While daily fantasy sports (DFS) sites DraftKings and FanDuel are hanging on to their hundreds of thousands of paying New York state customers by a legal thread, the high-profile operations are coming under scrutiny in the Central time zone, with the Illinois attorney general opining that DFS sites constitute illegal gambling under state law.
Illinois AG Lisa Madigan provided this opinion today [PDF] in response to a query from two state legislators.
The relevant state law says that a person is gambling when, among other things, he or she “knowingly plays a game of chance or skill for money or other thing of value… knowingly makes a wager upon the result of any game… knowingly sells pools upon the result of any game or contest of skill or chance… or knowingly establishes, maintains, or operates an Internet site that permits a person to play a game of chance or skill for money or other thing of value by means of the Internet or to make a wager upon the result of any game, contest, political nomination, appointment, or election by means of the Internet.”
Madigan contends that the language and intent of this law is “straightforward and unequivocal. It clearly declares that all games of chance or skill, when played for money, are illegal gambling in Illinois.”
While the federal Unlawful Internet Gambling Enforcement Act includes a carve-out specifically for fantasy sports because it holds them up as a game of skill, Madigan notes that the UIGEA also allows for states to have more restrictive definitions of gambling, which is why DFS sites are currently not operating in a number of states, like Washington, Arizona, Iowa, Louisiana, Nevada, and Montana.
Furthermore, Madigan says it is “immaterial” to the state of Illinois whether DraftKings and FanDuel are games of skill or chance because the state law “expressly encompasses both.”
The state law does include a number of exceptions to this rule — including one that exempts a contest from being considered gambling if it “Offers of prizes, award or compensation to the actual contestants in any bona fide contest for the determination of skill, speed, strength or endurance or to the owners of animals or vehicles entered in such contest.”
But Madigan argues that DFS sites do not qualify for this exception because it requires “compensation to the actual contestants” or to the “owners of animals or vehicles” in such contests. And the actual contestants, according to the AG, would be the athletes upon whom DFS players are building their teams.
Per the AG’s reading of this exception, it applies to “only those who actually engage in a bona fide contest for the determination of skill, speed, strength, or endurance, and not a daily fantasy sports contest participant who pays a fee to build a ‘team’ and who may win a prize based on the statistical performance of particular athletes.”
She contends that paying an entry fee to enter a contest based on the performance of other people is no different than “persons who wager on the outcome of any sporting event in which they are not participants.”
It’s worth noting that Madigan’s opinion, while important, is not the same as the cease-and-desist declaration issued earlier this year by New York Attorney General Eric Schneiderman, which was an active attempt to stop the sites from operating in that state.
Madigan could move to block DFS sites in Illinois, though she notes that there is legislation pending in the statehouse that would specifically exempt these sites from the state’s anti-gambling laws.
Coming into the current NFL season, DraftKings and FanDuel each made incredibly lucrative deals with broadcasters, investors, and professional sports leagues. Both sites inundated the TV airwaves with commercials and in-show segment sponsorships. The final season of FXX show The League included an entire running subplot about one of the main characters playing (and winning money) from DraftKings.
Several states are reportedly looking into the legality of DFS. Nevada was first out of the gate this fall, concluding that DraftKings and FanDuel are effectively unregulated sports gambling operations. Then came the New York showdown.
In November, Massachusetts (home state of DraftKings) Attorney General Maura Healey proposed a new set of regulations that would keep the sites operating there, but with additional restrictions on age of users, and requirements for transparency about the expertise level of the small number of pro DFS players who win the overwhelming majority of the large prize payouts.