[toc]It has long been rumored that the dead in Cook County, Illinois, “vote early and vote often.” Taking their cue from this old maxim of Chicago politics, daily fantasy sports kingpins DraftKings and FanDuel swiftly responded to Illinois Attorney General Lisa Madigan’s advisory opinion that their daily fantasy sports contests constitute illegal gambling under Illinois law by filing two separate lawsuits challenging that opinion.
Smarting from their recent loss in New York, where state trial court judge Manuel Mendez entered a preliminary injunction barring DraftKings and FanDuel from offering their DFS contests to New York users, the two DFS companies opted for a more far-reaching litigation strategy in Illinois by filing similar lawsuits in two different counties, presumably hoping to double their chances of winning. (An appellate court is considering a stay that was issued in the wake of that finding, with filings due today.)
What, and where, DraftKings and FanDuel filed
Predictably, one of the lawsuits — the one brought by DraftKings — was filed in Chicago, a part of Cook County. In a surprising twist, FanDuel — joined as a plaintiff by Head2Head Sports, a much smaller fantasy sports company headquartered in Scottsdale, Arizona — filed suit in Sangamon County, which encompasses Springfield, the state capitol.
Why two different courts?
The motive for filing the dual lawsuits appears obvious: get “two bites at the apple” and hope to prevail in at least one of the cases (and, perhaps, ultimately create a split in the Illinois intermediate appellate courts and increase the chances of review by the Illinois Supreme Court). Perhaps this is a lesson learned from the New York experience, where one trial court judge (barring an appellate reversal) has put the brakes on DFS play in one of the industry’s most vital markets.
Both lawsuits seek essentially the same relief: a judicial declaration that the daily fantasy sports contests offered by FanDuel and DraftKings do not constitute illegal gambling under Section 28-1(a)(1) of the Illinois Criminal Code (the provision relied on by the Illinois AG in her Opinion Letter).
Additionally, the DraftKings lawsuit seeks a declaration that the Illinois AG’s opinion letter is “ineffectual and void.” Further, both companies have requested an injunction barring the Illinois AG from taking any enforcement action against either company.
What the Illinois AG may do
The Illinois AG, in turn, will likely seek to consolidate the two cases in one judicial forum by moving to transfer the venue of one of the cases. She will argue that the two lawsuits are largely identical and it would be judicially efficient to resolve both cases in one forum.
Madigan will assuredly seek to have venue consolidated in Democratic-leaning Cook County (she is a Democrat) and away from the Republican stronghold of Sangamon County (although the judge assigned to that case, Leslie J. Graves, is a registered Democrat). The inclusion of Head2Head Sports in the Sangamon County action appears to have been designed to differentiate the two lawsuits so as to avoid a venue transfer.
But Head2Head Sports offers mainly “season-long” fantasy sports contests, and such contests (and, for that matter, the company) were not the subject of the Illinois AG’s Opinion. So it remains to be seen whether this litigation tactic will succeed.
The major issues at play in Illinois
Procedural jockeying aside, the merits of these lawsuits will ultimately turn on three key issues:
- Whether the DFS contests offered by DraftKings and FanDuel fit within the statutory exemption for “bona fide contests for the determination of skill” under Section 28-1(b)(2) of the Illinois Criminal Code (a variation of the same issue was raised in the New York lawsuit).
- Whether the “entry fees” to enter the companies’ DFS contests constitute a “bet” under Illinois law.
- Whether the Illinois AG “selectively enforced” the law by singling out DFS for special punishment, while not targeting season-long contests that share many of the same characteristics.
As will be explained below, DraftKings and FanDuel face an uphill battle on each one of these fronts due to the broad reach of Illinois’ anti-gambling statute (which prohibits the playing of both games of “chance” and contests of “skill” for money), and case-law narrowly defining the circumstances under which the “bona fide contest” exemption is available.
Additionally, the bar for establishing a claim for selective enforcement under the equal protection clause is a high one: the complainant must typically establish “purposeful discrimination” or bad faith, elements which plainly appear to be lacking here. In many ways, the task awaiting DraftKings and FanDuel in Illinois is far more daunting than the one faced in New York, where the two companies have already suffered a significant legal setback.
‘Bona Fide Contests for the Determination of Skill’
At the heart of the DraftKings and FanDuel lawsuits is their contention that DFS players are “actual contestants” in a “bona fide contest for the determination of skill” within the meaning of Section 28-1(b)(2) of the Illinois Criminal Code. That provision exempts from the general prohibition on gambling “[o]ffers 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 contests.”
The Illinois attorney general interpreted this statutory exemption as applying “only to the ‘actual contestants’ in the actual sporting event,” meaning the real-world professional athletes whose “skill, speed, strength or endurance determine the outcome” of the DFS contest.
Thus, she concluded, Section 28-1(b)(2) “exempts only those who actually engage in a bona fide contest for the determination of skill, speed, strength or endurance, and not a daily fantasy sports participant who pays a fee to build a ‘team’ and who may win a prize based on the statistical performance of particular athletes.”
In that vein, she compared DFS players to “sports bettors,” reasoning that those “whose wagers depend on how particular, selected athletes perform in actual sporting events stand in no different stead than persons who wager on the outcome of any sporting event in which they are not participants.” None of these persons, she ultimately concluded, “are the actual contestants in a bona fide contest for the determination of skill, speed, strength, or endurance.”
