ANY paid-entry "interactive fantasy sports contest."

Here's the big problem:

Registered sites in the state must pay a 15 percent tax on gross revenues derived from New York players, plus an additional tax of 0.5 percent of revenues, with a $50,000 annual cap.

From all appearances, every fantasy sports company with revenue not tied directly to DFS is getting royally screwed here.

[KJ Duke]

Disgusting that the FSTA is trumpeting this as a win.

Meanwhile, legislators in the name of "consumer protection" have all but guaranteed it will be next to impossible for season-long players (and game operators) to generate any kind of positive return.

[DOUGHBOYS]

Typical politics.
We've always had the right to play fantasy sports.
Now, politics proclaim a victory for the people in 'letting us' continue to play fantasy sports.
It's a travesty.
Our Goverment has 'let us' do many things like drink alcohol, drink soda, smoke cigarettes, and put gas in our tanks, only to the tune of taxing the Hell out of each.
It's outright bullshit.

The daily game and their legal problems may lead to the extinguation of seasonal fantasy sports.
That would be the saddest of all scenarios.
Daily operators bastardized the concept of their game from the seasonal.
They fed a daily fix for the more gambling-afflicted among fantasy players.
Yet, it is the seasonal game that suffers.

[Fourslot40]

Unfortunately, it looks like the legislation applies not only to daily fantasy sports, but season-long contests as well.

This legislation applies to ANY paid-entry "interactive fantasy sports contest."

Here's the big problem:

Registered sites in the state must pay a 15 percent tax on gross revenues derived from New York players, plus an additional tax of 0.5 percent of revenues, with a $50,000 annual cap.

From all appearances, every fantasy sports company with revenue not tied directly to DFS is getting royally screwed here.

I see it a bit differently. It's the customers that will be screwed. Fantasy games will continue to exist, but at a higher cost to us. That may mean higher entry fees or smaller payouts. We will pay for it either way.

[KJ Duke]

Unfortunately, it looks like the legislation applies not only to daily fantasy sports, but season-long contests as well.

This legislation applies to ANY paid-entry "interactive fantasy sports contest."

Here's the big problem:

Registered sites in the state must pay a 15 percent tax on gross revenues derived from New York players, plus an additional tax of 0.5 percent of revenues, with a $50,000 annual cap.

From all appearances, every fantasy sports company with revenue not tied directly to DFS is getting royally screwed here.

I see it a bit differently. It's the customers that will be screwed. Fantasy games will continue to exist, but at a higher cost to us. That may mean higher entry fees or smaller payouts. We will pay for it either way.

If the NFBC has to cut payouts to 65% from 80%, that is effectively the end of the high stakes industry. Most customers will either not play or play a lot less. If you cut the number of entries in half, the fixed cost per entry doubles, which further reduces either their profitability and/or requires a further reduction from the already-reduced 65% payout. It's the beginning of the end.

[Bronx Yankees]

Not sure who from the industry was involved or if anyone was even trying to look out for season-long operators like the NFBC, but this legislation would not have been so bad if it at least:

1. Exempted season-long contests (which had not been challenged as gambling under New York law); or

2. Exempted smaller operators when it was clear that the problem, and the targets, really were the two big daily operators, FD and DK. (In fact, this type of tax probably will act to help shield FD and DK from competition.)

Really a shame that businesses like the NFBC (and its customers) have to be hurt by this travesty. Hopefully, other states making similar money-grabs either will confine themselves to DFS or at least exempt smaller operators. Perhaps if reason prevails elsewhere (doubtful, I know), some of the season-long entities can lobby to improve the New York law next legislative session.

I guess most folks are reading this development the same way as me. Was kind of hoping there was some silver lining that I was missing here. Not to pick on DFS players or operators, but, selfishly, I'd have preferred that DFS stayed illegal in New York than have new taxes applied to season-long contests. Hardly a victory in my opinion.

Mike

[Greg Ambrosius]

I have been on the road the last two weeks and was even out of town yesterday when the New York law was being passed. I obviously have strong views on all of this, but I need to see everything before fully commenting on the latest state law.

Here's a few quick observations though:

1) New York passing a law that legalizes pay-to-play fantasy sports is a win for the industry because we were starting to see credit card processors leaving the space over all of these AG rulings. If you can't process credit cards then it's tough to do business. Even PayPal was preventing fantasy charges. So if we can get these states to all agree that pay-to-play fantasy sports is a legal endeavor, then at least credit card processing will be up and running again.

2) At no point to New York AG Eric Schneidermann consider season-long afoul of the law. In fact, he went out of his way to say that season-long was a legal game of skill. It really sounds like Governor Cuomo went out of his way to include season-long and small businesses into the 15.5% tax. I'm hearing that the feeling is that New York doesn't provide different state taxes for Joe's Shoe Shop than they do for WalMart, so the same taxation philosophy should apply for all fantasy games. This is very disappointing for small game operators.

