From Uber to FanDuel, how tech-friendly is New York government?

Sixteen years into the 21st century, New York City is witnessing a high-tech boom propelled by a wave of innovative start-ups that are reinventing the way business is done around the world. In the process, tens of thousands of new jobs are being created. 

And yet at the same time, some disruptive new tech firms like Uber and the daily fantasy sports sites FanDuel and DraftKings, spawned by that same revolution in information technology, face incredible resistance that requires millions be spent on legal fees, lobbying and public relations just to get entry into New York City or elsewhere in the state.

So, just how friendly and accessible is New York to the next new thing?

Based on job growth alone, the downstate region appears to be an attractive home base for tech startups.

A recent white paper on the status of New York City’s “innovation ecosystem” found that while high-tech firms remain a relatively small part of the city’s economy, they have experienced a 56 percent increase in job growth since 2003. That means that even though the sector makes up only 4 percent of the city’s economy, startups have generated 17 percent of the new jobs created since 2003.

Compare that to the dominant finance sector, which accounts for 21 percent of New York City’s economy but has only seen a 4 percent increase in new jobs created over the same period.

And this trend appears to be accelerating. The flow of venture capital into downstate startups has grown from $4.4 billion to $6.1 billion in just one year from 2014 to 2015, according to the report, which was published by the Partnership for New York City’s Innovation Council with help from Deloitte's innovation consultancy Doblin.

Driving the growth are a convergence of Fortune 500 companies, investment firms and venture capitalists already in the city that want to capitalize on the innovative services provided by “disruptors” through new partnerships and other business relationships.

“And we are talking multiple industries that are based here, financial and professional services, health and life sciences, media and entertainment, design, retail and fashion, and technology,” Mike Simas, executive vice president at the Partnership for New York City, told City & State. “And this is all happening in a diverse city where 150 languages are spoken, which gives you a global test market to sell into that’s compressed into just five boroughs.”

Of course, challenges remain, including a lack of training to prepare local students to participate in the new economy. Only 8 percent of New York City college students graduate with software and statistical skills, according to the report, while 19 percent of all New York City job ads from March 2016 require technology or engineering skills. Finding office space as a startup scales up can also be a challenge.

But there was little evidence of certain widely held beliefs about the obstacles that startups face in New York City, Simas said.

“We thought going in that taxes and regulations would show up as a problem, but for the smaller firms that drive this startup wave the research indicates that’s not a problem,” he said. “No doubt, Mayor Bloomberg's tenure helped set the stage for this kind of impressive growth and activity.”

Yet elected officials have also slowed tech companies. Uber, the ride-sharing app, battled the de Blasio administration in New York City and tried but failed to get state legislation passed this year to allow an expansion upstate. State lawmakers voted to fine those who use Airbnb, a short-term rental site, to post an entire apartment for under 30 days. Even Pokémon Go, the map-based smartphone game that has been wildly popular since its introduction earlier this year, has state lawmakers weighing legislation to regulate it.

“I don’t think it’s welcoming at all,” state Senate Deputy Majority Leader John DeFrancisco told City & State. “Let’s take Uber, for example. There are certain situations where there’s public safety issues that you’ve got to make sure there’s at least some regulation. (But) if you ask any businessperson who’s done business in other states, their initial statement to you is taxes are too high and regulations are too prohibitive for me to consider New York as a home. Our reputation precedes us. Some things are good for regulation, others are not necessary.”

Perhaps there is no better example of the resistance a new business model can run into than what daily fantasy sports companies FanDuel and DraftKings encountered when they launched their campaign to reform state gambling regulations in response to state Attorney General Eric Schneiderman's effort to shut them down as illegal operations.

Schneiderman's move in the fall of 2015 came after a joint investigative project by The New York York Times and PBS's Frontline entitled “Cash Drops and Keystrokes: The Dark Reality of Sports Betting and Daily Fantasy Games,” which linked the widely popular fantasy sports industry with offshore and off-the-books illegal betting rings.

A month later, Schneiderman followed up with an aggressive statement: “It is clear that DraftKings and FanDuel are the leaders of a massive, multibillion-dollar scheme intended to evade the law and fleece sports fans across the country,” he said. “Today we have sent a clear message: not in New York, and not on my watch.”

The fantasy sports sites maintained they were games of skill, not chance. In a matter of weeks they ramped up legal and lobbying efforts to make their case. Boosters of the sites staged a rally in November 2015 that drew 300 supporters outside Schneiderman's lower Manhattan office carrying signs that read “bench Schneiderman.”

In December a state court ordered the companies to shut down operations and not take bets. An appeals court reversed the lower court clearing the way for DraftKings and FanDuel to resume business but in March they agreed to voluntarily shut down, while they pursued their legal case and lobbying campaign for relief from lawmakers in Albany.

Sources close to FanDuel and DraftKings say the companies seemed to be making progress in Albany until the well-connected New York Gaming Association took a position opposing the fantasy sites’ efforts to get on the right side of the law. A phone call and email to the New York Gaming Association were not returned.

"Where it gets very expensive is when you have to take on an entrenched interest that has invested heavily in Albany with campaign contributions and political support for decades," Marc La Vorgna, a former Bloomberg spokesman who advises both FanDuel and DraftKings on their media strategy and regulatory issues in New York, told City & State.

La Vorgna said that his clients did not rely on campaign cash to make their case with legislators in Albany, but mobilized their 3 million-plus fan base in the state. “We relied on activating the massive base of people who love to play, and they poured more than 100,000 emails and a deluge of social media contacts into Albany,” he said. “We had had legislators say they were hearing more from constituents on this issue than any other. So we got their attention and created an understanding that failure to pass a bill would have political consequences.”

In June, large majorities in both the state Senate and Assembly approved legislation legalizing FanDuel and DraftKings along with new regulations and consumer protections. The industry hailed the new law. FanDuel said that the bill’s passage in New York capped “an extraordinary run of national state legislative progress in the last six months, with seven legislative bodies – Colorado, Indiana, Mississippi, Missouri, New York, Tennessee, and Virginia – now passing a fantasy sports bill this year.”

So, what does a startup do if it is held up in New York? Not every startup has a consumer base of 3 million, like the fantasy sports industry, as political leverage.

For the Ubers and Airbnbs that run into public policy concerns or established economic interests, like traditional taxis and the influential hotel industry, it can be very expensive. To make their case, experts say they have to engage in a broader conversation with the public.

“New York is the No. 1 media market in the country and it is also the most expensive," said Tom Butler, president of Butler Associates. "So you have to spend the client's money strategically and the best way to do that is through achieving earned media where your client's message finds its way into the editorial and news pages of The New York Times, the Wall Street Journal or Crain's.”

Butler says his firm helps write and place about 200 op-eds a year around the country, which can be more effective than broadcast ads.

"Compare that, both in terms of costs and impact, to reading that same or similar message on the op-ed page or in a news story where the information has been validated by a third party, like a reporter or an editorial writer,” Butler said. “When working with a client who has an innovative or breakthrough technology you have to work with the CEO to help identify their true target audiences, while putting them as thought leader at the heart of the public discussion.”

George Arzt, president of George Arzt Associates, agreed that advertising efforts can be costly – but that such campaigns can take plenty of time, as well.

“I’d say at a minimum you have to ready to spend $10,000 a month to make sure you have a positive press message out there before you start going for your approvals,” Arzt told City & State. “You sometimes got to be patient. I have been working on a ski resort project in the Catskills and I had the final sign-off when (Eliot) Spitzer was governor.”