The FanDuel counterargument
In their Sangamon County lawsuit, FanDuel and Head2Head countered that “the hundreds of thousands of Illinois residents” who participate in DFS contests “are, in fact, the actual contestants in the competitions, which are, in fact, bona fide contests for the determination of skill.”
The companies maintain that the Illinois AG’s “exceedingly narrow” view of the statutory exemption is “wrong” because it fails to acknowledge that (direct quotes from the filing:
- The fantasy sports contests themselves are contests for the determination of skill;
- The skill being determined in the fantasy sports contests is the ability to evaluate the talent and predict the performance of individual players, just as professional general managers do
- The ‘actual contestants’ in these fantasy sports contests are the contestants who participate in those contests, not the athletes whose performances the contestants are seeking to predict.”
Insisting that fantasy sports contests “are precisely the types of contests that the drafters of Section 28-1 sought to exempt from the criminal prohibition on illegal gambling,” FanDuel and Head2Head favorably compared their offerings to “chess, scrabble or crossword puzzle tournaments, in that they do not test athletic skill, but instead mental prowess, here as a professional sports scout, general manager, and talent development director, not a chess player.”
They maintain that the “skill” needed to succeed at fantasy sports “is no less a ‘skill’ for it involving mental acuity and not athleticism—the skill is in drafting or selecting effective players under the restrictions of a draft or a Salary Cap.”
FanDuel and Head2Head also address the relationship between fantasy sports contests and the real-world sporting events, euphemistically referring to the latter as an “outside factor.” They contend that the fact that fantasy sports contests are “partially dependent” on such “outside factors” (such as the athlete performance statistics) does not remove them from the “bona fide contest” exception.
“Like investors who make selections for their portfolio or commodity or energy traders who have to anticipate weather impact on crops and demand for power,” FanDuel and Head2Head reason, fantasy sports contestants also “base their player selections on historical performance, statistics, research, matchups, and trends.” And, as “with stock selection, commodity purchases, or energy swaps,” FanDuel and Head2Head explain, “certain aspects of performance are out of the control of the participants, but no one contends that people engaged in these businesses are not exercising skill in their choices, nor that a stock-picking contest is not a bona fide competition.”
[My take – the stock investing example would not seem to be an apt comparison since that activity is statutorily-authorized and subject to state and federal regulation. In other words, stock market investing can be seen as an exception to the definition of gambling.]
Rejecting the AG’s comparison to “sports betting,” FanDuel and Head2Head maintain that fantasy sports contestants “are not passive risk-takers in a wager over which they have no influence or control, like bettors on the outcome of a football game.” Rather, as FanDuel and Head2Head insist, fantasy sports contestants “are active players in a parallel contest of their own, which exists separate and apart from the underlying athletic event.”
These “distinct contests,” FanDuel and Head2Head reason, “exist only in the ‘fantasy’ realm, where each contestant tests his or her skill at selecting a roster that will never actually play together for comparison against other competitors’ selections.”
The DraftKings counterargument
DraftKings advances a similar theme in its Cook County lawsuit, alleging that its DFS contests are “bona fide contest[s] for the determination of skill” because “they are played by ‘actual contestants’ . . . who are “actually competing against one another to determine who put together the highest-performing fantasy lineup.”
Comparing DFS players to sports team general managers, DraftKings maintains that “[n]o one would deny that football is a game of skill, and that a team’s general manager constructs the roster through skill, knowledge and statistics.” So too here, DraftKings reasons, “DFS players act as their team’s general managers, using skill to craft their rosters and then compete against one another in a contest.”
As described by DraftKings, “that is the only contest in which DFS players pay an entry fee to compete, and in which they are eligible to win a predetermined prize.” DraftKings further asserts that DFS players “control the outcome of the fantasy competition by exercising complete control and skill over the lineups they choose, thereby using their skills to profoundly influence the outcome of the fantasy contest.”
Like the suit in Sangamon County, DraftKings also takes aim at the Illinois AG’s conclusion that the “actual contestants” in a DFS contest are the real-world professional athletes whose “skill, speed, strength and endurance” determine the outcome of the DFS contest through their statistical performance.
Claiming that the Illinois AG “completely misses the mark” in her focus on the underlying athletic performance, DraftKings stresses that the “outcome” of a fantasy sports contest “is based on the skill of the DFS player in constructing a lineup that competes against other fantasy lineups.”
As DraftKings explains, “[t]he athletes themselves are not competing in the DFS contest; their statistical performance is merely a piece of the DFS puzzle that DFS players must assemble.” By “narrowly and incorrectly focus[ing] on the skill of the athletes in the real world game, DraftKings adds, the Illinois AG is “minimiz[ing] the skill of the DFS player and asserting that the former controls the outcome of the game to the complete exclusion of the latter.”
DraftKings compares the AG’s focus on the real-world athlete to a bass fishing tournament being “controlled completely” by the skill of the “fish” (and not the fisherman) or a dog show being “determined completely” by the skill of the “judges” (not the competing dog owners), insisting that “[s]uch a reading simply cannot stand.”
A matter of first impression
These novel arguments may very well constitute matters of “first impression” in Illinois, as the AG’s opinion letter acknowledges. To be sure, the legality of daily fantasy sports has never been addressed by an Illinois court.
And while there is a paucity of decisional law in Illinois examining the contours of the “bona fide contest of skill” exemption under Section 28-1(b)(2), one Illinois appellate court has addressed that exemption within the context of a “Hold-em” poker tournament and concluded that it did not apply even though poker involved “some degree of skill.”
