A Real Life Lawyer Breaks Down The Daily Fantasy Situation In New York
What happens when you’re too dumb to fully comprehend the ins and outs of what’s going on legally with the Daily Fantasy Sports landscape in New York? You outsource it to a real life lawyer who is a lot smarter than you. I may love playing DraftKings and do a pretty good job predicting which right hander will take a lefty pitcher deep on a Wednesday night slate, but if you thought I could read more than a few paragraphs of the Schneiderman stuff and comprehend it without my eyes glazing over you’d be mistaken. It’s called self-awareness folks.
Guest blog from an anonymous attorney:
(we spoke but haven’t met in person so I just picture him like this when reading his points, I suggest you do the same)
The Legality of DFS
As you have probably heard by now, New York Attorney General Eric Schneiderman declared that daily fantasy sports (DFS) constitute illegal gambling in New York. This is a big blow to DFS, but it may not be as much of an issue as many people currently think it is. Under the current federal and state level framework, there are very strong arguments that DFS are legal.
First, it is important to have a little background on the legality of DFS on the federal level. Fantasy sports were not directly addressed by congress until congress passed the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). The bill contained an express exception for fantasy sports and received substantial backing from America’s professional sports leagues, especially the NFL. At that time they already saw the potential profits for fantasy sports and the leagues used their lobbying power to make sure it was protected.
The UIGEA outlaws Internet gambling, mainly poker, but specifically carves out an exception for fantasy sports. The law considers fantasy games legal if the “winning outcomes reflect the relative knowledge and skill of the participants.” The act also specifically states that fantasy sports are not included in the acts definition of bet or wager.
The UIGEA also serves as the basis of support for daily fantasy sports, however, because this bill was passed well before daily fantasy sports entered the equation, some scholars suggest it is unclear what kind of protection daily pay-to-play fantasy sports would enjoy under the UIGEA. At this point, the federal government has not taken action to remove DFS from the carve-out, but with the increased scrutiny surrounding DFS this may eventually change.
Even though the UIGEA provides protection to DFS, and protects players from prosecution for playing on a federal level, the bill is not determinative of DFS’ legality. As many players may realize, the terms of use for sites like Draft Kings preclude players in certain states from participating (for example Draft Kings states residents from Arizona, Iowa, Louisiana, Montana, Nevada, and Washington cannot play on their site). This is possible because the Tenth Amendment of the United States Constitution permits individual states to regulate gambling. Accordingly, individual states are able to pass anti-gambling laws that are more restrictive.
In most states contests are illegal if they contain the following three elements of an “illegal lottery” under common law: (1) the distribution of prizes, (2) according to chance, (3) for a consideration. In most DFS contests there is an entrance fee, and the top players win prizes, thus satisfying the first and third requirement; therefore, the second factor, chance, controls the outcome of legality in most states.
In the majority of states, the dominant element test is utilized. The dominant element test, as the name implies, seeks to determine whether skill or chance determines the outcome of the contest. This test does not mean there cannot be any luck involved. Those random anecdotes people like to tell about not knowing anything, quickly throwing a team together, and almost winning big do not matter because overwhelmingly, the players that win do so through skill, not luck.
Of note, New York utilizes a test which requires a slightly lower showing of skill, the material element test, which examines whether or not chance plays a material role in the outcome of a contest. This standard is a little more troubling for fantasy sports, but the skill v. chance analysis discussed below is still what likely will govern.
Successful DFS players demonstrate skill in a variety of ways. They must utilize good judgment and be able to appreciate the significance of a great deal of data including player statistics, weather conditions, offensive strategies, matchups, and valuation of players in order to be successful.
Additionally season-long fantasy sports have been almost completely acknowledged to be a game of skill. This bodes well for DFS as they involve many of the same skills, i.e., selecting players and researching match-ups. Daily fantasy also introduces elements of valuation and spending management that are not present in most season-long leagues that implement a snake draft. Season-long players also deal with a more limited player pool. Once your roster is set there are very limited options regarding line-up choices. This is not the case in DFS where you start fresh each contest, which arguably requires much more research. The draft is arguably the most skillful part of fantasy sports and season-long players do it once while DFS players draft every time they enter a contest.
Daily fantasy sports also create another way for players to show their skill through managing their bankroll. Managing bankroll is about assessing risks and deciding what kind of games to play and when to play them. Most casual players will enter the large GPP tournaments, but successful players mix GPPs and Double-Up games to calculate their expected earnings and form a comprehensive strategy. It is also worth noting that there are different strategies for different games. For GPPs, players want to take shots on high risk/reward players that give you a chance of achieving a very high score, whereas in Double-Ups, where you only need to beat half the field, you want a much safer, consistent line-up.
Some argue that the odds of winning, and not how the game is played, are what make daily fantasy sports a game of chance. Commentators have suggested that when you compete in the large-stake, multi-entry events against thousands of participants, the outcome of the contest is partially dictated by luck. There is arguably some luck involved; however, there is a reason why the best players routinely win. There is a clear pattern that has emerged and this pattern is indicative of the skill involved in DFS.
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DFS requires all the skill found in season-long games while also incorporating more rigorous player valuation, game strategy, and bankroll management (among multiple other skills I have not discussed.) It is impossible to eliminate all chance or luck from almost anything, especially fantasy sports. But this fact alone does not render daily fantasy sports illegal. Statistics show that the best players routinely win because of their skill. Due to the predominant skill required, daily fantasy sports should receive protection under the UIGEA and most state laws.
Based on this review, I, along with many other legal professionals, believe that DFS should be deemed legal. So what does Schneiderman’s opinion really mean? At this point it is somewhat unclear. The opinion is not actually law. In fact, a Florida Attorney General issued an opinion many years ago that it was illegal to “participat[e] in a [draft-based] fantasy sports league whereby contestants pay a fee for the opportunity to select actual professional sports players.” This proclamation has not deterred DFS sites to offer games in Florida. While Attorney General opinions should not be taken lightly, they are by no means definitive. Every indication suggests that Draft Kings and other DFS providers are going to continue to offer contests in NY and fight Schneiderman on his opinion. As I have stated, I believe DFS is a game of skill, and thus should receive protection in New York, however, now is the time for DFS providers to prove it.
-Ehrms