Yahoo ‘Guaranteed’ DFS Contest Raises Legal Questions, Angers Some Players

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Yahoo DraftKings Contest

Week two of Yahoo’s foray into daily fantasy sports brought with it some controversy and questions about the legality of one of its contests.

Here’s what Yahoo did

Yahoo, which launched its DFS product just two weeks ago, offered a contest based on Friday’s Major League Baseball games. The title of the contest at Yahoo? Everyone Wins Guaranteed ($1000 to Winner).” Here is the description of the contest, per Yahoo:

$1 to enter. Pick players from 15 MLB games. First place wins $1,000 and the top 10000 entries share a $22,000 prize pool. This contest is guaranteed to run even if it doesn’t fill. Good Luck!

Here is a closer look at the contest in question, and the timeline of events.

So what’s the problem with the contest?

Yahoo likely thought it was going to earn some good PR for basically giving away free money — and certainly some of the players who entered were happy to get a free dollar out of the contest. (Every player who bought in for a dollar got at least two dollars back.) But the contest also caused a little bit of backlash.

Yahoo paid the entrants per the schedule outlined on the contest’s home page. The issue, though, is that the prize pool was listed as $22,000, but $22,000 was not paid out.

That raised the ire of some players, who expected the entire prize pool to be paid out, regardless of the number of entrants.

While Yahoo was likely doing exactly what it intended to do — paying out entrants by the listed pay table — it did so so in a way that doesn’t follow industry standards. If a DFS site says a prize pool is $22,000, then $22,000 is awarded, almost without exception. Yahoo likely didn’t expect that the contest would reach less than a third of its maximum size.

Daniel Wallach, an attorney who is an expert on the intersection of sports law and gaming law for Becker & Poliakoff, notes that the contest may have run afoul of the law in many states.

“This practice could be considered false advertising and an unfair and deceptive trade practice under state law, and leave Yahoo vulnerable to a class action lawsuit or, worse, a civil enforcement action by a state attorney general, which would be a public relations nightmare for a company that has just rolled out its DFS platform and has designs on being a major player in the industry,” Wallach told Legal Sports Report.

“The standard for deceptive and unfair trade practices in many jurisdictions is ‘would a consumer acting reasonably in the circumstances be misled?” Wallach added, saying that this threshold could be met with this Yahoo contest.

Legal Sports Report has reached out to Yahoo for its take on possible legal concerns with its contest.

UIGEA concerns, too?

While state “truth in advertising” laws may be the biggest issue, the federal carveout for fantasy sports under the Unlawful Internet Gambling Enforcement Act could also come into play.

The UIGEA, in allowing fantasy sports at the federal level, provides that a contest must meet certain requirements to qualify, namely:

All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.

Wallach described the potential UIGEA issue in detail for Legal Sports Report:

Yahoo’s “phantom” $22,000 prize pool could render its contest ineligible for an exemption under UIGEA, which requires, among other things, that all prizes and awards be established in advance of the game or contest and not be tied to the number of participants or the total amount of any entry fees paid by those participants. While the $22,000 prize pool was established “in advance of” the contest and superficially was not tied to the number of participants or the aggregate amount of entry fees, the reality of the situation was quite different.

Was the UIGEA satisfied by how Yahoo ran the contest? It’s not entirely clear, unless it went to court. Wallach continued:

It is one thing to have a preset prize amount, and another entirely to pay out only a portion of it. If the UIGEA carve-out could be satisfied simply by “announcing” a price in advance without actually paying out the entire amount, UIGEA would be easily circumvented and rendered meaningless. While there is no case-law on this issue, a court would likely conclude that the conditions of the UIGEA exemption are not satisfied in a real-money fantasy contest where a prize is announced but not paid in full.

Whether UIGEA even applies, though, is open to interpretation. Was the contest technically a freeroll, in the eyes of a law, since players theoretically weren’t in danger of losing any money?

Justin Fielkow, a lawyer who practices in the fantasy sports industry, weighed in on Twitter: “One interesting question: though contestants “paid” $1 to enter, is it really gambling (consideration+chance+prize) if “guaranteed” to make at least $2? If not gambling, UIGEA may not apply.”

Another lawyer who is involved in the DFS industry expressed the opinion that the contest did not comply with the UIGEA.

Also, even if the contest is in violation of the UIGEA, that does not mean it is necessarily in violation of state law in many jurisdictions, Wallach noted. He added that UIGEA does not alter or supplant state gambling laws, which pose the greater risk to operators.

If the contest is considered to be a “skill game” and not a “game of chance,” it would probably still be legal in most jurisdictions. But Wallach cautioned that this is not necessarily the case in states (such as Florida) that prohibit bets or wagers even on contests of skill. Those states, Wallach added, focus more on the relationship between the entry fees and the prizes awarded, not on the degree of skill involved.

The biggest problem might be public perception

The outrage on social media and elsewhere wasn’t huge — after all, only about 3,000 people entered the contest.

But on some fronts — such as the web and mobile platforms and contest design — Yahoo has underwhelmed the existing DFS player base with its offering so far. Running a contest that appears to guarantee “x” and then pays out “y” isn’t doing much to engender trust or loyalty to the few DFS players who have tried Yahoo.

For instance, industry insider Michael Rathburn offered this on the forums at RotoCurve about Yahoo’s DFS platform:

One of the frustrating things with new sites coming into DFS is the lack of direction. Neither Fantasy Draft or Yahoo looks to have anyone on their respective teams with any experience in running a DFS site, and we see the mistakes they are making.

While I respect the writers at Yahoo, they are not product guys and it is tough to have a writer talk about the DFS product IMO. They can in generalities, but really and truly a product person should be leading the PR charge.

Rathburn also talked about Yahoo’s early issues this morning in his podcast.

Yahoo, though, is still in what amounts to a beta test of its DFS product. Will early hiccups like this contest hurt Yahoo in the long run, or are they just helping the site iron out the kinks before NFL season? It depends on how you want to spin it.