Moreover, other states with similar exemptions for “bona fide contests” have drawn a distinction between “actually participating” in a contest and being able to control or affect its outcome versus “forecasting” the result of a contest involving others. These authorities, as discussed below, could prove problematic for DraftKings and FanDuel in Illinois.
The Mitchell decision
The first one of these decisions is an Illinois appellate court case out of the Third District.
The facts and findings of the case
In People v. Mitchell, 444 N.E.2d 1153 (Ill. App. Ct. 1983), an Illinois intermediate appellate court addressed whether a Hold-’em poker tournament qualified for the “bona fide contest” exemption under Section 28-1(b)(2) of the Illinois Criminal Code.
The poker tournament at issue in that case involved nine players who each paid $500 to enter the contest, with the winner receiving $3,500 and the player with the next most value in chips receiving the $1,000 balance. The house did not receive any cut. Following a jury trial, the two operators of the tournament were convicted of illegal gambling under Section 28-1(a).
The appeal: Is a poker tournament a skill contest under IL law?
On appeal, the defendants argued that the prosecution failed to prove beyond a reasonable doubt that the poker tournament did not qualify as a “bona fide contest for the determination of skill” within the meaning of the Section 28-1(b)(2) exemption. The appellate court disagreed, concluding that “in our opinion, the poker game played under the circumstances of the instant case is precisely the type of ‘game of chance or skill’ which falls squarely within the plain meaning of the activity proscribed under [Section 28-1(a)(1) of the Illinois Criminal Code].”
The appeals court rejected the defendants’ argument that the “skill” necessary to play poker brought the activity within the “bona fide contest” exemption, stating:
Although there was some testimony tending to indicate that the poker games involved some degree of skill, we do not find the jury’s implicit conclusion that they were not “bona fide contests for the determination of skill” so improbable as to warrant a reversal. Both direct and circumstantial evidence was introduced to support the conclusion that the games, in fact, required a combination of skill and chance, and that they were definitely not the type of “bona fide contests” excepted from subsection (a)(1).
The application to the DFS case
Thus, the Illinois appeals court seems to be positing a “pure skill” standard for the “bona fide contests of skill” exemption, reasoning that the combination of skill and chance involved in poker renders it ineligible for the Section 28-1(b)(2) exemption. This could pose a problem for DraftKings and FanDuel since DFS, like poker, also involves “a combination of skill and chance” (with the debate largely centering on how much of skill there is relative to chance).
While the precedential value of Mitchell can be debated (since it involved appellate review of a jury verdict rather than a final judgment following a bench trial), there is no mistaking the appellate court’s clear statement that games requiring “a combination of skill and chance . . . [are] definitely not the type of ‘bona fide contests’ excepted from subsection (a)(1).” This would appear entirely consistent with plain meaning of “bona fide,” which connotes a “genuine” or “true” contest, as opposed to a questionable or derivative one.
Ray of hope in dissent
However, the dissenting opinion in Mitchell may provide some hope to DraftKings and FanDuel. That dissent, penned by Associate Justice James D. Heiple, was a full frontal assault on the “contradictory” gambling policy of the State of Illinois, pointing to several common examples (including stock investing) often cited by DFS proponents:
The position of the State of Illinois on gambling is ambivalent, inconsistent, contradictory and self-serving. We have state regulated race track betting. We have bingo. We have the Illinois State Lottery. People gamble in their homes. They gamble on the golf course. They bet on baseball, basketball, football, and prize fights. They shop at certain stores so they can be in the store’s weekly lottery drawing. They buy and sell future’s contracts through their stockbrokers. They gamble in taverns, private clubs and fraternal organizations.
Justice Heiple, in his stinging dissent, also highlighted the inconsistent enforcement of the state’s gambling laws, suggesting that a “good argument” can be made that any gambling prosecution in the state could be challenged as unconstitutional on selective enforcement grounds:
Gambling is more than endemic in Illinois. It is epidemic. Officially, however, it is illegal in most situations. How is this illegality recognized? It is tolerated, accepted, smiled at, and, in rare instances, prosecuted. If all of the illegal gambling in Illinois were totted up for the purpose of computing the percentage of gambling that is prosecuted, prosecutions would equal an infinitesimal fraction of 1%. No one could doubt that. Yet gambling prosecutions continue in selected cases. A good argument could be made that any gambling prosecution is unconstitutional as involving an unequal application of the laws. The instant case is just so.
Justice Heiple next challenged the state’s assertion that poker was a “game of chance,” calling that argument “a canard” and colorfully adding that a neophyte poker player competing against seasoned players would likely “leave his clothes behind and walk home in a barrel.” To this point, he wrote the following:
The State argues that poker is not a game of skill but is a game of pure chance or luck. This allegation is a canard. Anyone familiar with even the barest rudiments of the game knows better. Pure luck? Send a neophyte player to a Saturday night poker game with seasoned players and he will leave his clothes behind and walk home in a barrel. Pure luck? This is true of bingo or lottery. But it cannot be said of poker. The court should take judicial notice that poker is a game of skill. It cannot be gainsaid, of course, that there is an element of luck in poker. Of course there is. There is an element of luck in everything in life. Even the prosecution of a lawsuit contains an element of luck. But everything that contains an element of luck is not gambling.
Unfortunately for DraftKings and FanDuel, Justice Heiple is no longer on the bench, having retired in 2000.
