Daily Fantasy Sports: Game Of Skill Or Game of Chance?

Author: Gabriel Fletcher, Associate Member, University of Cincinnati Law Review

Draftkings and FanDuel are online daily fantasy sports businesses (DFS).[1] In November of 2015, New York Attorney General (AG), Eric Schneiderman, declared that DFS is gambling, and thus unlawful.[2] The AG’s determination has reignited the discussion over DFS being a game of chance as opposed to a game of skill, which is a determining factor in whether or not DFS constitutes gambling. The New York Supreme Court restrained FanDuel and Draftkings from conducting business in New York without determining whether DFS is a game of skill or chance.[3] The Court of Appeals of New York has stayed the lower court’s order until it can be determined whether or not DFS constitutes gambling. The Court should and likely will find DFS to be games of chance and will ban DraftKings and FanDuel from doing business in the state.

What Are Daily Fantasy Sports?

The concept of fantasy sports has been around since the 1950s.[4] Fantasy sports, in general, are communities—almost exclusively online today—where users create mock teams assembled from the players found in real-life professional sports leagues. Traditional fantasy leagues are season-long and players are held on a team to the exclusion of the other teams in that user’s league. The individual players earn points based upon their individual performance in real life games.[5] The individual player performance scores are then added up to create a team score and the team with the highest score wins the competition.[6] DFS are a more recent variation on this old idea.

DFS participants are allowed to select among an array of competitions in which they may engage.[7]  There are three common types of contests in DFS: head-to-head; double-ups; and guaranteed prize pools (“GPP”).[8] Participants select individual professional athletes in a given sport to form a team.[9] Salary caps exist to prevent a total stacking of teams.[10] Unlike traditional fantasy sports, DFS have drafts that are usually independent of other competitors.[11] This means that an individual athlete could appear on multiple teams in a DFS competition, which is different than most traditional fantasy sports leagues.[12]

At the end of the contest, if you are a winner then you are awarded a payout based upon the wager[13] made and the type of contest in which you participated.[14] And if you are a loser, then you lose your wager and are awarded nothing.

Gambling Prohibition in New York

The New York AG has declared that DFS constitutes gambling.[15] Gambling is prohibited by New York law; however, there are exceptions like the state lottery.[16] FanDuel and DraftKings have contested the New York AG’s declaration and injunction by stating their contests are a game of skill as opposed to a game of chance.[17] As litigation in the matter begins to move forward, the focus will be on whether DFS actually constitute a game of chance, which would put them in violation of New York law.

Under New York law a contest of chance is defined as a game where the outcome depends to a “material degree” on an element of chance.[18] Gambling is roughly defined as staking or risking something of value upon the outcome of a contest of chance.[19]

In People ex rel. Ellison v. Lavin the Court of Appeals of New York held that the publisher of a newspaper was guilty of operating a gambling service.[20] The publisher was challenging readers to guestimate how many cigars, of all brands, the United States would collect taxes on in 1903 during the month of November.[21] The court reasoned that ‘playing dice is a game of chance, and chess is skill based, but that a game of cards does not cease to be a game of chance because there are times that skill is present.’[22] Also, after the use of skill, research, investigation, and judgment, an element of chance is present when an occurrence or nonoccurrence is unforeseeable.[23] The court closed out by pointing to the fact that the cigar quantity varies from month to month.[24]

FanDuel and DraftKings: Chance or Skill?

Several jurisdictions do not allow DFS to be played within their borders. These states include Arizona, Iowa, Louisiana, Montana, and Washington.[25] Washington has a statute that is similar to New York law regarding games of chance.[26] Washington’s Gambling Commission Chairman even commented that “[New York’s] definition of ‘contest of chance’ & ‘gambling’ [are the] same as [Washington’s]…Yet DFS [is] offered in [New York] but not [Washington].”[27] New York and similarly situated courts have worked to pin down the difference between games of chance and games of skill. In Seattle Times v. Tielsch, the Supreme Court of Washington found that the outcome of a football game may depend on several chance factors including: the physical condition of the athletes; the psychological mindset of the athletes; the weather; and any sociological problems between and among the members of a team.[28]

DraftKings and FanDuel argue that DFS are games of skill. The idea is that a contestant chooses the players that constitute his team’s roster based on player statistics. This involves research, analysis, and investigation.  Contestants must also monitor and assess other conditions such as the opposing team’s defense in the real life game, which may play a factor in an athlete’s production. Finally, Contestants may monitor an athlete’s strengths and weaknesses and a player’s production-per-minute of gameplay.[29] The case law in both New York and Washington, however, indicate that DFS are games of chance with an element of skill.