3) It's a double tax on New York residents. Game operators are supposed to pay this 15.5% on winnings and yet the residents have to pay sales and federal tax on winnings? I mean that's a double tax for the state. And obviously, who pays for this? Are all season-long game operators going to pass this tax onto their customers from New York? Or are they going to pass this tax onto ALL customers with lower prize payouts? That's not fair to someone in Colorado, whose state was smart enough to pass a law with no licensing fee and no taxation for game operators with 7,500 or fewer state residents.

4) In the current environment, these state laws would have any season-long game operator earning more profit if a Colorado resident wins the overall prize than if a New York resident wins the overall prize. I mean, this just doesn't make sense. And what consumer protection is New York providing for this 15.5% for season-long game operators?

There are a million questions that still need to be answered. Thankfully not every state is doing this, so we don't have to go from 80% to 65%. But starting in 2017 we definitely have to look at all of the state bills and budget correctly. And yes, ROI HAS to go down in some contests. I mean in the Platinum, if we're paying 95% and now we have a 15% hit on the winnings on top of that it makes running the game a wash. But leaving New York isn't an option, either.

It's all a process still in motion. Is it good news for the industry? Yes because credit card processors will return, even VC money will return to the DFS space (good or bad, but VC had left with the legal uncertainty) and hopefully now other states will move forward. Agreed, under UIEGA we already were a legal game of skill, but such is life when DFS companies advertise so much. Time to abide by the laws and move forward. Looking back does no good.

We'll figure it out together like we always do, but yes some changes are coming to season-long games starting in 2017.

[Greg Ambrosius]

I see it a bit differently. It's the customers that will be screwed. Fantasy games will continue to exist, but at a higher cost to us. That may mean higher entry fees or smaller payouts. We will pay for it either way.

If the NFBC has to cut payouts to 65% from 80%, that is effectively the end of the high stakes industry. Most customers will either not play or play a lot less. If you cut the number of entries in half, the cost per entry doubles, which further reduces either their profitability, or requires a further reduction from the already-reduced 65% payout. It's the beginning of the end.[/quote]

It's not the beginning of the end for high-stakes fantasy sports companies that run season-long games. It's just not.

Now if every state passed a law with a 15.5% tax then yes it would be. The states would also get 15.5% of NOTHING from our space. DFS would control the space and season-long pay-to-play games would go away.

Thankfully there are many more states that don't have this tax or any tax at all. From a game operator's standpoint, we are going to have to look at all of the laws, do the math on what we project our taxes will be and plan accordingly. There will have to be a change, but it won't be 15% or even 10%. Heck, I don't even know how they are figuring out this 15.5% fee. Is it prize money minus all entry fees? Or prize money minus entry fee from just that league? Nobody knows what they are thinking right now. Even for the DFS companies, how are they going to handle this fee? We'll learn that much more quickly than season-long. No idea when this bill even goes into effect or how we apply for a license. That's all coming soon.

Thankfully not every state has the stupid leadership of a Governor personally throwing season-long under the bus on his own.

[Gekko]

Pennsylvania has a similar bill moving quickly through the legislature. Would STATS pay all these extra bullshit fees to operate in every state? Would participants still play if payout % went down?

I hope I'm wrong, but I'm thinking state Legislatures may succeed where my wife failed. No more fantasy baseball for mr Gekko.

[Greg Ambrosius]

Pennsylvania has a similar bill moving quickly through the legislature. Would STATS pay all these extra bullshit fees to operate in every state? Would participants still play if payout % went down?

I hope I'm wrong, but I'm thinking state Legislatures may succeed where my wife failed. No more fantasy baseball for mr Gekko.

No, a state like Virginia that has a $50,000 licensing fee just to operate a pay-to-play fantasy sports game will have to be exempt from all games. I bet that only Fanduel and Draft Kings operate in Virginia starting in 2017 unless they change the law. If we stay in New York we obviously have to figure out how to work in that expense into the prize pool. Again, this isn't a 15.5% tax on ALL prizes since New York is the only state with such an onerous tax, so let's see how many states do this before baseball 2017. Pennsylvania sounds like they are going the same route with an 11% tax. But I don't see a lot of other states like this.

Is this an additional 3-5% expense for season-long game operators? I don't know. We will only know once all of these legislative bills are done and right now it looks like most states are done, although Pennsylvania and California are still out there. Let's see what happens before you kill off season-long game operators.

[KJ Duke]

Heck, I don't even know how they are figuring out this 15.5% fee. Is it prize money minus all entry fees? Or prize money minus entry fee from just that league?

15% of "gross revenue" ... I believe that's gotta mean 15% of entry fees. I didn't quite understand what the extra half percent was.