While he ascended to the Illinois Supreme Court shortly after his dissent in Mitchell, Justice Heiple’s tenure on the state’s high court was shrouded in controversy due to allegations that he attempted to use his position as a judge to avoid speeding tickets. As the New York Times reported in 1997, as he was being handcuffed for resisting arrest after he was stopped for speeding, Justice Heiple said imperiously to the police officers, “‘Do you know who I am?’” He resigned his position as chief justice in 1997 largely due to this incident, and retired from the bench three years after that.
Therefore, it might be a stretch to expect Justice Heiple’s dissenting opinion in Mitchell would be accorded the same deference by Illinois courts that another supreme court justice’s dissent might ordinarily warrant.
The 1994 Texas attorney general’s opinion
Mitchell is not the only problematic authority for DraftKings and FanDuel. The Illinois AG also relied on a 1994 opinion of the Texas attorney general’s office “construing similar statutory language to that found in subsection 28-1(b)(2) of the [Illinois] Criminal Code.”
In that opinion, the Texas Attorney General addressed whether a sports wagering contest that required an entry fee, paid prizes to the winners, and was based on forecasting the outcomes of a number of sporting events (approximately 150) constituted illegal gambling under Texas law. The contest in question bore many similarities to DFS in that it involved multiple sporting events and successful contestants utilized “the skills necessary to analyze relevant data, including, but not limited to, point differentials as published in newspapers of general circulation, weather conditions, injuries, or other factors.”
The Texas AG’s Office concluded that the contest at issue did not fall within the exemption under Texas law for “actual contestants” participating in “a bona fide contest[s] for the determination of skill, speed, strength, or endurance.” Noting that this exemption “is intended to exclude only awards and compensation earned by direct participation in the contest,” the Texas AG’s Office explained that those who “forecast” the outcome of a contest could not be viewed as the “actual contestants”:
We cannot think of any distinction the words “actual contestants” could be intended to make other than that between those actually participating in a contest and able by their performance to affect its outcome, and those merely betting on it. Thus, while the subsection (1)(B) exclusion may embrace athletes actually competing in the sporting events you refer to, it does not embrace those who pay entry fees for a chance to win a prize from forecasting the outcome of the events.
Tex. Att’y Gen. Op. No. 94-051 at 2.
Relying on this out-of-state advisory opinion (interpreting virtually identical statutory language), the Illinois AG concluded last week that the phrase “actual contestants” as used in Section 28-1(b)(2) of the Illinois Criminal Code “does not apply to persons who pay entry fees for a chance to win a prize for forecasting the performance of professional or college athletes over whom they have no control or influence.” (Opinion, at 12-13)
Florida Law on ‘Bona Fide Contests’
Additional guidance on the “bona fide contest” issue can be found in my home state of Florida, which has an anti-gambling statute similar to Illinois in that it prohibits betting or wagering on “contests of skill.” See Fla. Stat. § 849.14.
While Florida does not have a “bona fide contest” exemption built into its statutory scheme (like Illinois and Texas), the Florida courts have implicitly recognized the exemption. For example, in Faircloth v. Central Florida, Inc., 202 So.2d 608 (Fla. 4th DCA 1967), Florida’s Fourth District Court of Appeal explained that the legislative intent behind Section 849.14 was to “proscribe ‘wagering’ on the results of ballgames, races, prize fights and the like, as opposed to ‘playing‘ games of skill for prizes.” Id. at 609.
Consistent with this approach, a Florida attorney general once concluded that paying an entry fee to participate in a golf tournament, bowling tournament, or “hole-in-one” golf contest where prizes are awarded does not constitute illegal gambling under Florida law (see AGOs 66-41 and 90-58), but that paying an entry fee “for the opportunity to select actual professional sports players to make up a fantasy team whose actual performance statistics result in cash payments from the contestants’ entry fees to the contestant with the best fantasy team” does constitute illegal gambling in contravention of Section 849.14 (see AGO 91-3).
In that Florida attorney general’s written opinion, one key distinction between golf and bowling tournaments, on the one hand, and fantasy sports contests, on the other, is the extent to which the entrants competing for the prize directly participated in the underlying athletic event. As the Florida Attorney General explained in AGO 91-3:
Contests in which the skill of the contestant predominates over the element of chance, such as in certain sports contests, do not constitute prohibited lotteries. This office has previously recognized that golf or bowling tournaments are predominately contests of skill. . . .
While the skill of the individual contestant picking the members of the fantasy team is involved, the prizes are paid to the contestants based upon the performance of the individual professional football players in actual games. Accordingly, I am of the opinion that the operation of a fantasy sports league . . . would violate s. 849.14, F.S.
Fla. Att’y Gen. Op. No. 91-3, at *2 (italics in original)
The impact of the New York case
The legal proceedings in New York may also have an impact on the Illinois case.
In the New York lawsuit, DraftKings and FanDuel both argued that their DFS contests are “true contests of skill” (much like a spelling bee or a hole-in-one golf contest) and that the DFS players are the “actual contestants” in those contests.
Even though the New York statute does not contain an explicit exemption for “bona fide contests of skill” (as in Illinois and Texas), the issue nonetheless emerges in the related context of identifying the “future contingent event” within the meaning of New York Penal Law Section 225.00. Under the New York statute, it is considered illegal gambling when a person risks or stakes something of value on the outcome of a “future contingent event” over which the person has no “influence or control.”
What is a future contingent event?
The task of identifying the “future contingent event” is at the crux of the New York case.