Similar to Ellison, DFS appear to involve some level of skill, judgment, research, and investigation. But even with seemingly adequate preparation, a contestant will still be unable to predict exactly how a player will perform because player performance, similar to the cigar quantities, varies from game to game for no readily apparent reasons. Furthermore, athletes in a game are susceptible to injury, which is unpredictable and at the very least demonstrates an element of chance that will substantially impact the outcome of a matchup because an injured player either loses performance time during a game or is removed from the game completely, thereby generating no points for the contestant.

Similar to the reasoning in Seattle Times, DFS contestants are not completely privy to the physical conditions of athletes.[30] Nor would DFS contestants necessarily be aware of factors such as psychological mindset and sociological problems between and among the members of a team, which does impact athletic performance on game day.[31] Finally, a DFS contestant may attempt to use weather reports to determine the best course of action, but even head coaches have issues obtaining accurate weather forecasts.[32] Elements of skill may exist within DFS, but New York will find that DFS are games of chance because of the sheer amount of chance variables that exist within a wager.

Conclusion

DraftKings and FanDuel contestants may exhibit a level of skill, investigation, research, and judgment in the formation of their lineups. However, the fact that contestants must rely on third party athletes to generate their scores introduces an element of chance. When observing all the other chance factors involved in DFS, the New York courts will side with AG Schneiderman in ruling that DFS constitute gambling under New York Law.

[1] FanDuel (Nov. 13, 2015), https://www.fanduel.com/q1; see also DraftKings (Nov. 13, 2015), https://www.draftkings.com/.

[2] David Purdum and Darren Rovell, N.Y. AG declares DraftKings, FanDuel are illegal gambling, not fantasy, ESPN (Nov. 11, 2015), http://espn.go.com/chalk/story/_/id/14100780/newyork-attorney-general-declares-daily-fantasy-sports-gambling

[3] The People of the State of New York v. Fanduel, Inc., 2015 WL 8490461 (N.Y.Sup.), 9.

[4] Corinne Green, ‘Wink’: Wilfred ‘Bill’ Winkenbach invented Fantasy Football way back in 1962 with GOPPPL in Oakland, 5ABC (Sept. 11, 2014), http://www.newsnet5.com/sports/wink-wilfred-bill-winkenbach-invented-fantasy-football-way-back-in-1962-with-gopppl-in-oakland.

[5] Corinne Green , supra.

[6] How It Works, FANDUEL, https://www.fanduel.com/how-it-works.

[7] How It Works, FANDUEL (Nov. 14, 2015), https://www.fanduel.com/how-it-works. Explaining that participants can engage in multiple competition types. DFS competition types include Head to head, which is 1v1; Leagues, which is usually 10 persons or more; beginners only; Double up tournaments; and guaranteed prize pool (GPP), which are large prize giveaways.

[8] Nathaniel J. Ehrman, Out of Bounds?: A Legal Analysis of Pay-to-Play Daily Fantasy Sports, 22 Sports Law. J. 79, 86 (2015). Head-to-head competitions pit one player versus another and the winner is determined by the highest score. Double-up contests function in a 50/50 format meaning the players that finish in the top half of the field win something and the players that finish in the bottom half lose. And finally, GPPs, characterized as the “most enticing type of daily fantasy,” involve a large field of contestants where only the top competitors in the field win.

[9] Playing Daily Fantasy Sports For Dummies And er…. You!, DAILY FANTASY SPORTS 101 (Nov. 15, 2015), http://www.dailyfantasysports101.com/basics/.

[10] Id.

[11] Typical fantasy sports utilize the snake and auction draft styles. The snake for example attempts to provide fairness in the draft process by reversing the draft order from one round to the next. For example, in a snake draft the person who picks first in round 1 will pick last in round 2. Conversely, the person who picked last in round 1 will pick first in round 2 and that continues until the end of the draft. An auction style draft allows players the chance to draft any player they choose, but they must have the available funds to do so. Contestants start with a bank and must bid on each player until a high bidder emerges. That continues until each contestant’s roster is full.  See Drafts: Live Online (Snake), ESPN (Nov. 14, 2015), http://games.espn.go.com/ffl/resources/help/content?name=Drafts-Live-Online; see also Drafts: Auction, ESPN (Nov. 14, 2015), http://games.espn.go.com/ffl/resources/help/content?name=Drafts-Auction.

[12] Drew Harwell, All the reasons you (probably) won’t win money playing daily fantasy sports, THE WASHINGTON POST (Oct. 12, 2015), https://www.washingtonpost.com/news/the-switch/wp/2015/10/12/all-the-reasons-you-probably-wont-win-money-playing-daily-fantasy-sports/; see also Michael Freas, DFS Corner: What is the difference between DraftKings and FanDuel?, NATIONALFOOTBALLPOST (Sept. 24, 2015), http://www.nationalfootballpost.com/dfs-corner-what-is-the-difference-between-draftkings-and-fanduel/.

