Courts divided on whether fantasy sports sites are gambling

2015-12-16

Reading time 2:05 min

Under the gaming laws of New York and eight other states, a contest amounts to gambling if it hinges on a “material degree” of the “element of chance.” In other states, as long as the game is “predominantly skill” it isn’t considered gambling, even if luck plays a significant role.

While the Nevada Gaming Control Board has dubbed daily fantasy sports gambling, the question remains up in the air across the land.

Joseph M. Kelly, a professor of business law at the State University College at Buffalo, noted the implications if the case doesn’t fall in New York state’s favour. “If you can’t win where chance is just a material factor, it’s going to be very difficult to win on the status of chance being predominant,” Kelly said.

In a blow to the now multibillion-dollar industry, New York State last November ordered DraftKings and FanDuel to stop taking bets from New Yorkers, as the games amounted to illegal gambling under state law, Attorney General Eric T. Schneiderman said.

FanDuel stopped accepting money from residents shortly after Schneiderman’s injunction request. DraftKings has continued to allow players from the state.

A 2006 federal law exempts online fantasy sports sites from a ban on Internet wagering, an opening later exploited by DraftKings and FanDuel but meeting increasing scrutiny.

Kelly compared the gaming exercise to poker, “which every appellate court has concluded is a game where chance prevails over skill.” DraftKings CEO Jason Robins has made similar comparisons, posting in a Reddit comment that fantasy sports are “almost identical to a casino.”

Daily fantasy sports sites work by allowing customers to assemble their own teams of professional or college players and bet on them, with cash awarded out of a pool based on the athletes’ statistical performances in games. If you bet poorly on Monday, you can try again Tuesday.

“Daily fantasy sports contests have been played legally by New Yorkers for the past seven years, and we believe this status quo should be maintained while the litigation plays out,” said David Boies, a lawyer for DraftKings, one of the two titans that brought daily fantasy betting to legions of young sports fans.

“This is only the beginning of the legal process,” FanDuel stated in a release.

“I think that in daily fantasy sports, some regulation is necessary in order to make sure that measures are taken to minimize money laundering to protect compulsive gamblers and to make sure there’s transparency — to prevent people in one company from making wagers in another company, which is a problem that occurred,” Joseph M. Kelly said.

An industry-rattling scandal erupted last fall after a DraftKings employee inadvertently released data before the third week of NFL games, and promptly won $350,000 at FanDuel the same week.

The two daily fantasy sports juggernauts were compelled to release statements defending the integrity of their businesses following allegations akin to insider trading, with employees accused of placing bets based on information generally unavailable to the public.

On top of questions around internal access to valuable data, the scandal shone a light on whether a currently unregulated industry can, or will, police itself.