After a run of relatively positive news, the daily fantasy sports industry suffered a bit of a setback on Friday.
The office of Attorney General Matt Denn came to the conclusion that DFS is illegal under state law, the latest state AG to come to that conclusion.
The DFS industry has gained legal clarity in six states this year with the passage of new laws, including several in recent months.
What happened with Delaware and DFS
The Delaware Department of Justice posted a press release on Friday, indicating it had sent cease-and-desist letters to DFS sites including DraftKings, FanDuel and Yahoo on Thursday.
According to the state DOJ, those sites’ “online fantasy sports activities are not permitted under Delaware law.” The state agency has “asked that the companies add Delaware to their respective online lists of states in which players are not legally permitted to win monetary prizes.”
FanDuel and DraftKings had no comment to Legal Sports Report. Yahoo did not immediately offer comment to LSR.
Why now for Delaware and DFS?
There had been some chatter in the state about looking into the legality of DFS at the end of 2015. At the time, Delaware Finance Secretary Tom Cook said the issue was being examined.
According to Delaware Online at the time:
“We’ve obviously been following all of the events that have been going on surrounding this,” Cook said. “When Nevada made the first move to shut down the sites, we felt that it was our obligation to certainly understand their reasoning behind it.”
There had been almost no chatter in the state in 2016, at least until a bill cropped up late in the legislature’s session. That legislation would have legalized, regulated and taxed DFS.
The statehouse, however, adjourned for the summer at the end of June, without passing the bill.
The failure to pass the bill is why the DOJ is making its voice heard this week. According to the DOJ, its opinion had been known for months:
DOJ had initially notified state regulators in March of this year that these types of games were not permitted under Delaware law, and this information was subsequently shared by those agencies with certain of the companies in question.
The Department initially refrained from taking formal action because certain online fantasy sports companies indicated that a change in Delaware law would be proposed in the state legislature. However, with the General Assembly’s session expiring on June 30th and no such changes in the law having occurred, DOJ sent formal notices to the companies Thursday.
DFS and the law in Delaware
The DOJ did not issue a full opinion on DFS legality, but it did touch on its thinking, saying the constitution “clearly articulates the general prohibition of gambling in the State.”
Specifically, Article II, section 17 prohibits “[a]ll forms of gambling” except “(a) Lotteries under State control for the purpose of raising funds.” Online fantasy sports games that are offered in Delaware are not presently “under State control.”
Relying on the Delaware Constitution, as well as State and Federal case law, DOJ attorneys determined that online fantasy contests that involve payment for playing and monetary rewards constitute gambling because chance, as opposed to skill, is the dominant factor in the outcome of these contests.
It also goes on to say why chance is a large part of playing DFS contests, along the lines of opinions issued in other states:
The most skilled participants might lose and less skilled participants might win because of what actually happens during the real-life game. In other words, real-life players are human and human behavior is unpredictable.
While it is acknowledged that certain individuals may use their respective sports knowledge in selecting their fantasy players and otherwise participating in such contests, that factor alone does not make the contests games of skill.
Will DFS sites stay in Delaware?
Given the small size of Delaware, it would seem sites would give the state up without a fight, at least in the short term.
DraftKings and FanDuel have not fought such opinions in Hawaii and Idaho, for example, likely because of the cost-benefit ratio for engaging in legal battles in those states.
And while fighting AG opinions was the early tactic employed by DraftKings and FanDuel, Illinois is the only jurisdiction where both sites are still fighting an AG opinion in court. (A bill failed to pass in the state this spring.)
The two sites have a settlement in New York, where a DFS bill was recently passed. In Texas, FanDuel reached a settlement, while DraftKings has an active case.
For other DFS operators, the DOJ also alludes to the fact that the three sites that were sent letters aren’t the only ones affected (bolding added):
Put simply, current Delaware law does not permit online fantasy sports contests where there is payment required for participation and a possibility of winning money like those offered by DraftKings, Inc., FanDuel, Inc., and Yahoo! Inc.
Other state AGs and DFS
A state AG or other governmental body hadn’t weighed in on the legality of DFS in several months. The last action on this front came in Alabama, when DraftKings, FanDuel and most other operators left Alabama to meet a deadline set by AG Luther Strange.
The industry had actually succeeded in rolling back negative AG opinions in a pair of states — Mississippi and Tennessee — by passing laws legalizing DFS in those jurisdictions. A third could happen in NY if Gov. Andrew Cuomo signs a bill.
Including those three states, Delaware is the 12th with an AG declaring that DFS is gambling under state law. Prior to those opinions, DFS had generally been considered to be clearly illegal in five states — Arizona, Montana, Washington, Iowa and Louisiana.