The New York attorney general asserted that, in the DFS context, the “future contingent event” is “the performance of athletes in real world games which no daily fantasy sports bettor can control.” DraftKings and FanDuel, on the other hand, argued that the “future contingent event” is the DFS contest itself since “the event that the fantasy sports contestant is engaged in is the contest over who selects the best roster, [and] that is something . . . over . . . which the contestant has enormous influence, control or influence.”
Calling this issue “the heart of the case,” FanDuel’s counsel described DFS players as “participants in their own competitions . . . whose actions influence the outcome of that contest within the meaning of the statute.” This was the forerunner of the “bona fide contest” argument advanced in Illinois.
How the NY case fits in with Illinois
In her opinion letter, the Illinois AG alluded to this issue when she wrote that New York Supreme Court Justice Manuel Mendez “made the same distinction” as the Texas attorney general when he granted the New York AG’s motions to enjoin DraftKings and FanDuel from accepting entry fees from New York consumers pending a final determination on the merits.
The New York AG had argued that participants in the contests offered by DraftKings and FanDuel paid entry fees “on events they cannot control or influence, relying on the real-game performance of professional athletes, to win a prize,” which amounts to gambling under New York law. (Decision and Order, at 5). Justice Mendez agreed, concluding that the language of the New York statute—which prohibits the staking or risking of something of value upon the outcome of a contest of chance or a future contingent event not under the [bettor’s] control or influence—“is broadly worded and as currently written sufficient for [a] finding that DFS involves illegal gambling.” (Id., at 7).
Although DraftKings and FanDuel have appealed Justice Mendez’s ruling (which has been temporarily stayed pending a determination by a full panel), the chances of a reversal do not appear strong given the breadth of New York’s gambling statute.
If Justice Mendez’s ruling is affirmed by the First Department of New York’s Appellate Division (and we should find out by late spring), it could bolster the Illinois AG’s case by providing her with additional legal authority to support her contention that the DFS contests offered by DraftKings and FanDuel are not “bona fide contests for the determination of skill” within the meaning of Section 28-1(b)(2) of the Illinois Criminal Code.
Thus, with a favorable outcome in New York, the Illinois AG would be able to cite to a host of compelling legal authorities (the Mitchell decision, the Texas attorney general’s opinion, the Florida attorney general’s opinions, and the New York court decision) to counter DraftKings’ and FanDuel’s assertion that their DFS offerings are “bona fide contests for the determination of skill.”
By contrast, absent a reversal in New York, DraftKings and FanDuel would be hard-pressed to identify any contrary legal authority other than cases (such as the oft-cited “hole-in-one golf” contest decision out of Nevada) where the prize contestant was the direct participant in the underlying athletic event and thereby was able to control or influence its outcome.
Are DFS entry fees tantamount to a ‘bet’ or ‘wager’?
Another key issue in the Illinois case is whether the entry fees collected by DraftKings and FanDuel constitute a bet or wager.
Section 28-1(a)(1) of the Illinois Criminal Code provides that a person commits the offense of gambling when he or she “knowingly plays a game of chance or skill for money or other thing of value,” unless that activity is exempted under subsection 28-1(b) [the exception discussed at length above]. This language is quite broad, as it prohibits bets or wagers on both games of chance and contests of skill.
As the Illinois AG wrote in her opinion letter, “[t]his statutory language is straightforward and unequivocal. It clearly declares that all games of chance or skill, when played for money, are illegal gambling in Illinois, unless excepted.”
The argument against bet or wager
In their recently filed lawsuits, DraftKings and FanDuel maintain that the “entry fees” collected from Illinois residents are not “bets” or “wagers.” As explained by DraftKings, “DFS contestants pay a set entry fee to compete for a predetermined prize that DraftKings will pay regardless of the outcome of either the fantasy contest or any real-world sporting event.” This structure, according to the DraftKings’ filing, renders it a “permissible game” (rather than illegal gambling) under Illinois law:
Illinois courts have adopted the majority view that contests in which participants pay a set entry fee to compete for predetermined prizes are permissible games, not illegal gambling. DraftKings serves as a neutral third-party administrator, collecting entry fees, setting contest rules, calculating points, and awarding guaranteed prizes to the winners of DFS contests — prizes that DraftKings announces in advance of the contests and has to pay regardless of the number of entrants.
Precedent for DraftKings and FanDuel
DraftKings and FanDuel will rely principally on Langone v. Keiser, 2013 WL 5567587 (N.D. Ill. Oct. 9, 2013), to press their claim that DFS “entry fees” are not bets or wagers.
In Langone, an Illinois federal court considered whether an Illinois resident (Langone) could recover his losses (and those of other DFS players) from FanDuel under the Illinois Loss Recovery Act (“ILRA”), a “qui tam” statute which allows a person who loses more than $50 at gambling to bring a civil action against the “winner” for the recovery of his gambling losses. The plaintiff, Langone, had alleged that FanDuel was a “winner” for purposes of the ILRA because FanDuel took a “commission” from the entry fees paid by participants in its games.
In an unreported decision, the Langone court concluded FanDuel, as the operator of the site, was not a “winner” within the meaning of the ILRA because it did not “wager” against any particular participant but merely acted as a conduit for players to play against each other in daily fantasy sports contests. As the court explained:
FanDuel risks nothing when it takes entry fees from participants in its fantasy sports games. The prize that FanDuel is obligated to pay is predetermined according to the number of participants in a given league, and never exceeds the total entry fees. FanDuel does not place any “wagers” with particular participants by which it could lose money based on the happening of a future event (i.e., the performance of certain athletes), but merely provides a forum for the participants to engage each other in fantasy sports games. . . . [T[he forum FanDuel creates requires fantasy sports participants to compete against each other in leagues with the result that they know specifically to whom they have lost. . . . FanDuel acts as the conduit for transmission of the prize to the winner, but FanDuel does not risk any of its money in producing the prize money[.] . . .
