Skill or Luck? Daily Fantasy Sports’ Legality Under Question

By Cody Wilcoxson*

Anyone watching the National Football League this season is now familiar with an off-shoot of traditional season-long fantasy sports called daily fantasy sports, or DFS. According to iSpot.tv, a data company that measures national television ads, the two leaders in DFS, DraftKings.com and FanDuel.com, combined to spend more than $27 million on roughly 8,000 TV spots during the opening weekend of the season.[1] In September and October, the two sites spent a combined $203 million.[2]

The wave of DFS popularity is being felt, and capitalized on, by professional sports, particularly the NFL. DraftKings recently announced wide-ranging sponsorships with twelve NFL teams in an attempt to keep up with FanDuel, which has inked deals with sixteen NFL teams.[3] Further, the NFL sanctioned player appearances in DFS ads in September.[4] ESPN has not only signed an exclusive marketing deal with DraftKings, but has also incorporated daily fantasy sports into their vast portfolio of sports coverage.[5] Matthew Berry, the network’s senior fantasy analyst, now includes DFS tips in his long-running fantasy sports column, much to readers’ chagrin.[6]

Fantasy sports, including daily fantasy sports, are a part of the fabric of the professional sports experience. But are DFS legal? That is the million-dollar question…or more accurately, the billions-of-dollars question. Recently, New Jersey representative Frank Pallone, Jr. asked Congress to investigate whether the sites have evaded restrictions of online gambling.[7] “These sites are enormously popular, arguably central to the fan’s experience, and professional leagues are seeing the enormous profits as a result,” Mr. Pallone told the New York Times.[8] He continued by noting that, “[d]espite how mainstream these sites have become, though, the legal landscape governing these activities remains murky and should be reviewed.”[9]

A quick glance at DraftKings.com provides its stance on the issue: “The legality of daily fantasy sports is the same as that of season long fantasy sports. Federal Law and 45 of the 50 U.S. States allow skill based gaming. Daily fantasy sports is a skill game and is not considered gambling.”[10] The basis for this stance is found in the U.S. Code, which specifies an exception in the Unlawful Internet Gambling Enforcement Act of 2006 for “participation in any fantasy or simulation sports game…”[11]

However, DraftKings should probably update their website. On October 15, the Nevada Gaming Control Board announced that daily fantasy sports is considered gambling and therefore illegal in Nevada without a proper license.[12] In response, both DraftKings and FanDuel announced they would cease operation in Nevada.[13] The decision, making Nevada the sixth state to put a ban on DFS, is another major blow to an industry that has found itself under serious scrutiny since an employee insider training scandal was revealed in early October.[14]

The debate ultimately comes down to a simple question: are daily fantasy sports a game of skill or a game of chance? The answer here is more complicated than DraftKings or FanDuel would lead you to believe. Naysayers of DFS are adamant that it is simply a game of chance in that a person sitting on their couch has no control over the performance of a player; thus, winning is a matter of luck. “Because daily fantasy sports involves ‘wagering on the collective performance of individuals participating in sporting events’ the [Nevada] board ruled, it constitutes gambling and must receive a license to operate in the state.”[15] Nevada is just one of several states in which governments and/or citizens are battling the legality of DFS, but, as the home of Las Vegas, Nevada holds a significant place in the gambling industry. As one commentator noted, “Nevada’s preeminence in American legal gambling could persuade other jurisdictions to revisit the sites’ legality.”[16]  Furthermore, the American Gaming Association praised the Nevada decision in a statement.[17] On the other hand, according to the Wall Street Journal, “DraftKings called the move an ‘exclusionary approach against the increasingly popular fantasy sports industry’ in a state where gaming is an important industry.”[18] The Nevada board’s cease-and-desist applies to unlicensed daily fantasy-sports sites, meaning the DFS sites can return to the state under regulation by applying for a license. However, as The Atlantic notes, “[S]ites are unlikely to seek those licenses because it could weaken their efforts to persuade other jurisdictions that fantasy-sports games are games of skill, and not games of chance.” [19]

In contrast to the Nevada opinion and DFS cynics, a recent article in Bloomberg Businessweek revealed some startling statistics that lend credence to the idea that daily fantasy sports is a game of skill.[20] The article addressed the landscape of DFS with a shocking revelation: Only 1.3 percent of players finished with a profit during a three-month study by Sports Business Journal.[21] This means only the best players are succeeding in DFS, and FanDuel chief executive Nigel Eccles acknowledged as much. “We don’t make any apologies that it’s a game of skill, and you might go up against the best in the industry,” he said. “Some of the people are really good.”[22]

Eccles is referring to people like Saahil Sud, a full-time fantasy sports player who claims to have earned more the $2 million this year. Sud brings a math and economics educational background and a career in data science to his new profession. Using self-built predictive software, Sud enters hundreds of lineups per night with a proclaimed risk of $140,000 every day.

