Daily Fantasy Sports - The Truth About Legality
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Here’s The Truth About The Legality Of Daily Fantasy Sports

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The legality of daily fantasy sports is an unsettled question of opinion, not a question of fact.

That’s the truth about the legality of daily fantasy sports in America.

So when DraftKings CEO Jason Robins makes statements like the one that he made to the Washington Post this week:

For “anyone who has taken the time to understand the law as it relates to DraftKings’ offerings, and anyone who has seen the data . . . on the skillfulness of the game, it’s really, honestly not a debate,” Robins said. “It’s clearly legal. And we have a team of great lawyers who watch everything we do.” […]

“It’s easy for some people to say . . . ‘Hey, this is a question,’ ” Robins said. “It doesn’t mean they’re right.”

… I appreciate that he’s trying to protect his business. But it strikes me as a poor strategy for doing so.

First, there’s the obvious contradiction in his statement: if the product you offered was “clearly legal,” you probably wouldn’t need “a team of great lawyers who watch everything” that you do.

More troublingly, his insistence on reducing a complex issue to such black-and-white declaratives flies in the face of a raft of facts that would lead most rational observers to conclude the legality of DFS is far from a settled matter.

States don’t agree on the legality of daily fantasy sports

Ask yourself if the following facts about the conversation around DFS at the state level comport with Robins’ description of DFS as a “clearly legal” product that warrants no debate:

  • Nearly all DFS operators – including DraftKings – do not operate in five states (Washington, Montana, Iowa, Arizona, and Louisiana) due to concerns regarding the application of state law to the product.
  • The head of Michigan’s Gaming Control Board recently asserted that DFS is “illegal under current Michigan law.”
  • FanDuel and DraftKings are lobbying in Florida for legal clarity around DFS in the face of a 1991 AG opinion that deemed real-money fantasy sports illegal.
  • Nevada officials have announced that they’re reviewing the legality of DFS.
  • The Massachusetts Attorney General is reviewing the status of DFS.
  • Legal commentators have identified a number of additional states where the question of DFS is unsettled.

The fact of the matter:

  • State gambling law is maddeningly complex and often rests upon inherently subjective tests such as the distribution of skill and chance within a given activity.
  • With one or two exceptions, state gambling law does not speak directly to the daily fantasy sports product.

Given the above, it’s simply inaccurate to say that the legality of daily fantasy sports is not a matter of debate. We are, as it happens, presently in the middle of that debate.

The UIGEA is far from the last word on daily fantasy

A common reaction I get after articulating the situation at the state level is “what about the UIGEA? Doesn’t that make daily fantasy sports legal?”

No. Why?

  • The UIGEA is an enforcement act dealing specifically with payment processing. Exemption from the UIGEA is just that – exemption from the UIGEA. The UIGEA does not speak to the operation of a gambling business, simply the flow of funding surrounding the business. It does not trump or supercede any other law – including state law – regarding gambling. You can comply with the UIGEA safe harbor for fantasy sports and still violate state law.
  • The application of UIGEA to DFS has not been tested. The UIGEA is vague and pre-dates the introduction of daily fantasy sports. One of the authors of the UIGEA has made it clear he didn’t intend to sanction DFS with the law. That’s far from an iron-clad exemption.
  • Aspects of mainstream DFS appear to push the UIGEA envelope. For example: for a game to comply with the UIGEA, no winning outcome can be based “solely on any single performance of an individual athlete in any single real-world sporting or other event.” A common-sense reading of the UIGEA (the part pertaining to fantasy sports is ~200 words long and can be found in (1)(E)(ix) of the definitions) reveals a number of other conditions that seem at least potentially in conflict with various DFS product iterations.

What we’re left with after even a cursory examination of the UIGEA are more questions than answers about the legality of daily fantasy. The legal clarity Robins definitively asserts certainly doesn’t spring from here.

Even the DFS industry can’t agree on what’s legal

In a world where Robins’ assertion is accurate, you would expect the daily fantasy industry to move in lockstep in terms of the types of sports and games they offered.

After all, we’re talking about a hyper-competitive industry where every player is worth fighting for. But despite that fact, there are a number of points of divergence among operators:

These are points of divergence driven by differing opinions regarding the law. That is the definition of a debate.

……… 

To borrow a phrase: It’s easy for DFS operators to say there’s no debate about the legality of the product. That doesn’t mean they’re right.

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Chris Grove
- Chris is the publisher of LegalSportsReport.com and OnlinePokerReport.com. Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.