New York Fantasy Sports Legislation

[Fourslot40]

Fanduel and Draftkings have been discussing a possible merger.

[DOUGHBOYS]

Good. And thanks KJ.

In the aftermath, governmental agencies have imposed easily payable taxes for the two daily game operators.
Impeding all other smaller fantasy entities.
It makes me mad.
These two companies alerted these agencies into 'doing something'.
And that 'something' ends up hurting other fantasy operators and the industry more than the original two offenders.

[Greg Ambrosius]

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.

If DFS companies are paying out 90 percent per contest and you have this 15% tax on NY residents, what is their prize payout going to be?? Are DFS players going to play for 75% payouts? I have to look at the bill, but I'm pretty sure the 15.5 percent was on net revenue. That's how it is in the other states. If New York is too expensive for anyone to operate in, then every game operator will have to make a decision and as you say hope that co-managers is the way to go. I don't see how anyone survives 15% of gross revenue.

[KJ Duke]

If this fantasy sports legislation rollout continues, we are likely at a peak for fantasy sports and possibly the same for MLB and the NFL as well. They don't even know it, nor do the thousands of writers and other industry participants of the major sports.

Pure coincidence that sport league incomes have exploded at the same time fantasy sports participation skyrocketed? Probably not.

The only good outcome may be that team owners and overpaid athletes that have been commandeering an increasing number of our dollars might be seeing their incomes peak as well. If/when that becomes apparent, perhaps legislators will begin to reverse themselves. If fantasy sports loses its appeal for me, I am done watching any MLB/NFL.

[Greg Ambrosius]

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.

Glenn, if you really think that the FSTA's lobbyists had the power to sway the Governor then you are delusional. People like to say that the FSTA did this or did that to get us to this point and I get it. Mistakes were made, but New York was definitely a unique case. The bottom line as we saw yesterday is that these politicians are swayed by back-room deals and the tribal casinos and state lottery lobbyists have more pull than anyone from the fantasy sports industry. There's no doubt that the industry was pushing for a bill that legalizes pay-to-play fantasy sports. The New York AG gave season-long a pass, so obviously the FSTA didn't expect the last minute changes to the bill that threw season-long into the pay model. Once that back room deal was made, nobody was stopping it because obviously the Governor said he wasn't signing it without every business being taxed.

I'm not defending the FSTA or anyone in our industry because this could affect my business as much as anyone else's, but I'm realistic in knowing that people who know nothing about our industry are setting laws that will be in place for years and years to come. And these laws are detriments to the growth of technology in this hobby and to the growth of the industry itself...ALL IN THE NAME OF OVER REGULATION.

DFS companies brought this on and now after 27 years in the industry I'll have to fight to figure out how to survive in this environment. Let's see what the final laws say, but yeah New York may have to be an exempt state if things don't change.

[KJ Duke]

Greg, "gross revenue" is the exact phrase used by Gary Pretlow on the floor of the NY State Assembly when discussing this bill. See the video link for yourself that I posted.

.... unless he is bastardizing the meaning of gross revenue in a business sense.

[Greg Ambrosius]

Fanduel and Draftkings have been discussing a possible merger.

I highly doubt that now.

[DOUGHBOYS]

Fanduel and Draftkings have been discussing a possible merger.

Another probable ploy by the two companies, among many.

Here's an article....

What was already set to be one of the more eventful—and pivotal – weeks in the history of the daily fantasy industry became exponentially newsworthy with a report of a potential major shift its business landscape.

News of a ramp-up of merger discussions between the two DFS giants, FanDuel and DraftKings, coincided with the opening day of the Fantasy Sports Trade Association (FSTA) Summer Conference in New York City on Monday. The event’s host state is also a main focus of the industry this week on the legislative front, when the House and Senate are expected to either vote down or pass a resolution that legalizes the industry.

The rumblings of a serious turn in discussions between the two companies was initially reported by Bloomberg, citing sources familiar with the considerably fluid situation. The report emphasized that there was certainly no final agreement in place, and that the “deal” could certainly fall through for any number of reasons. With representatives of both companies initially declining comment, speculation ran rampant, and the idea of the possible “merger” actually being an acquisition by FanDuel of their biggest competitor was floated by several outlets.

Benefits/Disadvantages of Merger Discussed

A multitude of potential reasons—and benefits—of a joining of forces by the two companies have been cited in subsequent days, not the least of which would be a substantial savings on the lobbying and legal fees that have come to represent a significant portion of both firms’ budgets to date in 2016.

