A daily fantasy sports operator is attempting to claim it is illegal in a state, in what appears to be a first for the industry.
The claim comes out of a case between the Minnesota Wild of the NHL and the parent company of the DFS operator DraftOps. The team and the DFS site entered into a sponsorship agreement in 2015, and the Wild filed suit to enforce the terms of the agreement.
The case was first reported by Law360.
Here are the documents associated with the case:
The deal with the Wild, and the lawsuit
The initial lawsuit from the Wild says that the team entered into an agreement with DraftOps’ parent company — Emil Interactive Games — in September of 2015.
The suit goes on to allege that the team is owed $1.1 million in payments not received from November of last year through June of 2016.
The lawsuit alleges the defendant has “materially breached and continues to breach the Agreement by failing to make payments as required under the Agreement.”
The Wild had promoted DraftOps as recently as April:
The DraftOps counterargument
The lawsuit becomes truly interesting when it gets to the motion to dismiss from DraftOps.
DFS is illegal in Minnesota?
The company does not dispute that the sponsorship agreement exists, but it does cite this clause from the agreement in its MTD:
Sponsor shall have the right to terminate this Agreement upon written notice in the event either the NHL and/or State of Minnesota rule that Sponsor’s primary business activities are illegal or prevented by Rule or Law.
The suit then alleges:
“As a result of Minnesota’s failure to legalize online DFS as described in detail infra, the subject Sponsorship Agreement is rendered void and unenforceable. Consequently, compelling the Parties to enforce the terms of the Agreement, would be a potential violation of the Unlawful Internet Gambling Enforcement Act, (UIGEA), and the Illegal Gambling Business Act of 1970 (IGBA), also detailed infra subjecting all parties herein to criminal liability both on Federal and State levels. “
That refers to a failed effort in the Minnesota state legislature to regulate DFS under state law.
The lawsuit thus contends that because it is “illegal” in that jurisdiction, it would also be illegal under federal laws like the UIGEA. By that logic, forcing the agreement to stay in place would mean DraftOps would have to operate illegally.
Minnesota is one of a variety of states that DraftOps says it does not serve for paid-entry contests.
The NHL ‘mandate’?
The lawsuit goes on to reference communication between the league and its franchises. Per the lawsuit:
…the National Hockey League (NHL) issued a DFS Mandate on October 12, 2015. Said mandate provides as follows, “As of October 12, 2015, the NHL has updated its League mandates for all Clubs with respect to their advertising and sponsorship relationships with daily fantasy game operators. Under these new League mandates, Clubs may only contract with Operators in compliance with …requirements.”
The NHL policy regarding (exhibit 2 here) makes no specific reference to Minnesota or any other state, however.
Legal Sports Report has reached out to the NHL regarding its policy; LSR cannot confirm if that is current policy outside of its inclusion in the lawsuit.
LSR also reached out to DraftKings, the official partner of the NHL, about this policy.
Minnesota law on daily fantasy sports
Minnesota has not been a jurisdiction where the legality of DFS has been the subject of much, if any, debate.
But per DraftOps’ lawsuit, “under the 2015 Minnesota Statutes, DFS is considered gambling and under 2015 Minnesota Statute 609.76…”
The relevant part of the statute appears to be:
Subd. 2. Sports bookmaking. Whoever engages in sports bookmaking is guilty of a felony.
Why is DraftOps doing this, and implications for the industry?
From a top-level view, it’s apparent that DraftOps is using the seemingly desperate argument that DFS is illegal to save money on its deal with the Wild.
Bad for DraftOps?
A DFS operator specifically arguing that it is illegal in any jurisdiction it used to serve is a bizarre turn of events, no matter how one spins it.
The UIGEA, after all was the law that the DFS industry sprung up clinging to. DraftOps is using the UIGEA to claim it is illegal.
Marc Edelman, an expert on the legality of DFS across the county, questioned the legal strategy.
“The optics of this are terrible for DraftOps as the law has not changed in Minnesota has not changed in recent months,” Edelman told LSR. “If their activities are illegal in Minnesota today, they have been illegal in Minnesota for years.”
Bad for everyone else, too?
Beyond that, the DraftOps argument presents poor optics for the entire industry and the states operators do serve.
- Minnesota does not have a negative AG opinion.
- Almost everyone in the industry had agreed DFS was legal in Minnesota. Even, Star Fantasy Leagues, generally among the most legally conservative DFS sites — serves Minnesota per its FAQ.
- A variety of states have a far less inviting legal climate or laws on the books vis a vis DFS legality than Minnesota..
The motion to dismiss — saying a violation of state law triggers possible federal concerns — is exactly what could be going on in current federal investigations involving the DFS industry.
One would expect this lawsuit to start appearing as fodder for opponents of DFS and those challenging its current legality.
The backstory of DraftOps
It began to spend aggressively on marketing and team deals in attempt to make in-roads in marketshare. But that effort came as the DFS industry started coming under fire late in 2015.