Underdog’s lawsuit may have failed to prevent the release of a legal opinion on California DFS, but it may be the start of the legal battle that determines its legality.
In response to the California Attorney General’s expected release of an opinion on the legality of daily fantasy sports, Underdog filed a lawsuit disputing the AG’s authority to address the issue. Underdog’s complaint alleges that the California AG “plans to issue an opinion finding that certain fantasy contests…are prohibited under California law.” The opinion would be in response to the following inquiry:
Does California law prohibit the offering and operation of daily fantasy sports betting platforms with players physically located within the State of California, regardless of whether the operators and associated technology are located within or outside of the State?
Amongst other things, California Penal Code 330 prohibits the operation of any: (i) banking game (i.e. a game in which a house or bank is actually involved in gameplay), or (ii) percentage game (i.e. a game of chance in which the house collects money calculated as a portion of wagers made or sums won in play, exclusive of charges or fees for use of space and facilities).
CA ‘advisory’ AG opinion will not cause harm
To date, a California court has not be tasked with interpreting the state’s gambling statute to determine whether fantasy sports contests constitute illegal gambling. In situations where there is no controlling authority on the issue, AG opinions “are entitled to great weight” and may be considered for its persuasive value.
However, Attorney General opinions are non-binding and carry no precedential value; as a result, AG opinions are not legally required to be followed. On that basis, the court denied Underdog’s motion for preliminary injunction preventing the AG from issuing the opinion, stating “the Attorney General’s issuance of an opinion of [sic] pursuant to Government Code section 12519 does not effect any change in the law… Accordingly, [Underdog has] not established that they will suffer any harm as a result of the issuance of Opinion No. 23-1001.”
Unless the opinion is not released on July 3 as expected and further expedited proceeding is able to take place beforehand, this decision marks the end of Underdog’s lawsuit in California. However, the release of the opinion may be only the beginning of the fight to keep fantasy sports in the state.
Skill vs. chance: a fact-based inquiry?
In Sullivan v. Fox, the First District Court of Appeal of California discussed whether “pai gow” fell within the definition of a game prohibited by Penal Code §330. The court stated:
“Pai gow is not one of the games specifically mentioned in section 330. The question of its legality or illegality thus depends upon whether it qualifies as either a banking or percentage game. This is an issue of law.”
Based on the foregoing, the court developed and applied the aforementioned meaning of a “percentage game” to find the plaintiff’s operation thereof was impermissible. However, in coming to this conclusion, the court provided no analysis regarding whether pai gow fell within the definition of a “game of chance” – a threshold requirement to be considered a percentage game per the court’s stated definition.
Underdog cites two cases
Underdog’s complaint asserts that a fact-based inquiry must be conducted prior to any determination can be made regarding whether fantasy sports contests are games of chance or skill. In support of this position, Underdog cited two cases where a court reviewed the legal status of fantasy sports contests:
- Dew-Becker v. Wu (IL) – In Dew-Becker, the Supreme Court of Illinois held that participation in fantasy contests was not gambling, because multiple peer-reviewed studies have established that its contests “are predominately determined by the skill of the participants in using their knowledge of statistics and the relevant sport to select a fantasy team that will outperform the opponent.”
- White v. Cuomo (NY) – In White, the New York Court of Appeals relied upon the legislature’s “factual determination” that fantasy sports contests are considered games of skill. The evidence presented to the legislature demonstrated each participants’ “knowledge of the relevant sport, player performance and histories, offensive and defensive strengths of players and teams, team schedules, coaching strategies, how certain players on opposing teams perform against each other, statistics, strategy, and the fantasy scoring system in order to exercise considerable judgment in selecting virtual players for their rosters” as the relevant skill needed to produce winning outcomes. Cuomo additionally cited to Dew-Becker for the proposition that it is “widely recognized” that fantasy sports contests are predominantly skill-based competitions.
Each ruling was premised upon an underlying analysis of the games at issue; that is what Underdog states is required before any adverse action may be taken based upon the AG’s presumed belief that fantasy sports contests should be legally considered “games of chance.”
Further action likely needed before operators give up California DFS
In Dew-Becker, the plaintiff cited to a 2015 Illinois Attorney General Opinion that concluded fantasy sports should be considered illegal gambling under state law. The court rejected the IL AG opinion’s stance, in part because “that opinion did not have the benefit of the more recent research that has established the predominance of skill in DFS contests.”
Texas is another state in which an unfavorable AG opinion was issued, yet operators continue to serve state residents. In 2016, the Texas AG office issued an opinion stating participation in paid-entry daily fantasy sports leagues was illegal gambling. In response, DraftKings filed a petition for declaratory judgment that daily fantasy sports are legal under Texas law. The case remains pending. Notwithstanding, DraftKings and other operators continue to offer contests in the state.
Contrarily, in response to the Hawaii AG’ s opinion issued around the same time also concluding that daily fantasy sports contests are illegal gambling, DraftKings elected to voluntarily pause operations. Recent attempts to authorize daily fantasy sports failed, and no operator currently offers contests in the state.
The volume of customers received from Texas vs. Hawaii undeniably played a key role in operators deciding whether to fight or flight in each state. Underdog has expressed that California is key state for its operations, and that it already intends to continue offering contests regardless of the AG’s opinion.
Until then, it appears the potential impact of the AG opinion will be limited to the extent that a court elects to consider its persuasive value should the legality of Underdog and/or other fantasy sports contests be questioned in court.
