[toc]Illinois Attorney General Lisa Madigan has concluded that daily fantasy sports, as offered by DraftKings and FanDuel, is illegal gambling under state law.
DraftKings has said it intends to remain operational in the state, and the status of FanDuel in the state is unknown.
DFS is gambling in Illinois, AG says
Madigan’s office released its full opinion on the legality of DFS; you can read the entire opinion here.
Madigan’s office also sent letters to DraftKings and FanDuel in which it made it clear that it expected both sites to cease operations in the state. That letter, signed by Assistant Chief AG Gary Caplan, said the following:
The letter can be seen here.
What Madigan said in the DFS opinion
Madigan’s opinion came in response to inquiries regarding the legality of DFS from Elgie Sims Jr. and Scott Drury, the chair and vice-chair of the Judiciary – Criminal Committee in the state House.
Madigan provided an analysis of the contests offered by DraftKings and FanDuel, saying “the legality of daily fantasy sports is a matter of first impression,” as their status under state gaming law has never been considered.
In the start of the analysis, she writes that “The Criminal Code prohibits the playing of both ‘games of chance or skill for money.’ ” She goes on to note that DFS sites believe they operate legally under an exception to the code:
(b) Participants in any of the following activities shall not be convicted of gambling:
(2) Offers of prizes, award or compensation to the actual contestants in any bona fide contest for the determination of skill, speed, strength or endurance or to the owners of animals or vehicles entered in such contest.
Madigan says this exemption does not apply to DFS:
Reading the statute as a whole, it is clear that subsection 28-1(b)(2) applies only to the “actual contestants” in the actual sporting event. In the context of daily fantasy sports, the “actual contestant” upon whose performance success or failure is based is the athlete or athletes whose “skill, speed, strength or endurance” determine the outcome.
In her conclusion, she references legislation that has been proposed in the state legislature:
Absent legislation specifically exempting daily fantasy sports contests from the gambling provisions, it is my opinion that daily fantasy sports contests constitute illegal gambling under Illinois law.
She made no mention of other daily fantasy sports sites, but it is likely to be considered a de facto opinion regarding all forms of DFS.
Most major sites still operated in Illinois prior to the AG’s opinion, with the exception of Amaya’s StarsDraft and Star Fantasy Leagues. Some smaller operators had never taken DFS customers Illinois because of the perceived legal risk.
Reaction to AG opinion
A DraftKings statement attributed to counsel David Boies indicated that the site would stay in Illinois:
“We respectfully disagree with the Attorney General’s opinion and the reasoning behind it. We believe daily fantasy sports, which Illinois residents have been playing for years, are lawful under state law. We also believe, as the Attorney General has said, that this is a policy question for state legislators to address. That is why we look forward to working with lawmakers, like Representative Mike Zalewski and others, who wish to enact thoughtful and common-sense legislation that protects consumers’ rights to compete, while also adopting appropriate consumer protections.
The company intends to seek a judicial resolution of its right to offer daily fantasy sports contests to Illinois residents. As it does so, it will continue to abide by all relevant laws and will follow the direction of the courts. Pending that resolution the company will preserve the status quo.”
FanDuel offered this statement in the wake of the opinion:
“Chicago may be the best sports town in the country. It’s a city — and Illinois is a state — that plays fantasy sports like almost no other. “The League” is even set in Illinois. So why the Attorney General would tell her 13.5 million constituents they can’t play fantasy sports anymore as they know it — and make no mistake, her opinion bans all forms of fantasy sports played for money — is beyond us.”
Hopefully the legislature will give back to the people of Illinois the games they love. A sports town like Chicago and a sports loving state like Illinois deserves nothing less.”
Illinois Rep. Michael Zalewski, who introduced a DFS regulatory bill in October, offered this statement after the AG’s opinion:
“I greatly respect the Attorney General’s work as a consumer champion,” Zalewski said. “While I do not believe daily fantasy sports involve gambling, I have explained my concern from the outset of my work that Illinois law is unclear on this issue. Now that we have more clarity, I look forward to working with all involved in the upcoming legislative session to allow Illinoisans to continue to play these contests and provide the necessary strong consumer protections for safe, fun play.”
“I think that it is unfortunate that at a time when multiple cases involving the statute and DFS operators are pending in Illinois, the AG would choose to issue an opinion concluding that the DFS is illegal in Illinois,” Ifrah said. “Obviously, a court is not bound by her decision and ultimately the judge presiding in those cases may very well disagree with her opinion.”
The latest state AG to weigh in
Madigan joins her counterparts in Massachusetts, New York and Nevada:
- Massachusetts AG Maura Healey says DFS is legal under state law, but has drafted regulations expected to take effect next month.
- New York AG Eric Schneiderman declared DFS to be gambling under state law, and is in the middle of a court battle to have DraftKings and FanDuel exit the state.
- Nevada AG Adam Laxalt also said that DFS is gambling under state law, and the gaming commission there said that sites must be licensed to operate. All sites left Nevada in the wake of that decision.
There have also been reports that AGs from Maryland, Texas and California are investigating the legality of DFS, among other states. DFS sites have recently emailed users in all those states to contact the AGs.
Madigan’s opinion even references a 1994 opinion from the Texas AG, as the state’s gaming code has similar statutory language to Illinois.
The legislative track for DFS
Zalewski has spearheaded efforts in the state legislature to legalize and regulate DFS, well before the AG’s opinion, back in October. Those efforts have not progressed past introducing a bill.
Zalewski has been ahead of the curve on the issue, as well, floating the idea of a regulatory bill in April.
The bill, as currently written, is an industry-friendly approach, and includes no licensing fees or taxes like those that have been proposed in some other states. Interestingly, the bill would put oversight of the industry under the AG’s office.
Also in play: Illinois is in the middle of a protracted budget battle, and it seems likely that DFS legislation is not likely to get full consideration until a budget deal is done.
Zalewski previously noted that the bill is not going to be a front-burner item while the budget impasse is active. In October, he said it will likely be considered in the spring.
In an interview with Legal Sports Report on Thursday, Zalewski indicated he would try to move his legislation forward in the upcoming session of the legislature, before the state’s primary on March 15.
Other DFS considerations in Illinois
The AG’s opinion has the potential to impact DFS in and out of the state:
- There are currently four pending civil suits in Illinois that turn at least in part on the question of whether DFS is gambling.
One down-the-road repercussion of Illinois AG opinion on DFS: class action cases alleging illegality and seeking restitution or disgorgement
— Daniel Wallach (@WALLACHLEGAL) December 24, 2015
- DraftKings and FanDuel have deep professional sports partnerships in Illinois, including a DraftKings fantasy lounge at Wrigley Field — home of MLB’s Chicago Cubs — and marketing relationships with all major pro teams in Chicago.
- Eilers Research estimates roughly 200,000 unique paying DFS players in Illinois — roughly 5% of the total user base, the fourth-biggest state after California, New York and Florida. That user base punches a bit above its weight, accounting for north of 6% of revenues.
- The Illinois opinion refers extensively to the recent arguments made by the New York AG on the core question of whether players are able to impact the outcome of a DFS contest — a hint of a potentially disastrous trend for DFS operators.
Chris Grove contributed to this report.