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Daily Fantasy Sports Case Skillfully Comes to a Head

In a controversial decision, the Illinois Supreme Court determined that a head-to-head, daily fantasy sports (DFS) contest was predominately skill based and thus not gambling. Despite agreeing with the appellate court’s conclusion that the DFS contest at issue was not gambling, the Court disagreed with much of the appellate court’s reasoning.

The case was a gambling loss recovery matter where plaintiff sought to recover his losses from another player in a head-to-head DFS contest. The Court focused its analysis on whether the DFS contest was a “bona fide contest for the determination of skill.” After noting that the Court had not previously adopted any of the three recognized tests for determining whether a contest is one of skill or chance (the “any chance,” “material element,” or “predominate factor” tests) it adopted the predominate factor test as the most appropriate. More specifically, the Court articulated the issue as “whether head-to-head DFS contests are predominately determined by the skill of the participants in using their knowledge of statistics and the relevant sport to select a fantasy team that will outperform the opponent.”

In reaching its conclusion on skill, the Court relied on a number of scientific studies that it found through independent research. A dissenting opinion criticized the majority for relying on such studies, which were not found in the record or in either party’s briefs, to make the factual determination that skill was the predominate factor in the DFS contest.

As noted, the Court disagreed with various aspects of the appellate court’s rationale. For example, the Court disagreed  with the following:

  • The appellate court’s assumption, arguendo, that a head-to-head DFS contest is “gambling” under Illinois’ gambling loss recovery statute, but that recovery for a loss in such a contest was unavailable under the statute because the statute “requires a direct connection between the two persons involved in the wager” for recovery to be allowed and here a third-party intermediary (DFS operator) facilitated or aided in the illegal gambling transaction.

  • The appellate court’s conclusion the statute cannot be read as applying to DFS contests hosted by DFS websites which only allow participants to use a screen name rather than their real names because the loser of a DFS contest will often not know the real identity of the winner.

  • The appellate court’s rejection of the application of the statute to DFS contests conducted on websites because, according to the court, allowing such application would open “the floodgates of litigation” to the “thousands of Illinois residents” who have participated in and lost DFS contests.

  • The appellate court’s observation that the trend in Illinois is toward more relaxed gambling laws and that the gambling loss recovery statute’s relevance and applicability has dwindled since its inception in the late 1800s.

The legal questions around what constitutes “skill” and whether DFS is gambling under different states law remains fluid. Many states have legalized DFS. But uncertainty remains in other states. Even in this case, the majority and the dissent disagreed as to whether the recently passed Illinois Sports Wagering Act covers DFS. The majority concluded that the Sports Wagering Act does not address or regulate DFS contests. The dissent reached the opposite conclusion, stating:

Although the Act does not explicitly reference daily fantasy sports, it defines “sports wagering” as “accepting wagers on sports events or portions of sports events, or on the individual performance statistics of athletes in a sports event or combination of sports events, by any system or method of wagering, including, but not limited to, in person or over the Internet through websites and on mobile devices.” Id. (adding 230 ILCS 45/25-10). Therefore, contrary to the majority’s contention (supra ¶ 20 n.1), because daily fantasy sports requires a wager in an attempt to accumulate the most points based on the individual performance statistics of athletes in a combination of sport events over the Internet, the Act clearly governs daily fantasy sports.

Despite the finding in this case, it is important to note other jurisdictions have reached different conclusions. In this case, each player paid a $109 entrance fee to participate in a head-to-head DFS contest on the DFS website. The contest involved pro basketball games, and both players selected a fantasy roster of nine players, with the understanding that the winner would keep $200, the loser would get nothing, and the DFS operator would keep $18.

As reported here, on similar facts, a CA court reached a different result. The CA decision related to a head-to-head DFS contest involving picking winners of horse races. Similar to the facts in the Illinois case, players each paid a fixed amount ($22) and the winner kept $40. A key issue for the court was whether the DFS was wagering or a skill-based contest. The plaintiffs contended that whether something is a bet or wager is not dependent upon whether it takes skill to actually win that bet or wager. Defendants argued that the DFS was a skill-based contest as defined by the California Business and Professions Code Section 17539.3 as:

[A]ny game, contest . . . or plan that holds out or offers to prospective participants the opportunity to receive or compete for gifts, prizes, or gratuities as determined by skill or any combination of chance and skill and that is, or in whole or in part may be, conditioned upon the payment of consideration.

The CA court determined that in the horse picking DFS, the entry fees were wagers, like a “pot” in poker and that DFS was gambling not a contest.

This Illinois case is clearly a significant win for the DFS industry and its efforts to persuade legislatures and judiciaries that DFS is a skill-based contest and not gambling. However, it would be premature to extrapolate this decision into a dispositive conclusion that all DFS is skill-based or is not gambling. The facts and state laws matter and can lead to different results.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume X, Number 112

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James Mattinson Blockchain Technology and Digital Currency Lawyer Sheppard Mullin Washington DC
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Jim Gatto is a partner in the Intellectual Property Practice Group in the firm's Washington, D.C. office. He is also Co-Team Leader of the firm's Digital Media Industry and Social Media and Games Industry Teams, Blockchain Technology and Digital Currency team, and Team Leader of the firm's Open Source Team. 

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