Daily Fantasy Sports Betting: Gambling or Game of Skill?
That is the big question in New York today after that state’s attorney general issued a cease and desist order to DraftKings and FanDuel—the two most popular websites in the daily fantasy sports wagering. In the order, Attorney General Eric Schneiderman contends that that the websites constitute illegal gambling under state law, according to which gambling is when a person “engages in gambling when he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome.” The question for courts, assuming this case goes to court, is whether or not online fantasy sports bettors have any control or influence over the outcome of their wagers.
The sudden legal and congressional interest in fantasy sports comes as the industry is becoming big business. Since beginning in the 2000s, online daily fantasy has bloomed into a multi-billion dollar industry. In North America alone, players spend around $27 billion a year! To make matters even stickier, the professional sports leagues have gone all-in with the online fantasy industry, with Fox Sports, MLB, NHL, MLS, and individual teams investing in the industry. While it might seem strange that pro-sports leagues, who are known for vehemently opposing legalizing sports gambling, would throw in their lot with fantasy sports, there’s a very simple reason why they’ve done so: money. According to reports, fans consume 40 percent more sports content after they started playing on FanDuel. So, is it game over for online daily fantasy sports?
Operators of DFS sites have contended that their operations are not in violation of any law because they are not gambling, but rather games of skill which are considered legal under federal law and the laws of 45 of the 50 states. Another fact that bolsters the case for legal DFS is that there are no federal laws criminalizing DFS and a few that specifically exempt DFS from being considered gambling.
However, the ultimate determining factor is state law. A handful of states, such as Washington, consider a game “gambling” if there’s even a “material degree” of chance involved in the outcome. Other states, like Arizona, have laws that explicitly make fantasy sports gambling for money illegal. To their credit, DFS sites like DraftKings voluntarily restrict access for players in these states where fantasy sports betting is most likely illegal. However, for most states, including New York, the laws are vaguer and consider games “skill” if the player has some degree of control over the outcome.
According to gaming expert Mark Hichar, “In true skill contests, the outcome of the contest depends on the participant’s relative knowledge, judgment, decision-making ability, experience, skill, dexterity, quickness, athletic ability and/or understanding of the contest and its rules (collectively, “skill”). Gambling laws do not apply to true skill contests because the outcome is within the control of the participant.”
In his order, it’s quite clear that Schneiderman does not see the games offered by DraftKings and FanDuel as skill-based activities. As he put it, they are the “leaders of a massive, multibillion-dollar scheme intended to evade the law and fleece sports fans across the country…. Today we have sent a clear message: not in New York, and not on my watch.”
While determining the legality of DFS might be politically sticky, Mark Hichar believes differentiated between gambling and games of skill is a question of fact, not law. “For a fantasy sports contest to be deemed one of skill, the operator must be able to demonstrate that the outcome of the contest meets the applicable state test for a game of skill. Usually this means showing through expert math testimony that the contest is within the control of the participants and the contest outcomes reflect each participant’s relative knowledge and understanding of the contest and its rules, and the participant’s judgment, decision-making ability and experience.”
Whether or not DraftKings and FanDuel are capable of successfully demonstrating that their games are skill-based remains to be seen (the order gives them five days to respond). Even more interesting is what states will do in the aftermath. Will they pass regulation to legalize voluntary fantasy sports betting for consenting adults or will they let lawyers determine in what activities residents may or may not legally participate?