Others, such as renowned law professor and antitrust, gaming, and intellectual property attorney Marc Edelman, have been highly skeptical of the feasibility of such a move, emphasizing the robust threshold such a transaction would have to exceed in order to avoid anti-trust concerns on the part of the federal government.

Possible Motives Behind Release of News

Amidst all the speculation, one key industry figure provides some alternative views on the news, particularly the timing of its release. DreamCo Design CEO Jay Correia, who is also on the FSTA’s key Legislative Committee and recently authored Daily Fantasy: The Industry of Fantasy Sports in America Today, sees a number of possible motives behind the “sudden” public emergence of merger talks:

“FanDuel and DraftKings have floated the idea of a merger in the past. This is nothing new. The news push on the subject yesterday was strategically timed to coincide with the FSTA conference and with the state of New York’s legislative assembly,” remarked Correia.

“Dropping a hint like that makes it fair to speculate that the two are looking for new ways to excite investors or fast track / maximize going public. It also may be an indirect threat to New York that FanDuel would be willing to leave and partner up with DK, but that too is nothing more than speculation.”

[King of Queens]

Fanduel and Draftkings have been discussing a possible merger.

I highly doubt that now.

Agreed. Terms of the legislation can be easily floated by FD and DK.

The merger could happen, but everything reported about the merger prior to this morning at 2:00am ET is...old news.

[Greg Ambrosius]

Greg, "gross revenue" is the exact phrase used by Gary Pretlow on the floor of the NY State Assembly when discussing this bill. See the video link for yourself that I posted.

.... unless he is bastardizing the meaning of gross revenue in a business sense.

I talked with others in the industry and it will be "net revenue" in New York for NY residents.

We also must apply for a license and then deal with someone in the Gaming Commission. Look for similar game operators to unite and present our reasons why these fees need to be lower. Nothing is set in stone until we meet with the state regulators. Some in the industry are encouraged that common sense will prevail when they see the sizes of our businesses.

Hope that helps. I have a better feeling on all of this now, but let's see what happens in the other states.

[King of Queens]

Greg, "gross revenue" is the exact phrase used by Gary Pretlow on the floor of the NY State Assembly when discussing this bill. See the video link for yourself that I posted.

.... unless he is bastardizing the meaning of gross revenue in a business sense.

I talked with others in the industry and it will be "net revenue" in New York for NY residents.

We also must apply for a license and then deal with someone in the Gaming Commission. Look for similar game operators to unite and present our reasons why these fees need to be lower. Nothing is set in stone until we meet with the state regulators. Some in the industry are encouraged that common sense will prevail when they see the sizes of our businesses.

Hope that helps. I have a better feeling on all of this now, but let's see what happens in the other states.

Good to hear, Greg. Let's see how the process plays out -- it's always easy to assume the worst.

[KJ Duke]

Greg, "gross revenue" is the exact phrase used by Gary Pretlow on the floor of the NY State Assembly when discussing this bill. See the video link for yourself that I posted.

.... unless he is bastardizing the meaning of gross revenue in a business sense.

I talked with others in the industry and it will be "net revenue" in New York for NY residents.

We also must apply for a license and then deal with someone in the Gaming Commission. Look for similar game operators to unite and present our reasons why these fees need to be lower. Nothing is set in stone until we meet with the state regulators. Some in the industry are encouraged that common sense will prevail when they see the sizes of our businesses.

Hope that helps. I have a better feeling on all of this now, but let's see what happens in the other states.

Hope you're right, big big difference between the two.

[ToddZ]

They clearly explained the gross vs net element of the tax during the floor debates yesterday and it's definitely net -- with quite a few allowances. I know the bill says gross, but the explanation to the assembly sure sounded like net.

[COZ]

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

Has anyone published a proposed copy of the legislation? I'd like to read it. Why do they use the term "INTERACTIVE" before Fantasy Sports Contest. Is that their way of distinguishing daily from season long? I don't think it is mere coincidence that word was added before Fantasy Sports Contest. Granted I don't know as much as others about this and have not been following as closely as Glenn, but that language is very curious to me, might it be our carved out exception? I, like all of you, sure hope so because I sure as hell am not paying an additonal 15% rake to fund NY schools. Anyone have any knowledge or insight into the use of that word?

[Wolfpac]

NY public schools do produce some of the greatest minds in this country. So there's that.