As an operator I would pass that on to my NY customers only (or whatever State assigns fees which is sure to expand beyond NY) as a State surcharge. So entering the Platinum as a NYer would cost $11,765 with a $1,765 surcharge to cover your NY toll. As you said, it's not really fair to reduce payout pct on Colorado players (and all others) because NY State is assessing you on a fee on their entrants. I suppose whether or not the industry survives will come down to how many other States, especially large ones, follow suit.

[King of Queens]

As an operator I would pass that on to my NY customers only (or whatever State assigns fees which is sure to expand beyond NY) as a State surcharge. So entering the Platinum as a NYer would cost $11,765 with a $1,765 surcharge to cover your NY toll. As you said, it's not really fair to reduce payout pct on Colorado players (and all others) because NY State is assessing you on a fee on their entrants. I suppose whether or not the industry survives will come down to how many other States, especially large ones, follow suit.

Too early to make declarations, but if this 15.5% charge were directly assessed to New York players as you are proposing, I don't think any of them would play. I know for sure that I would not.

Fair or not, this cost would have to be absorbed by all participants. Some kind of average cost across all of the states would be calculated based on participation rates in each state. If the cost of doing business in an individual state proved to be too large, the operator would almost certainly withdraw from that state.

[KJ Duke]

As an operator I would pass that on to my NY customers only (or whatever State assigns fees which is sure to expand beyond NY) as a State surcharge. So entering the Platinum as a NYer would cost $11,765 with a $1,765 surcharge to cover your NY toll. As you said, it's not really fair to reduce payout pct on Colorado players (and all others) because NY State is assessing you on a fee on their entrants. I suppose whether or not the industry survives will come down to how many other States, especially large ones, follow suit.

Too early to make declarations, but if this 15.5% charge were directly assessed to New York players as you are proposing, I don't think any of them would play. I know for sure that I would not.

Fair or not, this cost would have to be absorbed by all participants. Some kind of average cost across all of the states would be calculated based on participation rates in each state. If the cost of doing business in an individual state proved to be too large, the operator would almost certainly withdraw from that state.

If it is a NY only surcharge, you incentivize NY players to partner with non-NY residents and overall you can come close to preserving the existing payout/profit structure. If you take 5% off the top for all customers ... I think your entry count/revenue declines more than losing a certain % of NY customers.

Likewise, it would far better for the industry to keep that extra 15% NY surcharge or 5% of overall entries circulating within the game rather than sending it to the NY legislature for them to piss away.

[Greg Ambrosius]

Heck, I don't even know how they are figuring out this 15.5% fee. Is it prize money minus all entry fees? Or prize money minus entry fee from just that league?

15% of "gross revenue" ... I believe that's gotta mean 15% of entry fees. I didn't quite understand what the extra half percent was.

As an operator I would pass that on to my NY customers only (or whatever State assigns fees which is sure to expand beyond NY) as a State surcharge. So entering the Platinum as a NYer would cost $11,765 with a $1,765 surcharge to cover your NY toll. As you said, it's not really fair to reduce payout pct on Colorado players (and all others) because NY State is assessing you on a fee on their entrants. I suppose whether or not the industry survives will come down to how many other States, especially large ones, follow suit.

Passing on this expense to each individual state player is an option, but you are calculating it wrong. I would have to do the math on past history of New York residents who win prize money, subtract entry fees and come up with an estimate of what that tax would be. I certainly wouldn't charge everyone 15% right out of the gate because I'd profit from that. I need to assess what that percentage of winners would be, what that 15% would be and then figure out how to pass on that tax while keeping prizes intact for all of my contests.

That's one option. For New York owners, it's like an Events Fee, thanks to their Governor.

As for how I do this for the high-stakes private events like the Platinum, that's a little more tricky. But I have an idea there as well.

Keeping the prize structures the same is the way to go, but figuring out this stupid tax to be fair for everyone won't be without some pain somewhere. Again, Governor Cuomo added this into the bill, so someone ask him why this was so important.

[KJ Duke]

I certainly wouldn't charge everyone 15% right out of the gate because I'd profit from that.

Fifteen and one-half percent of "gross revenue" was used by the NY legislature ... there's no profit on that Greg. Gross is top line revenue, not net revenue or gross margin. Doubtful you could even subtract credit card fees from it.

So for each NY diamond entrant the calculation would be $10,000 divided by 0.845 ($11,834.32) just to net you the same $10K as an entrant from a no-toll State. The toll on each $1600 NY main event would be an extra $293.49.

For New York owners, it's like an Events Fee, thanks to their Governor.

Exactly.

[King of Queens]

Again, Governor Cuomo added this into the bill, so someone ask him why this was so important.

From the beginning, FD and DK attorneys were arguing that if DFS is banned, that season-long should be as well.