[13] WAGER, Black’s Law Dictionary (10th ed. 2014). Wager is defined as 1. Money or other consideration risked on an uncerntain event; a bet or gamble. 2. A promise to pay money or other consideration on the occurrence of an uncertain event.

[14] Contests – Leagues – Tournaments and Fantasy Games, DAILY FANTASY SPORTS 101 (Nov. 14, 2015), http://www.dailyfantasysports101.com/leagues/.

[15] David Purdum and Darren Rovell, N.Y. AG declares DraftKings, FanDuel are illegal gambling, not fantasy, ESPN (Nov. 11, 2015), http://espn.go.com/chalk/story/_/id/14100780/new-york-attorney-general-declares-daily-fantasy-sports-gambling.

[16]  N.Y. Penal Law § 225.10 (McKinney); see also N.Y. Penal Law § 225.00 (McKinney); N.Y. Const. art. I, § 9.

[17] Darren Rovell, DraftKings, FanDUel sue New York Attorney General Eric Schneiderman, ESPN (Nov. 13, 2015), http://espn.go.com/chalk/story/_/id/14119916/draftkings-fanduel-sue-new-york-attorney-general-eric-schneiderman.

[18] N.Y. Penal Law § 225.00 (McKinney).

[19] Id.

[20] See People ex rel. Ellison v. Lavin, 71 N.E. 753, 756 (1904).

[21] Id. at 753.

[22] Id. at 755.

[23] Id; see also State v. Gupton, 30 N.C. 271 (1848). In State v. Gupton, the court held that the game “ten pins” was a game of skill and not chance, but in the decision the court described how to determine what a game of chance entails. The court found that “ ‘a game of chance’ is such a game, as is determined entirely or in part by lot or mere luck, and in which judgment, practice, skill, or adroitness have honestly no office at all, or are thwarted by chance.”

[24] Id. at 756.

[25] Bob Hohler, An uncertain line between fantasy sports, gambling, BOSTON GLOBE (Aug. 02, 2015), https://www.bostonglobe.com/sports/2015/08/02/fantasy-games-draw-scrutiny-ban-sports-gambling-blurs/XxWUs2cwrveLvJe8bFt3wI/story.html.

[26] THE PEOPLE OF THE STATE OF NEW YORK, by Eric T. Schneiderman, Attorney General of the State of New York, Plaintiff, v. DRAFTKINGS, INC., Defendant., 2015 WL 7290279 (N.Y.Sup.).

[27] Id.

[28] Ehrman , supra at 97 (citing Seattle Times Co. v. Tielsch, 495 P.2d 1366, 1367 (1972)).

[29] David Purdum, How daily fantasy players are winning, ESPN (Apr. 8, 2015), http://espn.go.com/chalk/story/_/id/12380815/the-skills-required-succeed-daily-fantasy-sports-espn-chalk.

[30] Most professional teams do have injury reports, however the accuracy and candor behind those reports has been called into question in the past. See Kevin Seifert, Andrew Luck’s rib injury calls Colts into question, ESPN (Nov. 1, 2015),  http://espn.go.com/blog/nflnation/post/_/id/185903/andrew-luck-rib-injury-calls-colts-into-question; see also Kyle Newport, Former Patriots Claim New England Puts False Information on Injury Reports, BLEACHER REPORT (Mar. 19, 2014), http://bleacherreport.com/articles/1999005-former-patriots-claim-new-england-puts-false-information-on-injury-reports.

[31] Nina Mandell, Jonathan Martin writes dark post about attempted suicide while playing in the NFL, USA TODAY SPORTS (Aug. 26, 2015), http://ftw.usatoday.com/2015/08/jonathan-martin-says-he-attempted-suicide-on-multiple-occasions-during-nfl-career; see also Ryan Van Bibber, Eagles WR Riley Cooper drops the N-word at a Kenny Chesney concert, SBNATION (Jul. 31, 2013), http://www.sbnation.com/nfl/2013/7/31/4576098/eagles-riley-cooper-fight-n-word-kenny-chesney-concert.  The Jonathan Martin situation points the psychological issues that DFS contestants may not know about and the Riley Cooper incident shows some of the sociological issues that may exist on a team. Riley Cooper’s teammates were not happy with him after he used the racial slur, and the Dolphins locker room was fractured over the Jonathan Martin and Richie Incognito incident. Most situations are probably not as public as these two situations, but they make for good examples as to what type of issues are brewing under the surface and behind the scenes.

[32] Jason Samenow, Bill Belichick is badly misinformed about weather forecasters, THE WASHINGTON POST (Oct. 31, 2014), https://www.washingtonpost.com/news/capital-weather-gang/wp/2014/10/31/bill-belichick-is-badly-misinformed-about-meteorologists/.

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