[KJ Duke]

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

Has anyone published a proposed copy of the legislation? I'd like to read it. Why do they use the term "INTERACTIVE" before Fantasy Sports Contest. Is that their way of distinguishing daily from season long? I don't think it is mere coincidence that word was added before Fantasy Sports Contest. Granted I don't know as much as others about this and have not been following as closely as Glenn, but that language is very curious to me, might it be our carved out exception? I, like all of you, sure hope so because I sure as hell am not paying an additonal 15% rake to fund NY schools. Anyone have any knowledge or insight into the use of that word?

Just a guess here, but "interactive" was a buzzword in the early days of the Internet, and as such might imply a game involving a user interacting with a host computer. So, perhaps they are trying to distinguish between games hosted by an online game operator and those, say, tracked some other way as in an offline home league, board game or something of that nature.

[King of Queens]

According to the bill, this is the definition of an “interactive fantasy sports contest”:

…a game of skill wherein one or more contestants compete against each other by using their knowledge and understanding of athletic events and athletes to select and manage rosters of simulated players whose performance directly corresponds with the actual performance of human competitors on sports teams and in sports events.

[TOXIC ASSETS]

A big middle finger was just given to Eric Schneiderman....AKA Nanny State Lawyer King

While we shouldn't have to legalize ANY fantasy sports....the government shouldn't be involved at all.....

This is still a step in the right direction. Without the credit card companies on board, this is a dead industry.

Next up: Arizona (you can stop protecting your Indian casinos) and others.

[Greg Ambrosius]

I'm not a lawyer, so someone help explain this in layman's terms. Here are the terms of the payments in New York according to this new bill:

9. "INTERACTIVE FANTASY SPORTS GROSS REVENUE" SHALL MEAN THE AMOUNT EQUAL TO THE TOTAL OF ALL ENTRY FEES NOT ATTRIBUTABLE TO NEW YORK STATE PROHIBITED SPORTS EVENTS THAT A REGISTRANT COLLECTS FROM ALL PLAYERS, LESS THE TOTAL OF ALL SUMS NOT ATTRIBUTABLE TO NEW YORK STATE PROHIBITED SPORTS EVENTS PAID OUT AS WINNINGS TO ALL PLAYERS, MULTIPLIED BY THE RESIDENT PERCENTAGE FOR NEW YORK STATE; PROVIDED, HOWEVER, THAT THE TOTAL OF ALL SUMS PAID OUT AS WINNINGS TO PLAYERS SHALL NOT INCLUDE THE CASH EQUIVALENT VALUE OF ANY MERCHANDISE OR THING OF VALUE AWARDED AS A PRIZE.


16. "RESIDENT PERCENTAGE" SHALL MEAN, FOR EACH INTERACTIVE FANTASY SPORTS CONTEST, THE PERCENTAGE, ROUNDED TO THE NEAREST TENTH OF A PERCENT, OF THE TOTAL ENTRY FEES COLLECTED FROM PLAYERS LOCATED IN NEW YORK STATE, DIVIDED BY THE TOTAL ENTRY FEES COLLECTED FROM ALL PLAYERS IN INTERACTIVE FANTASY SPORTS CONTESTS NOT PROHIBITED IN NEW YORK STATE.


S 1407. STATE TAX. FOR THE PRIVILEGE OF CONDUCTING INTERACTIVE FANTASY SPORTS CONTESTS IN THE STATE, REGISTRANTS SHALL PAY A TAX EQUIVALENT TO FIFTEEN PERCENT OF THEIR INTERACTIVE FANTASY SPORTS GROSS REVENUE GENERATED WITHIN THE STATE; IN ADDITION, REGISTRANTS SHALL PAY A TAX EQUAL TO ONE-HALF OF ONE PERCENT, BUT NOT TO EXCEED FIFTY THOUSAND DOLLARS ANNUALLY.

[Bronx Yankees]

Greg: I am an attorney and, although this is not my area of expertise, I'll take a stab at breaking it down in layman's terms. I hope I do this correctly. I am working off the language in your post.

First, let's start with "Resident Percentage." Basically, it is looking for percent of entry fees from New York. Thus, if the NFBC takes in $5 million in total entry fees and $500,000 comes from New York resident players, the Resident Percentage is 10%.

