Gambling on the Legality of Daily Fantasy Sports

September 18, 2017

In 2016, roughly 5.6 million users pumped over three-billion dollars into daily fantasy sports tournaments online. For a fee that can range anywhere from one dollar to thousands of dollars, users get the chance to select the professional or collegiate athletes from a sport of their choice that will perform the best over a specified amount of time and winners are rewarded with cash prizes. For instance, users can select which NFL players will have the best statistics that week or which NHL players will have the best statistics on a nightly basis. Users select athletes based on the positions they play and must also comply with a fictional salary cap generated by the website hosting the tournament. Payout structures differ between tournaments, but they are all similar in that the website hosting the tournament takes a cut of the total buy-in and only awards winnings to a set percentage of the users that select the highest-performing team. Even though numerous websites host daily fantasy sports tournaments, two websites, FanDuel and DraftKings, are estimated to control over 90% of the daily fantasy sports market.
Despite the growing popularity of daily fantasy sports, the industry has operated in a legal gray area since its inception in the late 2000s. While many states have embraced daily fantasy sports, other states have deemed them “a form of illegal gambling”. Fourteen states, including Virginia, New York, and Massachusetts, have passed legislation legalizing daily fantasy sports. In contrast, Arizona, Iowa, Louisiana, Montana, and Washington have outlawed online daily fantasy sports and show no sign of reversing those decisions. FanDuel and DraftKings have accepted users in North Carolina for years, which resulted in the state legislature deciding that daily fantasy sports are “games of skill,” not “games of chance.” Games of skill fall outside the realm of illegal online gambling, and, therefore, outside of strict licensing procedures and complex regulation. Based on this determination, the state legislature introduced a bill that would expressly allow, but regulate daily fantasy sports participation in North Carolina.
By introducing daily fantasy sports legislation earlier this year, North Carolina joined a group of eighteen states that proposed similar bills. New Jersey left this coalition of eighteen states and joined the aforementioned states that expressly allow daily fantasy sports on August 28th when Governor Chris Christie signed into law a bill that had been “sitting in limbo” for over two months. The bill officially legalizes daily fantasy sports and taxes revenue generated in New Jersey at 10.5%. Furthermore, the law sets the minimum age required to play in New Jersey at eighteen and requires daily fantasy sports websites operating in the state to acquire a permit from the Department of Law and Public Safety.
Proponents of the New Jersey bill relied on the same reasoning as backers of North Carolina’s pending daily fantasy sports bill. New Jersey state gaming regulators ruled that daily fantasy sports competitions are games of skill, not games of chance. Only games of chance require a gambling license in the state of New Jersey, which paved the way for the legalization of daily fantasy sports. Supporters of daily fantasy sports competitions are games of skill highlight the amount of time users spend selecting their teams for each tournament. Seasoned competitors spend countless hours researching individual matchups, past performances, injuries and other factors for each player they select. Daily fantasy supporters also point out that 1.3% of daily fantasy users win over 91% of the profits, implying that winning requires a sound strategy and a high level of skill.
Opponents of daily fantasy sports focus on the many uncontrollable variables surrounding high-level athletics and the amount of control users actually have on their players’ performances. Innumerable uncontrollable factors such as coaching, in-game injuries, and the performance of teammates impact an athlete’s performance on gameday. To adversaries of the industry, daily fantasy sports are no different than traditional sports betting. Lisa Madigan, the Attorney General of Illinois, had this to say when asked about daily fantasy sports: “ Persons whose wagers depend upon 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.” Madigan’s hardline stance on daily fantasy sports has not stopped Illinois from allowing its residents to access FanDuel and DraftKings, though Illinois legislators have discussed a potential daily fantasy regulation bill.
At this point it appears that the fight over the legality of daily fantasy sports is being won by the industry’s proponents. FanDuel and DraftKings both currently accept users in thirty-nine states, but the war is not over.

As Fantasy Sports Trade Association president Paul Charchian said, “We’re going to battle and we’re going to win. We need to formally legalize fantasy play in fifty states.”

Some states may fight the legality of daily fantasy sports until the bitter end, but at this point it looks like DraftKings, FanDuel, their competitors, and their omnipresent ads on TV are here to stay.