Illinois courts have held that “the winner and not the keeper of the house is liable to the loser,” unless the keeper of the house also risks money in the gambling activity. . . . Therefore, because FanDuel itself . . . does not participate in the risk associated with its fantasy sports games, it is not a “winner” for the purposes of the Loss Recovery Act.
2013 WL 5567587, at 6-7.
The counterargument from the AG
The Illinois AG will likely counter that the Langone decision lacks any precedential value because it interpreted a “qui tam” statute, not the Illinois anti-gambling provision (Section 28-1(a)(1) of the Illinois Criminal Code) at issue here, and never addressed the question of whether the DFS contests constituted “gambling” under Illinois law.
As the Langone court put it, “[t]he relevant question for the purposes of the Loss Recovery Act is not whether FanDuel’s activity is illegal; the question is whether FanDuel is ‘the winner’ with respect to any particular ‘loser.’” Id. at *7.
Similarities in New York
The same issue recently surfaced in the New York litigation when DraftKings and FanDuel invoked Humphrey v. Viacom, Inc., 2007 WL 1797648 (D.N.J. June 20, 2007) to argue that their DFS contests are legal.
Interpreting a similar qui tam statute under New Jersey law, the Humphrey court concluded that the payment of an “entry fee” to participate in a season-long fantasy sports contest was not an illegal “bet” or “wager” under New Jersey’s qui tam statute. The court held that “entry fees do not constitute bets or wagers where they are paid unconditionally for the privilege of participating in a contest, and the prize is for an amount certain that is guaranteed to be won by one of the contestants (but not the entity offering the prize).”
In his ruling last month, Justice Mendez characterized Humphrey as “distinguishable” because it involved a qui tam statute and interpreted words — “wagering” and “betting” — that do not even appear in New York’s definition of gambling, which looks instead to whether a person “stakes or risks something of value.” Justice Mendez noted that the latter phrase was more “broadly worded” than the New Jersey qui tam law, and, as such, was “sufficient for a finding that DFS involves illegal gambling” under New York law. (Decision and Order, at p. 7)
The Illinois gambling statute is similarly broadly worded. It defines gambling as knowingly playing a game of chance or skill “for money or other thing of value.” Compare this to the New York statute, which refers only to “something of value,” which is pretty much the same thing.
Gambling statutes are traditionally broadly construed in light of the criminal activity they were designed to reach. See, e.g., Clerk of the Circuit Court for Calvert Cty. v. Chesapeake Beach Park, Inc., 248 A.2d 479, 484 (Md. Ct. App. 1968) (statutes “relating to gambling and betting [are] liberally construed by the courts ‘so as to prevent the mischiefs intended to be provided against.’”). An Illinois court interpreting the state’s gambling statute (with language arguably broader than the New York gambling law) will no doubt liberally construe the language of Section 28-1(a)(1) in order to give effect to its broad remedial purpose.
Labels don’t matter?
The fact that DraftKings and FanDuel characterize the payments received from their customers as “entry fees” (as opposed to calling them “bets” or “wagers”) is not dispositive of the issue. Courts have cautioned against relying too heavily on labels in determining whether gambling has taken place.
In Toomey v. Penwell, 245 P. 943 (Mont. 1926), the Montana Supreme Court spoke of gambling transactions “cleverly disguised as to appear what it is not” when it considered whether an “entrance fee” to enter a contest of skill was in actuality a gambling transaction. Id. at 945.
The Toomey court described a “bona fide” entrance fee as “an amount of money paid unconditionally and in good faith for the privilege of entering the contest, and for no other purpose.” Id. at 945. But the Court cautioned that “[i]f in fact the fee is not paid for such purpose, but is merely posted upon the outcome of the contest, no amount of dissembling can save the transaction from the condemnation of our anti-gambling statute.” Id.
A 1966 Florida attorney general opinion likewise recognized that “the posting of entry fees could be merely a device resorted to in an effort to disguise a gambling transaction.” Fla. Atty. Gen. Op. 66-41, at p. 2 (Fla. A.G. Apr. 14, 1966).
Application in Illinois
In my view, DraftKings and FanDuel would not fare well under this analytical approach. As highlighted in the New York AG’s lawsuit, DraftKings’ and FanDuel’s ubiquitous advertisements “emphasized the ease of winning massive jackpots,” with one of the companies unabashedly proclaiming that “anyone can win . . . lifechanging piles of cash” and the other touting that it would be “paying out over $2 billion this year.” Viewed through this lens, it would seem fairly straightforward to conclude that DraftKings’ and FanDuel’s customers are paying entry fees in order to win cash prizes, and not just simply “for the privilege of entering the [DFS] contest.”
Regardless of the approach taken, the Illinois AG is highly likely to persuade the court that the DFS contests offered by DraftKings and FanDuel meet the definition of “gambling” under Section 28-1(a)(1) of the Illinois Criminal Code. The definition of “gambling” is just too broad under Illinois law.