Michigan state senator Curtis Hertel recently proposed a bill to amend the Michigan penal code to specify fantasy sports as a game of skill, officially legalizing fantasy leagues in the state. Passing the bill would make Michigan the second state to legalize the practice, joining Kansas.[23]

While detractors remain, including the states of Arizona, Iowa, Louisiana, Montana, Nevada, and Washington, the industry is booming and becoming more and more a part of how people experience professional sports. If the trend of people enhancing their consumption of sports through daily fantasy sports continues, the industry seems here to stay. DFS is currently a legal way for experts like Sud to earn a profit and for others to engage with professional sports on a deeper level under federal law and in 44 U.S. states. Legislation may ultimately dictate a change in DFS regulations, but until then, sites like DraftKings and FanDuel will continue to profit, by skill or by chance.


 

*Staff Writer, Villanova University Sports and Entertainment Law Society Blog; J.D. Candidate, May 2018, Villanova University School of Law.

[1] See Joe Drape and Ken Belson, An Ad Blitz for Fantasy Sports Games, but Some See Plain Old Gambling, The New York Times (Sept. 16, 2015), http://www.nytimes.com/2015/09/17/sports /football/draftkings-fanduel-fantasy-sports-games.html?_r=0.

[2] See Matt Ford, Area Gambling Regulator Regulates Gambling, The Atlantic (Oct. 15, 2015), http://www.theatlantic.com/politics/archive/2015/10/daily-fantasy-sports-nevada/410878/.

[3] See id.

[4] See id.

[5] See id.

[6] See Matthew Berry, Love/Hate for Week 2: Back to the Basics, ESPN.com (Sept. 17, 2015), http://espn.go.com/fantasy/football/story/_/page/TMR150917/matthew-berry-love-hate-list-sleepers-busts-best-starts-sits-fantasy-football-week-2.

[7] See id.

[8] See Drape and Belson, supra note 1.

[9] See id.

[10] See Playing on DraftKings is 100% Legal in the USA., DraftKings.com, https://www.draftkings.com/

help/why-is-it-legal.

[11] 31 U.S.C. § 5362 (1)(E)(IX) (2012).

[12] See A.G. Burnett, Legality of Offering Daily Fantasy Sports in Nevada, Nevada Gaming Control Board (Oct. 15, 2015), http://gaming.nv.gov/modules/showdocument.aspx?documentid=10481.

[13] See Sharon Terlep, Daily Fantasy Sports Sites Ordered to Shut Down in Nevada, The Wall Street Journal (Oct. 15, 2015, 11:53 PM), http://www.wsj.com/articles/daily-fantasy-sports-sites-ordered-to-shut-down-in-nevada-1444956906.

[14] See Meg Lane, Use Promo Code “INSIDER TRADING” to Enter: N.Y. Attorney General Investigates DraftKings/FanDuel Scandal, SELS Blog (Oct. 13, 2015), http://lawweb2009.law.villanova.edu/

sportslaw/?p=3251.

[15] See Ford, supra note 2.

[16] See id.

[17] See Terlep, supra note 13.

[18] See id.

[19] See id.

[20] See Joshua Brustein and Ira Boudway, You Aren’t Good Enough to Win Money Playing Daily Fantasy Football, Bloomberg Businessweek (Sept 10, 2015, 8:00 AM), http://www.bloomberg.com/news/

articles/2015-09-10/you-aren-t-good-enough-to-win-money-playing-daily-fantasy-football.

[21] See id.

[22] See id.

[23] See Dustin Gouker, Fantasy Sports Bill In Michigan Would Make DFS A Skill Game, Legal Sports Report (Aug. 26, 2015, 4:00 AM), http://www.legalsportsreport.com/3317/michigan-fantasy-sports-bill/.