In the hype leading up to Super Bowl 50, daily fantasy sports websites like DraftKings and FanDuel have overtaken beer companies as the top advertisers for popular sporting events.
However, questions about the legality of the games continue to mount, and a recently filed Alabama lawsuit may help determine whether the games constitute gambling.
The federal suit was filed Nov. 18, 2015, in U.S. District Court in Birmingham by two Jefferson County men. Plaintiffs Sam Manzella and Robert Todd argue that the two dominant companies in the online fantasy sports business, DraftKings and FanDuel, are operating an illegal online sports betting business. The men want their money back, citing a 150-year-old state law that prohibits enforcement of gambling debts.
‘Specious attempt’
The suit states: “Defendants (DraftKings and FanDuel) define their sports betting scheme as DFS (daily fantasy sports) in a specious attempt to circumvent Alabama law which expressly prohibits ‘gambling.’ In Alabama, ‘[a] person engages in gambling if he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he or someone else will receive something of value in the event of a certain outcome.’ A scheme is considered gambling ‘if chance is the dominant factor in determining the result of the game, even though the result may be affected to some degree by skill or knowledge.’”
Class-action status
The suit seeks class-action status, identifying the proposed class as “all persons in the State of Alabama who participated in DraftKings’ or FanDuel’s DFS, deposited money in a DraftKings or FanDuel account and lost money in any game or contest during the six months prior to the filing of the original complaint.”
Sports fans have played fantasy sports games for years. Prior to the Internet, individuals within a “league” would select a team of athletes from real-life players on their favorite sports clubs (thus, a “fantasy” team) and then track their real-game statistics over the course of a season to determine the winner. Participants often put money into a collective pot and at the conclusion of the season the winner received the cash.
With the advent of the Internet and mobile apps came the ability to choose teams and track athletes’ performance even more closely. The website FanDuel launched in 2009, allowing fantasy sports players not only to take their games online but to play a version of the game that didn’t require following a full season of sports action. Instead, players could compete over the course of a day or a few days. Thus, opponents say, the game is gambling, pure and simple because fantasy sports players are essentially making wagers on the performance of selected athletes in specific games.
Defenders of the fantasy sports industry say it is a game of skill and cite the 2006 United States Unlawful Internet Gambling Enforcement Act (UIGEA), which excludes fantasy or simulation sports games if the game is not “based on the current membership of an actual team” and the winning outcome reflects “the relative knowledge and skills of the participants.”
Classification
Under the UIGEA, no winning outcome may be based on the score, point-spread or performance of any single real-world team or the single performance of an individual athlete in any single real-world sporting event. Thus, proponents say, fantasy sports are allowed under federal law because teams are drafted from among current players and are classified as a game of skill rather than a game of chance.
Joe Godfrey, executive director of the Alabama Citizens Action Program (ALCAP), said the industry is taking advantage of the law’s intention to curtail illegal gambling.
“When they wrote the law, fantasy sports was a small part of the industry,” Godfrey said. “Just like anything else, if you carve out a niche, people will take advantage of it.”
Godfrey expressed concern that the websites put gambling in the hands of anyone with a smartphone or computer, including children and teenagers. The legal age to play the games in Alabama is 19.
“There is big money in it for those who know how to work the system but most people who play end up losing money,” he said. “The state needs to be diligent in protecting its citizens from predators like that.”
Other states
Godfrey noted the corruption inherent in the industry as well, as revealed in late 2015 when allegations surfaced that employees of the two major companies were playing at rival sites and winning big. Following those revelations, several states declared the games illegal, including New York, Illinois, Vermont and most recently Texas. Five states — Arizona, Iowa, Louisiana, Montana and Washington — already ban state residents’ participation in daily fantasy sports games. Officials in Massachusetts and Nevada stopped short of calling the games illegal, instead calling for regulation of the industry in those states as gambling enterprises. A representative from Alabama Attorney General Luther Strange’s office said he is unable to comment on the legality of fantasy sports at this time.
FanDuel and DraftKings have declined to comment on the pending cases against them but both companies are fighting back. Texas Attorney General Ken Paxton says they have no argument.
Texas law
“Paid daily ‘fantasy sports’ operators claim they can legally operate as an unregulated house, but none of their arguments square with existing Texas law. Simply put, it is prohibited gambling in Texas if you bet on the performance of a participant in a sporting event and the house takes a cut,” Paxton said in a statement.
As part of his fight against the industry, New York Attorney General Eric Schneiderman wants the companies to stop operating in the state and to pay back hundreds of millions of dollars in profits made off the games. CNNMoney estimates that the industry brings in about $1.5 billion a year in revenue, primarily from advertising on the sites. Sports leagues including Major League Baseball, the NBA and the NHL, as well as owners of several NFL and NBA teams are investors in the industry, as are companies including ESPN, Yahoo and CBS. Both DraftKings and FanDuel have grown rapidly by offering daily games, CNNMoney reports.
Cheating controversies aside, FanDuel and DraftKings have faced opposition from amateur sports including the NCAA and Football Bowl Subdivision (FBS). Both groups asked the websites to stop offering college versions of their games because they consider them gambling.
In December 2015, College Football Playoff executive director Bill Hancock announced that ESPN would not air ads for the websites during broadcasts of bowl games including the championship game. NCAA President Mark Emmert had previously said NCAA would block daily fantasy sports ads during the men’s and women’s basketball tournaments and the College World Series.
Surveying Americans
As the issue begins to work its way through state and federal courts, a LifeWay Research study released Jan. 22 shows widespread belief that gambling is morally acceptable. Among Americans surveyed, 64 percent disagreed with the statement that it is morally wrong to bet on sports. They were less certain about the legality of daily fantasy sports. Seven percent of respondents said they were not sure whether websites like FanDuel and DraftKings should be legal. The remaining 93 percent were almost evenly split, with 47 percent saying the sites should be legal and 46 percent saying they should not. The ambivalence of the American public regarding gambling may be rooted in the fact that historically, “gambling has invited shady and addictive behavior,” said Scott McConnell, vice president of LifeWay Research. “Clearly people perceive a harm to society that goes beyond the wager itself.”
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