DraftKings’ and FanDuel’s only real hope of prevailing in the Illinois case is to persuade the court that their DFS contests satisfy the “bona fide contests of skill” exemption under subsection 28-1(b)(2).
As judged by their complaints, even DraftKings and FanDuel seem to acknowledge this. The DraftKings complaint leads with the “bona fide contest” argument (relegating the “no bet or wager” argument to a secondary role), and FanDuel/Head2Head barely make any mention at all of the “bet or wager” argument in their complaint, instead pinning virtually all of their hopes on the “bona fide contest” exception.
The “non-distinction” between daily contests and season-long contests
DraftKings and FanDuel also assert an equal protection challenge based on the Illinois AG’s treatment of daily fantasy contests versus seasonal contests.
What FanDuel and DraftKings say
FanDuel (joined by Head2Head Sports, which offers season-long contests) maintains that the Illinois AG’s analysis “made no distinction between whether the fantasy sports contests are conducted on a daily or seasonal basis, thereby casting a legal shadow over not only FanDuel’s Illinois operations, but also Head2Head’s fantasy sports operations — and, in fact, all fantasy sports contest operations in the state.”
Similarly, DraftKings contends that the Illinois AG only “makes a passing reference to the difference in the length of daily fantasy and season long fantasy contests,” which it portrays as a “meaningless” difference since DFS “is simply an outgrowth of season long fantasy sports but involving even more skill than its predecessor.” DraftKings asserts that by “highlighting the different periods of time covered by season-long and daily fantasy contests, and only declaring DFS to be illegal gambling, the Attorney General is violating equal protection by singling out DFS for special punishment.”
A similar argument was raised in the New York case, with one critical difference: in his cease-and-desist letters, the New York AG specifically declared that seasonal contests were legal, highlighting their longer duration, use of a “competitive draft,” and ability of contestants to “repeatedly adjust” their rosters over the course of the season. He also noted that season-long contestants often “play for bragging rights or side bets,” and that the Internet sites which host season-long contests “receive most of their revenue from administrative fees and advertising, rather than profiting principally from gambling.”
Despite the explicit distinction drawn by the New York AG between daily fantasy contests (which he declared illegal) and season-long contests (which the AG acknowledged as legal), Justice Mendez rejected DraftKings’ and FanDuel’s assertion that such differential treatment lacked any “rational basis” and therefore violated the equal protection clause. He dispensed with that argument by characterizing it “as not relevant to the pending motion [for a preliminary injunction] because that relief is not before the court.” The only relief before the New York court concerned DFS, with the New York AG seeking to shut it down and DraftKings and FanDuel asking Justice Mendez to bar the AG from doing so.
The equal protection argument in Illinois
If that issue was “not relevant” in the New York case (where a sharp distinction was actually drawn between daily and seasonal contests), it is even less of an issue in Illinois, where the Illinois AG did not address the legality of season-long contests. Thus, any argument in the Illinois case centered on a “non-distinction” would appear to be even more tenuous.
Further, the Illinois AG will likely argue that there is no conceivable basis for a “selective enforcement” claim. In order to successfully bring a selective enforcement claim under the equal protection clause, the challenging party must establish:
- That he received different treatment from others similarly situated; and
- The differing treatment was based on clearly impermissible or “invidious” grounds “such as discrimination on the basis of race, religion, the exercise of first amendment rights, or bad faith.” City of Chicago v. Alexander, 24 N.E.3d 262, 276 (Ill. Ct. App. 2014) (quoting Ciechon v. City of Chicago, 686 F.2d 511, 523 n. 16 (7th Cir. 1982).
A tough hill to climb for DFS
Several of these elements would appear to be lacking. The “similarly situated” requirement presupposes that there was disparate “treatment” between two comparators. But without any affirmative “treatment” of season-long contests (there was no determination made by the Illinois AG as to the “legality” of such contests), DraftKings and FanDuel would be hard-pressed to satisfy the first element of a “selective enforcement” challenge.
The phrase “similarly situated” means “identical or directly comparable . . . in all material respects.” Everson v. City of Weyauwega, Wis., 573 Fed. App’x 599, 601 (7th Cir. 2014). The lack of any action taken by the AG with respect to season-long contests (or even any analysis of same) prevents it from being used as a “similarly-situated” comparator for equal protection purposes.
But even more fundamentally, it would be an even more uphill climb for DraftKings, FanDuel and Head2Head to demonstrate that the AG’s “non-distinction” between daily fantasy contests and season-long contests was “clearly impermissible” or based on “invidious grounds” such as discrimination on the basis of race, religion, the exercise of first amendment rights, or bad faith. The complaints filed by DraftKings and FanDuel do not make any allegations sounding in either discrimination or bad faith.
The attorney general’s powers, and how it fits in
Alternatively, DraftKings asserts that the Illinois AG’s “singling out” of DFS for special punishment is “arbitrary and capricious” in that it provides no rational basis for distinguishing between daily and season-long contests. In response to this claim (which is expressed in Count 7 of DraftKings’ complaint), the Illinois AG will point to the “broad range of discretion” afforded to the attorney general’s office in determining whether or not to charge a person with a criminal offense and the nature of the offense to be charged. As the Illinois Supreme Court explained:
The Attorney General, as the chief law enforcement officer of the state, is afforded a broad range of discretion in the performance of public duties and the exercise of this discretion is a necessary and proper function of that office. See People ex rel. Barrett v. Finnegan, 378 Ill. 387, 393, 38 N.E.2d 715 (1941) (the Attorney General has arbitrary discretion to institute proceedings in any case of purely public interest).
