NYSGC Imposes Penalty of $17.5 Million on Underdog Fantasy Due to Licensing Dispute
A Cutting-edge Tale: Underdog Fantasy's controversies with the New York State Gaming Commission
In the fast-paced world of online gaming, Underdog Fantasy has found itself in hot water with the New York State Gaming Commission (NYSGC), forking out a whopping $17.5 million in penalties. The bone of contention? Running fantasy sports competitions in New York without a proper temporary license.
Since December 22, 2022, Underdog Fantasy has been operating under a temporary license that is currently owned by Synkt, which they control. However, as of March 14, 2023, the NYSGC deemed Underdog lacking the necessary authorization to manage certain events in the Empire State. The fine was calculated based on Underdog's New York-generated revenue from their popular games. After the ruling, Underdog ceased all operations in the state on the same day.
In a company-wide email, Underdog maintained its innocence, asserting that the fine was proportional to the revenue their games generated in New York. They insisted they acted in good faith.
The Settlement Terms and Tax Implications
Under the settlement, Underdog will make 12 payments from April 1, 2025, to January 1, 2028, to settle their financial obligations. Notably, the NYSGC recognized Underdog's cooperation during the investigation. Synkt, under separation, must submit tax forms to the NYSGC and pay any owed taxes. Failure to comply could jeopardize any future licensing applications for either entity.
Ironically Agreeing to Disagree
Underdog publicly disagreed with the NYSGC's decision, stressing the state-specific nature of the licensing issue. Nicholas Green, Underdog's legal eagle, stated, "It's a unique, temporary licence issue specific only to New York and not related to any specific game format we offer." He further clarified, "Any fantasy game created after 2015, no matter the format, is not permitted under the commission's interpretation of what games a temporary permit holder, like Underdog, can and cannot offer. The high fine amount speaks to the popularity of our games, as the settlement was calculated based on our revenue in New York."
Underdog has since pulled all contests in New York, including the fan-favorite "Draft" and "Pick'em" offerings. Despite the turmoil, Underdog has applied for a permanent fantasy sports license, which remains under review.
Though the fine is hefty, the cooperation and settlement terms suggest that Underdog's future licensing prospects in New York are far from over. This instance underscores the regulatory complexities that companies face in the ever-expanding fantasy sports and gambling market.
Insights:- To grasp the intricacies of temporary fantasy sports licenses in New York, one needs to delve into the legal framework and recent developments concerning Underdog Fantasy.- The NYSGC requires temporary license holders to maintain their games as they were when the license was issued, a restriction stipulated in the state's DFS law.- In recent years, Underdog Fantasy reintroduced its DFS games in New York after a brief hiatus due to regulatory hurdles, compelled to pay a $17.5 million fine to the NYSGC before its relaunch.- Despite legislative bills like S8156 focusing on broader gaming regulations, the main rules for DFS licenses fall under the jurisdiction of the Gaming Commission. No specific law addresses temporary DFS licenses, but the Commission's regulations apply to all temporary license holders.
In the context of the settlement, Underdog Fantasy will make twelve financial payments from April 1, 2025, to January 1, 2028, address their business obligations with the New York State Gaming Commission (NYSGC). The fine, calculated based on Underdog's New York-generated revenue, is a testament to the popularity of their technology-driven games in the state.
Simultaneously, Synkt, under separation, is required to submit tax forms to the NYSGC and pay any owed taxes. Compliance is crucial, as failure to do so may jeopardize any future licensing applications for either entity in the competitive business landscape of fantasy sports and technology.
