More Than Just a Fantasy? Legality of Fantasy Sports Remains in Flux

March 2016

The legal landscape surrounding Daily Fantasy Sports (DFS) has seen further developments since our last DFS client alert dated in November 2015.

  • Virginia – On March 7, the Virginia legislature enacted the first state law establishing the legality of DFS.
  • Indiana – On March 24, Indiana followed Virginia's lead with a similar law legalizing DFS.
  • New York – Earlier this month, the New York Attorney General entered into a settlement with FanDuel and DraftKings that recognized DFS' illegal status (for now).
  • Illinois – In December, the Illinois Attorney General deemed DFS illegal under Illinois gambling law.
  • Georgia – In February, the Georgia Attorney General unofficially advised that DFS is illegal under Georgia law.
  • Florida – On March 11, legislators tried but failed to keep a Florida fantasy sports bill alive before the close of the legislative session.
  • Nevada – On March 7, the Silver State's Governor convened the Nevada Gaming Policy Committee for the first time since 2012, to discuss, in part, DFS.

An activity constitutes illegal gambling if three elements are present: consideration (e.g., a fee to participate), chance, and prize. The elements of consideration and prize are often met for both season-long fantasy sports and DFS contests. However, season-long fantasy sports are deemed not to have the element of chance and are therefore not treated as gambling in most states because adjustments to lineups, adding and dropping players, and making trades over the course of a season have been determined to give rise to a "skill" element. Conversely, DFS contests are considered games of chance in many states, due to their dependence on the performance of far fewer players in a much shorter timeframe. Below is a brief overview of some of the many recent state law developments that affect DFS.

Indiana & Virginia Legalize Daily Fantasy Sports

On March 7, 2016, Virginia passed a law to expressly address and legalize DFS. Soon thereafter, on March 24, 2016, the Governor of Indiana signed a similar act into law. These laws are the first to directly address DFS, and others are expected in the next several years. Both laws come with hefty license fees for operators ($50,000 in both states), specify audit and ethics requirements (e.g., employees and their families cannot play), and define fantasy sports as games of skill. In Indiana, oversight of the industry will be handled by the state gaming commission, whereas in Virginia, operators must register with the Department of Agriculture and Consumer Services.

New York Attorney General Reaches Settlement with DraftKings and FanDuel Confirming Current Illegality of Daily Fantasy Sports in New York

As an update from our previous client alert, which centered around New York law, the New York Attorney General entered into settlement agreements with both DraftKings and FanDuel this month that will, at least temporarily, resolve the state's lawsuits pending against the companies. The agreements require DraftKings and FanDuel to block people in New York from playing DFS that entail an entry fee, to include New York on their list of states where contestants may not deposit funds or enter paid contests, to process all requests from New York users to withdraw their account balances, and to agree to suspend their appeals of preliminary injunctions until the Fall, presumably until the legality of DFS can be debated by the New York legislature.

Illinois Attorney General Declares Daily Fantasy Sports Illegal

In December, Illinois Attorney General Lisa Madigan declared that both the playing and online hosting of DFS are illegal under Illinois gambling laws. According to Madigan, "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. None of these persons are the actual contestants in a bona fide contest for the determination of skill, speed, strength, or endurance." The Attorney General's declaration could herald a more aggressive effort to treat season-long fantasy sports as illegal in Illinois.

Over/Under on DFS Change in Other States

In late February, Georgia's Attorney General Samuel Olens drafted an informal letter to the Senior Vice-President of the Georgia Lottery Corporation using largely the same reasoning as Madigan to ultimately advise that DFS are illegal under Georgia's gambling statutes. It may be only a matter of time until Olens makes this opinion official in Georgia.

Furthermore, though fantasy sports have been considered illegal gambling in Florida for over 20 years, the Florida legislature made a push to legalize both season-long fantasy sports and DFS this past legislative session. Unfortunately for DraftKings and FanDuel, this effort failed, but these companies might opt to lobby heavily next session in states such as Florida, where the effort was made this session, in order to mirror their success in Virginia and Indiana.

Finally, though Nevada did not make any changes at its first Nevada Gaming Policy Committee meeting since 2012, DraftKings and FanDuel can rest assured that DFS have the state's attention. DFS dominated the conversation at the meeting, so it will likely be a hot topic in the 2017 legislative session.

If you believe you may be at risk of violating the gambling laws of the state in which you conduct or play games, contests, or sweepstakes, please contact an attorney in our Advertising, Promotions & Social Media practice group to ensure you are in compliance with the applicable laws.

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