The Attorney General, as an elected representative of the citizens of this state, is responsible for evaluating the evidence and other pertinent factors to determine what action, if any, can and should properly be taken and what penalties should be sought. See People v. Mack, 105 Ill.2d 103, 115, 85 Ill.Dec. 281, 473 N.E.2d 880 (1984) (prosecution is vested with broad discretion in determining whether or not to charge an individual with a criminal offense and the nature of the offense to be charged).
Lyons v. Ryan, 780 N.E.2d 1098, 1104-05 (Ill. 2002) (link to decision here)
In view of this “broad discretion,” the Illinois AG’s Office will argue that it enjoys wide latitude in determining which cases to prosecute, and which ones to not prosecute.
A similar argument was made in the New York lawsuits, with the New York AG asserting that “the law is clear that latitude must be accorded authorities charged with making decisions related to legitimate law enforcement interests, at times even permitting them to proceed with an unequal hand.”
As the New York AG pointed out, “the decision to pursue only the most serious [of] violators” falls within this wide prosecutorial discretion, otherwise, “legitimate law enforcement would be hampered by requiring a hearing every time someone felt they had been unfairly singled out.” Imposing such a requirement, he added, would be “untenable.”
Look for the Illinois AG to advance a similar argument in response to the new lawsuits.
What’s next in Illinois for DFS?
The next step in the two lawsuits is for the Illinois AG to respond to the complaints.
Under most court rules, a defendant usually has a set period of time — typically 20 days (or longer if a state agency is involved) — to file an answer to the complaint. Here, however, the Illinois AG and DraftKings voluntarily entered into a scheduling order which, while expediting the matter for trial (scheduled for June 27, 2016), affords the Illinois AG additional time to respond to the complaint. Under the terms of the parties’ stipulation, the deadline for the Illinois AG to respond to DraftKings’ complaint is January 22, 2016.
As of the date of this article’s publication, it is not yet known whether the Illinois AG has entered into a similar agreement with FanDuel and Head2Head Sports.
What the AG might do
The Illinois AG’s Office has several options in responding to the complaints. It could simply file an answer, setting forth general denials of the allegations coupled with affirmative defenses (which assume that even if the allegations are true, the Illinois AG could still avoid liability on specified legal grounds).
Or it could file a motion to dismiss the complaint for failure to state a cause of action upon which relief could be granted. A motion to dismiss seems likely here because many of the issues raised in the complaints (specifically those turning on the interpretation of the Illinois Gambling statute) are pure issues of law that are not dependent on further factual development.
Look for the Illinois AG to also file motion to transfer the venue of the Sangamon County lawsuit (brought by FanDuel and Head2Head Sports) to Cook County, where the DraftKings action is pending, due to the similarity between the two cases. Strategically, it makes sense for the Illinois AG to have the actions consolidated one forum — it would avoid the possibility of inconsistent rulings, precisely the reason why DraftKings and FanDuel may prefer to keep the lawsuits separate.
After the AG’s response
Looking ahead, and assuming that the complaints are not dismissed for failure to state a claim, the parties will exchange documents and take the depositions of witnesses and experts as part of court-sanctioned “discovery.” Here, discovery has been “expedited” by a court order requiring that all discovery be completed by April 27, 2016.
Look for the parties to begin propounding discovery requests (e.g., requests for productions of documents, interrogatories, and requests for admission) in January, thereby setting the stage for depositions to take place in February, March and April.
The next critical date after that is May 7, 2016, when all summary judgment motions are due. Summary judgment is a device by which one or both parties argue to the court that there are no material facts in dispute requiring a trial, and that judgment should be entered in their favor as a matter of law.
Look for each side to file a summary judgment motion. The issues in this case — which mainly turn on statutory interpretation (such as whether the DFS contests offered by DraftKings and FanDuel meet the definition of “gambling” under Section 28-1(a)(1) of the Illinois Criminal Code, and also whether they qualify for the “bona fide contests” exemption under subsection 28-1(b)(2)) — appear susceptible to resolution by summary judgment.
Will there be a trial?
A trial in the DraftKings matter is scheduled for June 27, 2016, in Cook County before Circuit Court Judge David B. Atkins. As of this writing, no trial date has yet been scheduled in the lawsuit brought by FanDuel and Head2Head Sports in Sangamon County.
Despite the existence of a scheduling order and a trial date (which is common in many civil cases, even at this early stage), I do not expect either case to ever go to trial. The two cases will ultimately hinge on whether the DFS contests offered by DraftKings and FanDuel are “bona fide contests for the determination of skill” within the meaning of Section 28-1(b)(2) of the Illinois Criminal Code. That assessment is seemingly one that can and will be made on summary judgment because the facts do not appear to be in genuine dispute, only the legal interpretation thereof.
It is also important to note that neither plaintiff has requested a jury trial. Since the remedy sought by DraftKings and FanDuel is largely declaratory and injunctive relief, it is unclear whether there is even a right to a jury trial under Illinois law.
In all likelihood, any trial would be in the form of a “bench trial” presided over by the circuit court judge. This would, in my view, greatly increase the chances of a resolution by summary judgment. There would seemingly be no need for Judge Atkins to preside over a multi-day bench trial in late June when virtually the same issues and facts would be presented to him in the form of a summary judgment motion one month earlier.
Thus, a resolution by way of summary judgment — with a decision in late June (right before the scheduled trial date) seems the surer bet.