I believe Schneiderman's team was unable to effectively argue how season-long fantasy sports was different from the daily variety. I witnessed this first-hand in the court room this past November. Honestly, I don't believe any of them has the first clue as to what makes these two games different.

Cuomo's involvement in this bill was obviously important in getting passage. I don't believe he or his team had an answer as to why paid season-long games should be left alone, but DFS needs regulation. It was a question that was never effectively answered throughout the entire process. In the end, without having enough information, I suppose Cuomo felt all paid-entry games had to be regulated just the same.

I know you're defensive about the FSTA and the role they have played over the last few months, but here's how I see it: the FSTA was probably the only organization that had a chance to make known the key distinction between season-long and daily. FD and DK know the difference as well, but they're not going to self-incriminate. That's where all the bad blood comes from.

[KJ Duke]

What exactly is that extra 0.5% Glenn?

[KJ Duke]

Video of NY legislature discussion ...

http://nystateassembly.granicus.com/Med ... d=14461257

[King of Queens]

What exactly is that extra 0.5% Glenn?

It's a little murky. My understanding is that it's 15% of gross revenue derived from players who reside in New York, and 0.5% of gross revenue from all players.

[KJ Duke]

What exactly is that extra 0.5% Glenn?

It's a little murky. My understanding is that it's 15% of gross revenue derived from players who reside in New York, and 0.5% of gross revenue from all players.

OK, it sounded a bit to me as if it is 15% off the top, plus an extra 0.5% up to $50k ... which would actually make it even more regressive against the small operators, saving the big guys that extra 0.5% once they exceed the $1 mill rev threshold. Not positive I interpreted that correctly, nor that it matters much for anyone other than FD/DK.

[DOUGHBOYS]

I know you're defensive about the FSTA and the role they have played over the last few months, but here's how I see it: the FSTA was probably the only organization that had a chance to make known the key distinction between season-long and daily. FD and DK know the difference as well, but they're not going to self-incriminate. That's where all the bad blood comes from.

While the FSTA, gaming operators, and fantasy participants were fighting for the life of fantasy baseball, the daily operators aim never wavered. Only caring about their game.
They used the season long game. Using them by being under the same umbrella.

To give the season long game a fighting chance for the future, would it be in the best interests to separate the FSTA from the daily game?
Like race car driving, it is all the same, first to the finish line wins.
One umbrella.
At the same time daily and seasonal is as different as race car and NASCAR.
One umbrella, two different entities.

[KJ Duke]

To give the season long game a fighting chance for the future, would it be in the best interests to separate the FSTA from the daily game?

Dave of the FFPC football contest started this as an FSTA alternate specifically for that reason. http://www.sbfsta.org/

STEVEN STRADBROOKE
SMALL FANTASY OPERATORS PROTEST GROWING DRAFTKINGS, FANDUEL DUOPOLY
MARCH 30, 2016

A new group representing nearly three dozen small fantasy sports operators wants legislators to push back against the duopoly enjoyed by daily fantasy sports giants DraftKings and FanDuel.

On Tuesday, the Small Businesses of Fantasy Sports Trade Association (SBFSTA) a new organization comprised of 35 small daily and season-long fantasy operators, held a press conference in New York aimed at alerting legislators to their complicity in helping DraftKings and FanDuel fend off current and future competition.

The SBFSTA chose New York as the site of their debut in part due to pending DFS legislation in the state that would require operators to ante up a $500k deposit in order to obtain a New York license. The SBFSTA insists that this hurdle is sufficiently high to preclude licensing of most fantasy operators other than DraftKings, FanDuel and third-ranked DFS site Yahoo.

Legislation recently approved in Indiana and Virginia sets a lower bar ($50k) for initial entry but the SBFSTA insists this is also too high. The group would like to see an option for smaller operators to pay 5% of net revenue, rather than the 15% of gross revenue proposed under New York’s pending legislation.

The SBFSTA makes no bones about how legislators arrived at the figures in their various bills, noting that the Fantasy Sports Trade Association (FSTA) has been the driving force behind getting these bills introduced and passed.

The SBFSTA – whose members include FantasyDraft, Fantasy Aces and Star Fantasy Leagues – says the FSTA is supposed to represent “all of its members, big and small” but has been “co-opted by DraftKings and FanDuel, which have led the charge to pass legislation across the country that effectively shuts down smaller operators.”

The SBFSTA says it has met with staffers of New York legislators Sen. John Bonacic and Rep. Gary Pretlow, who head their respective chambers’ gaming committees. Alex Kaganovsky, whose Fantasy Football Players Championship is a member of the new group, said the meetings indicated that legislators “are not really aware that these bills could and will impact small companies like ours.”

DraftKings, FanDuel and Yahoo all exited the New York market last week after reaching deals with state Attorney General Eric Schneiderman to halt their legal fight while legislators consider bringing DFS under the umbrella of legally permissible activity. The state’s current legislative session adjourns in June.