A state appeals court struck down the bulk of a 2016 law that allowed interactive fantasy sports contests like FanDuel and DraftKings to operate in New York, writing that the daily contests could not be excluded from the state constitution's meaning of gambling "merely because the Legislature now says that it is so."

Thursday's split ruling, in which four of five Appellate Division, Third Department panel justices voted in the majority, appears to put daily fantasy sports contest companies in danger of being ousted from New York, although an appeal of Thursday's decision may be upcoming.

The Third Department panel considered a 2016-filed lawsuit in which several state taxpayers who claim to have been adversely affected by gambling challenged a new law that said daily fantasy sports contests—where players join short-term pools, assembling virtual teams of and wagering money on the in-game performances of athletes—did not constitute gambling, according to the majority justices' opinion.

The law, signed by Gov. Andrew Cuomo in August 2016, came from the state Legislature amending the Racing, Pari-Mutuel Wagering and Breeding Law by adding an article 14. Article 14, wrote the majority, provided for consumer safeguards, minimum standards and regulation of interactive daily fantasy sports providers while it effectively authorized their operation in New York.

Justice Robert Mulvey (Courtesy photo)

In a lengthy opinion written by Justice Robert Mulvey, who was joined by Justices Elizabeth Garry, Christine Clark and Molly Reynolds Fitzgerald, the majority justices focused initially on what standard they should use when assessing the challenged law, which the plaintiffs sought to have declared unconstitutional.

Mulvey argued that Third Department Justice Stan Pritzker's dissenting opinion "implies that, in exercising our judicial function in this action, we are limited to reviewing the legislative record and determining whether the Legislature's determination was rational."

Then Mulvey, while citing the Court of Appeals' Dalton v Pataki decision, countered and said that instead "our role is to examine and interpret the constitutional and statutory language, and to determine for ourselves whether the legislative enactment violates the explicit constitutional provision at issue." The at-issue provision, he wrote, was state Constitution article I, § 9′s prohibition against gambling.

In soon finding the legislative enactment on fantasy sports contests not being gambling to indeed be unconstitutional, the majority justices assessed "whether IFS [interactive fantasy sports] contests involve a material degree of chance," Mulvey wrote.

The majority, he said, reasoned they did, because "although participants in IFS contests may use their skill in selecting [fantasy] teams, they cannot control how the athletes on their IFS teams will perform in the real-world sporting events."

"For example," he wrote, "those performances could be affected by such disparate circumstances as … player injury or illness, unexpected weather conditions, poor officiating, a selected player having a particularly bad day or an unselected player having a surprisingly good day."

The majority's opinion affirmed in part Albany Supreme Court Justice Gerald Connolly's 2018 decision, to the extent that Connolly declared the 2016 law unconstitutional on the particular point of it sanctioning daily fantasy sports despite the constitutional ban on gambling.

In dissent, Pritzker wrote in part that "it is not seriously disputed that an IFS contest involves a high degree of skill" and that "although it may have been rational to determine that the amount of chance in an IFS contest is material, as did some of the legislators who voted against the bill, it was not at all unreasonable, based upon the legislative record, to conclude otherwise."

Cornelius Murray, a shareholder at O'Connell and Aronowitz in Albany, represented the taxpayer-resident plaintiffs. In an email Friday, he said that his clients were "pleased" by the majority justice's decision, but added that "our enthusiasm is tempered by the realization that the state may appeal to the state's highest court, which may allow Fan Duel, Draft Kings and the other registered operators to continue in business pending the outcome of the appeal."

"So we won the battle but the war isn't over yet," Murray said. Nonetheless, he added, the decision was "very gratifying as the court protected the Constitution from the assault of the Legislature."

The state Attorney General's Office, representing defendants including Cuomo and the state, said by phone Friday that it still reviewing the Third Department's decision. An office spokesman declined comment on whether an appeal would be forthcoming.

Daily sports fantasy contests are provided by companies such as DraftKings and FanDuel over the internet and mobile phones. According to news reports, New York state is thought to be one of the companies' highest-value markets.