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Some States Attempt to Block DraftKings and FanDuel

Daily fantasy sports are being labeled as illegal games of chance, not skill.

Photo by Calvin Ayre.

State officials are calling foul on daily fantasy sports betting sites.  DraftKings and FanDuel are both at risk of being shut down across the country as more and more states are labeling the sites as gambling operations.

In the United States, sports betting is prohibited by federal law in 46 states – only Delaware, Oregon, Montana, and Nevada allow it.  These four states were exempt from the Professional and Amateur Sports Protection Act of 1992 (the Bradley Act) because they met a necessary deadline to seek approval.  Other states, such as New Jersey, missed the 1991 deadline.  Therefore, many states that allow casino gambling still forbid sports gambling.

New York Attorney General Schneiderman asserts that the websites are “illegal gambling operations in clear violation of New York law.” 

New York Attorney General Eric Schneiderman gave DraftKings and FanDuel the boot recently after Judge Manuel Mendez granted a preliminary injunction to stop the websites’ operations.  Schneiderman asserts that the websites are “illegal gambling operations in clear violation of New York law.”  Both DraftKings and FanDuel immediately announced their intent to fight the injunction, and a stay was granted in their favor by a New York appeals court.  This will allow the sites to run in New York until the issue is ultimately decided by the court.

DraftKings and FanDuel are what is considered daily fantasy sites – instead of setting up a league to play throughout a season, which generally involves having a draft, making trades, and swapping athletes out for each game – the athlete picks are made once for one game that day.  No one is competing for athletes like they do in season-long fantasy leagues.  Rather, a player will receive a set budget and each athlete will be priced at a certain amount.  The player will have to carefully choose athletes to stay within budget.  For example, Tom Brady will likely be the most expensive quarterback each week.  If a player chooses him, he will not be able to necessarily pick the highest-rated running backs, wide receivers, and such, but will have to go with a lower rated athlete to stay in budget.

Naturally, betting is part of the experience.  Bets often start at a dollar and can go into the thousands.  A predetermined amount of players will win money (such as the first 250 ranked in that particular betting pool), and the rest will lose their bets.  Because athletes can have rough games or be injured unpredictably, even someone who has an excellent betting and winning history may lose a large amount of money on one game, much like gambling.

The sites have managed to find an exemption to the law [in the past] by claiming the games on their sites are skill based, which is legal, rather than luck based, which is not allowed under the Bradley Act.

But, if sports gambling is illegal in most states, how have DraftKings and FanDuel lasted this long?  The sites have managed to find an exemption to the law by claiming the games on their sites are skill based, which is legal, rather than luck based, which is not allowed under the Bradley Act.  Because players on the site have to find the right balance of athletes and know at least something about sports, the companies claim that winning is based on skill.  Opponents of the sites argue that because a novice can win without any sports knowledge at all, or because winning is entirely based on how a third party performs that day, betting and winning is a game of luck.

This skill or luck exemption came from a loophole in the 2006 Unlawful Internet Gambling Enforcement Act.  This law infamously banned online poker that had become wildly popular ten years ago.  An estimated 23 million people in the United States played online poker, which generated billions per year.  Although poker definitely requires some skill, Congress was not swayed and still focused on the negatives, such as online gambling being a front for money laundering.

As more people begin to question whether daily fantasy sports sites actually amount to illegal gambling, some states, such as Kansas, look to the predominant purpose test to determine if the game involves more skill or more luck.  Other tests states can use include the “any chance test,” “material element test,” or the “gambling instinct test.”  In the first test, if there is any element of chance in the game, the activity is considered gambling.  In the material element test, the state looks to see if skill or chance makes up the material element of the game.  Finally, the gambling instinct test will forbid a game if it “appeals to a player’s gambling instinct.”

New York may likely say “goodbye” to daily fantasy sports in the near future . . .

DraftKings and FanDuel have already taken it upon themselves to block players from certain states.  Arizona, Louisiana, Iowa, Montana, Washington, and oddly enough, Nevada, residents are not able to play on the two sites.  Since 1997, Louisiana has forbidden any gambling via computer.  Nevada, a state known for its affinity for gambling, recently banned daily fantasy sports sites that do not have a Nevada gambling operator’s license.  Neither DraftKings nor FanDuel currently hold this license, but can apply for it.  And although it has not completely banned daily fantasy sports, Massachusetts does not allow anyone under 21 to play, and goes on to limit the monthly deposit amount to $1,000.

So why, if these sites have been in operation for years, are they just now getting negative attention?  First, both sites have completely inundated television with advertisements, boasting an impressive (and annoying) 60,000 advertisements in 2015 alone.  Second, in September a DraftKings employee won $350,000 on FanDuel.  Many speculated that the employee used inside information, such as ownership tables, to somehow win.  DraftKings conducted an investigating and concluded that the employee received these ownership tables, which indicate how players have picked athletes for the week, after he had made the FanDuel bet and therefore no illegal activity occurred.

The negative press combined with New York’s recent attempt at a shutdown has not wagered well for daily fantasy sports – both sites are reporting that entry fees have dropped significantly.

New York may likely say “goodbye” to daily fantasy sports in the near future, but some gambling is still permitted: casinos on reservations and the lottery.  The casinos are allowed because Native American reservations are sovereign land.  But then, there is the New York State Lottery, which involves 100% chance and no skill, so why is it legal?  Simply, because it is state-run and the state says so.

Paige Miles Feldmann, Managing Editor
About Paige Miles Feldmann, Managing Editor (20 Articles)
Paige Miles Feldmann is a 2016 graduate and served as the Managing Editor of the Campbell Law Observer for the 2015-2016 academic year. Originally from Erie, Pennsylvania, she graduated from Penn State with a finance degree. Following her first year of law school, she interned with the Clerk of Superior Court for Chatham County, the Wake County Family Court, and the Wake County Public Defender. She also competed on a Campbell Law Trial Team in the Buffalo-Niagara Mock Trial Competition. Paige worked with the Wake County District Attorney as an intern in the misdemeanor section during her third year.
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