Second, "Interactive Fantasy Sports Gross Revenue" seems to refer to New York's share of net profits. Thus, start with the first calculation in the definition (basically, total fees collected minus total winnings paid out). Using the same $5 million figure above, if the NFBC collected that much in entry fees and paid out $4.2 million in winnings, you would get a net of $800,000. Then, you multiply that net by the Resident Percentage." Using the numbers in my example, you would multiply $800,000 by 10% and get $80,000.

Third, the "State Tax" has two components: (1) 15% of the Interactive Fantasy Sports Gross Revenues, which I calculate would be $12,000 under my example (15% of $80,000); and (2) 0.5%, which if it also is applied to Interactive Fantasy Sports Gross Revenues, would be $400 using my example (0.5% of $80,000; this component also is capped at $50,000). Thus, using my made-up numbers, $5 million in entry fees, $4.2 million in winnings paid out, and a 10% share attributable to New York seemingly would generate a tax liability of "only" $12,400. In sum, it looks like the tax is 15% of net profit attributed to New York (which State share is calculated as a percentage of entry fees collected from residents as opposed to actual profits realized from residents).

I really hope I am doing this right because, if I am, the added cost seems relatively modest (recognizing that such cost was zero before the politicians got involved). If anyone thinks I'm doing this wrong, please let me know. I hope this helps.

Mike

[KJ Duke]

Mike, that looks about right to me ... except it sounds like the 0.5% might be on all gross revenue not just the State portion, in which case if the NFBC's Gross Profit Margin in a business sense (which the State is calling Gross Revenue) is $800,000 with 10% coming from NY, the tax would be $12,000 on the first part and another $4,000 (on all incl non-NY) for a total of $16,000. Likewise, I'm guessing NY could account for as much as 20% of total revenues, in which case the tax on $5 mill in entries could be $24,000 plus $4,000. Still, a manageable number in the scheme of things.

To put that into perspective of payout pct on a contest, it would take an 80% payout contest down to 79.3%. Likewise, if all states applied a 15% tax in the same manner, the payout would go from 80% to 76.9%. Not an industry killer, at least.

[Greg Ambrosius]

Mike, that looks about right to me ... except it sounds like the 0.5% might be on all gross revenue not just the State portion, in which case if the NFBC's Gross Profit Margin in a business sense (which the State is calling Gross Revenue) is $800,000 with 10% coming from NY, the tax would be $12,000 on the first part and another $4,000 (on all incl non-NY) for a total of $16,000. Likewise, I'm guessing NY could account for as much as 20% of total revenues, in which case the tax on $5 mill in entries could be $24,000 plus $4,000. Still, a manageable number in the scheme of things.

To put that into perspective of payout pct on a contest, it would take an 80% payout contest down to 79.3%. Likewise, if all states applied a 15% tax in the same manner, the payout would go from 80% to 76.9%. Not an industry killer, at least.

Thanks Mike for the work. I believe that is correct. Now if 49 other states don't try to take their grab that might be doable. Unfortunately, there are $5,000 fees plus tax in other states and we'll have to see how the landscape looks before we open 2017 baseball. It's all doable and I'll definitely make it happen while trying to keep prizes intact, but obviously something will have to give.

I'll look at the registration numbers tomorrow and see what percentage is from New York, Pennsylvania, Virginia, etc. I'm going to need to know all of this before budgeting for next year anyway. We'd hate to lose any state and hopefully we won't have to, but we sure don't want to see greedy states take our hobby away from us.

Thanks all and we'll figure this out.

[Gekko]

PA bill...

http://www.legis.state.pa.us/CFDOCS/Leg ... 50&pn=3531

4(d) License fee.--
5(1) Within 30 days of the board issuing a fantasy
6contest license, an applicant shall pay to the board a
7license fee of $50,000 or an amount equivalent to 7.5% of the
8applicant's fantasy contest adjusted revenues <-FOR THE
9PREVIOUS CALENDAR YEAR, whichever is less, except that an
10applicant who is also a licensed gaming entity shall pay to
11the board a license fee of $50,000.

[Gekko]

(c) Renewal fee.--
12(1) Within 30 days of the board renewing a fantasy
13contest license, the licensed operator shall pay to the board
14a renewal fee of $5,000.

[Gekko]

11"Fantasy contest adjusted revenues." For each fantasy
12contest, the amount equal to the total amount of all entry fees
13collected from all participants entering the fantasy contest
14minus prizes or awards paid to participants in the fantasy
15contest, multiplied by the in-State percentage.