[toc]The legality of daily fantasy sports is an ongoing question, particularly in certain states with stricter gambling laws. And as we learned last week in Michigan, the issue is not going away in some states.
Residents of Arizona, Iowa, Louisiana, Montana and Washington are already excluded from joining cash contests on DFS sites, and of those all but Arizona expressly prohibit daily fantasy sports. And that list could change.
The central question: Skill or chance?
The question at the heart of the issue in most states is whether daily fantasy sports are considered to be a game of skill, making it legal under the majority states’ laws, or a game of chance.
“As a matter of state law, even in the most favorable states, daily fantasy sports contests with entry fees and prizes are only legal if they involve more skill than chance,” said Marc Edelman, who specializes in sports and gaming law as an associate professor of law at the Zicklin School of Business, Baruch College, City University of New York.
Daily fantasy sports appears to be legal in the vast majority of states. But it gets murkier from there. State laws vary, of course, each with different thresholds of deciphering how much chance is allowed for a game to be legal. And determining whether a game is more skill than chance, or vice versa, is a challenge.
“The reality as to whether daily fantasy sports is a game of skill or a game of chance is that it probably varies based on the specific format of the game and the specific state of operation, creating a very real hodge-podge,” said Edelman, who wrote a paper earlier this year exploring the legal risks of daily fantasy sports.
In addition, daily fantasy sports are new, and the laws to deal with it are in a state of flux.
Which states could be a problem?
So just how many states are at risk? Plenty, according to Daniel Wallach, a Florida-based lawyer in sports and gaming law.
By my count, there are at least 12 states where #DFS is illegal (or at heightened risk): ARK, AZ, FL, IA, LA, MI, MT, ND, TN, TX, VT, and WA
— Daniel Wallach (@WALLACHLEGAL) September 7, 2015
Wallach also recently added Georgia to his list. Here is a look at some of the most at-risk states:
Arkansas, Illinois and Tennessee
The two southern states’ laws seem to most closely mirror Arizona, Iowa, Louisiana, Montana and Washington, with a particularly high threshold for contests to be considered games of skill.
In fact, some sites such as Star Fantasy Leagues already avoid Arkansas and Tennessee, saying simply:
The following states do not allow fantasy sports competition for cash: Arizona, Arkansas, Delaware, Iowa, Louisiana, Montana, Tennessee, and Washington.
But for DFS’ two heavyweights, DraftKings and FanDuel, operating in Arkansas and Tennessee may be particularly problematic, Edelman warned.
“If you look closely at state law in Arkansas and Tennessee, one reaches the inevitable conclusion that online contests are illegal if they involve even the smallest amount of chance,” Edelman said. “Thus anyone who deems these contests to be too high a risk in the five aforementioned states, certainly should not be operating in Tennessee or Arkansas, either.”
And Wallach adds Illinois to his list of states where the “legality of fantasy sports (of all types) is especially murky,” in his June paper “Florida’s Uncertain Legal Landscape for Fantasy Sports: A Closer Look”.
Any form of sports gambling is only legal in four states: Delaware, Montana, Nevada and Oregon, which were all grandfathered in when the Professional and Amateur Sports Protection Act, or PASPA, was passed in 1992. Of those, in only Nevada is full-scale sports betting legal. That means the gambling industry in the Silver State has a vested interest in protecting its turf, and some have already called for stricter regulation of DFS.
“I make my living in the gambling industry, so I’m hardly opposed to gambling,” Joe Asher, CEO of Nevada race and sports book operator William Hill US, told Reuters. “I think daily fantasy sports betting should be legal, just like I think traditional sports betting should be legal. But let’s not pretend one is OK and the other is not. Drawing some artificial line between the two makes no sense as a matter of law or policy.”
Not surprisingly, the Nevada Gaming Control Board has taken notice, and has begun a legal analysis of the issue.
“Nevada is interesting,” Edelman said. “If the daily fantasy sports contests are correct that these are indeed games of skill, then it would seem to line up outside of the regulation of casinos. However, if they’re deemed to be games of chance, they would be illegal unless they are owned and sanctioned by the state.”
Wallach writes that legality in Florida could be a “maybe” even though no laws address fantasy sports directly. DFS in Florida depends on a number of factors, including “correlation between the entry fees and prizes awarded,” according to his paper.
Missouri and New York
The two states are at lesser risk than Arkansas and Tennessee, according to Edelman’s 2015 paper.
But Missouri and New York apply a “material element test,” with which a court could decide that a game is more chance than skill, even if mathematically the opposite is found true.
“A court applying the ‘material element test’ may consider, among other factors, whether the contest is entered into among novices or experts, as well as whether the amount of information provided to the contestants negates the skill-based advantages that true experts may have obtained,” Edelman wrote.
Wallach says Georgia law has traces of both “material element test” and “any chance” in its statutes.
Georgia law: bet = agreement dependent upon chance “even though accompanied by some skill”where one stands to win or lose something of value
— Daniel Wallach (@WALLACHLEGAL) September 7, 2015
So what does all that mean for those states?
So far, there have not been legal challenges in any of these states, or any inkling that one could come, other than in Nevada.
The legality is only an issue if and when someone — such as a state attorney general — makes it one.
When you hear the phrase “legal in 45 states” in reference to daily fantasy sports, that’s usually not because there’s a law saying DFS is expressly legal in all of those jurisdictions. The lawyers for the likes of FanDuel and DraftKings believe they have the legal grounds to operate in those states, and so far, no one has told them differently.
Is anything likely to happen in any of the at-risk states? Clearly, there’s a non-zero chance of action being take in any of them. But for now, a legal challenge to DFS remains only a possibility, not a likelihood.
Photo by Brad Clinesmith used under license CC BY-SA 2.0