ARE DAILY FANTASY SPORTS LEGAL?
You or your significant other has been pouring hours and hard-earned money into daily fantasy sports (“DFS”). DFS is fast-paced, fun and exciting. A late inning home run, last second shot, or game winning touchdown drive can decide your fate and shift millions of dollars.
You lose some money. After you get the hang of it, you win some money. Maybe you win a lot of money. Then the wheels start turning. Is this legal? Am I gambling? Why are states targeting DFS?
In 2006, the federal government passed the Unlawful Internet Gambling Enforcement Act (“UIGEA”), which made it a violation of federal law for any financial institution to transfer funds offshore for online gambling. It was met with much controversy because it was buried in a different bill (Safe Port Act) at the very end of a Congressional session and its passage effectively killed online poker. It specifically excluded a number of things the federal government did not consider to be a “wager” or a “bet”, including purchasing stocks and other securities and insurance contracts. Congress also specifically excluded fantasy sports.
The UIGEA states: “The term bet or wager . . . does not include . . . participation in any fantasy or simulation sports game . . . in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization . . .”
Recently, some state governments have raised concerns about DFS. In an unfathomable business decision, a particularly aggressive Attorney General from New York declared that DFS was illegal under NY state law, and he did so with one of a billion-dollar DFS company, FanDuel, making its home in New York. Please, please know that an Attorney General making a public statement is not the law. This is, more often than not, a political play. The Attorney General does not create law. The Attorney General can offer advisory opinions on state law, but those opinions are not binding, they are predictions.
For example, in New York, the AG came against publicly against DFS, but he had to file an action in court seeking a temporary injunction (court request to make someone or something stop doing something) against FanDuel and DraftKings to try to stop them from offering DFS in NY. Even though the trial court judge granted the injunction, hours later the appellate court lifted issued a stay on the injunction, permitting FanDuel and DraftKings to continue operations in New York while the issue was fully and fairly litigated.
Contrast New York with Massachusetts. AG Maura Healey was supportive of DFS and declared publicly that she believe DFS is legal under MA law. She has also proposed regulations that would govern the industry. This business-savvy decision makes a lot of sense; DraftKings — the DFS industry leader — is located in her state. Why not regulate and tax this billion-dollar company instead of trying to run it out of town like NY’s Schneiderman.
At the end of the day, the nitty-gritty of the debate will boil down to the skill versus chance aspect of DFS. Luckily for those invested, the Rhode Island attorney general analyzed exactly this issue and determined that DFS is primarily a game of skill. I strongly agree with his assessment.
Speaking of investments, let’s take a look at who and what has invested in DFS. FanDuel raised $70MM in September 2014 from Shamrock Capital, KKR, NBC Sports Ventures and $275MM in July 2015 from KKR, Google Capital, Time Warner, NBC Sports Ventures, Comcast Ventures and Shamrock Capital. During the same period, DraftKings raised over $500MM from Major League Baseball, National Hockey League, Madison Square Garden Company, Kraft Group, Raine Group, Redpoint Ventures, GGV Capital, BDS Ventures and Atlas Ventures.
So, on balance, who thinks DFS is a long-term, safe, legal investment:
And who thinks DFS is illegal: a couple of rogue attorney generals trying to grab a headline in an election cycle or protect a dying casino industry in their states (Mississippi, Nevada). Not a single court has authored a binding decision ruling DFS illegal under any state or federal law.
At this point, federal law greatly favors DFS players and providers over their detractors. I think it makes good sense to follow the dollars. These major investors and corporations are not about to watch their billions disintegrate over a legal jump ball. To be safe, please know that the specific issue has not been litigated, and your state may later consider it. Some state legislatures have made law declaring DFS legal or illegal (be careful in the red states below). If the issue is fully litigated, which I believe it will not be in most states, RI and other states have tipped their hands that DFS is likely to be found a skill game that avoids gambling laws.
The smart states will do what MA is doing and welcome the industry with open arms, tax to raise revenue and regulate to protect consumers.
Finally, as a quick guide, Legal Sports Report put together the following map that shows whether you can currently play DFS in your state:
The information contained in this piece is exactly that: just information. The author cannot predict what your state will do, and he is not offering you legal advice or attempting to create a legal relationship.