Posternak Blankstein & Lund LLP is now Arent Fox. Read the press release

Another Win: Illinois Supreme Court Rules Fantasy Sports Contests Are Games of Skill, Not Gambling

Last week in Dew-Becker v. Wu, 2020 IL 124472 (April 16, 2020), the Illinois Supreme Court sided with the fantasy sports industry holding that daily fantasy sports contests are indeed contests of skill and thus not gambling under Illinois law. Unfortunately, given the lack of a cohesive and universal Federal law that applies to all states, the issue will continue to be debated in state legislatures and litigated in courts around the country for the foreseeable future. As those debates and litigations proceed, the approximately 60 million Americans that play fantasy sports will have to wait to see how their state decides to treat what has become not only a huge business but a quintessential part of American culture. 

The Illinois Supreme Court Dew-Becker Decision

The Dew-Becker case arose in the context of plaintiff’s attempt to recover the amount he lost in a fantasy sports contest under an Illinois statute which allows the loser of an illegal bet to recover from the winner. 2020 I.L. 124472 at ¶ 3. Recovery under that statute requires plaintiff to prove that illegal gambling was involved. In making that determination, the Court focused on 720 ILCS 5/28-1(b)(2) (2014) which exempts from the definition of gambling “prizes, award[s] or compensation to the actual contestants in any bona fide contest for the determination of skill . . .” The Court then posed the question as whether fantasy sports “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.” 720 IL 124472 at ¶ 26. The Court then answered the question in the affirmative, holding that fantasy sports contests are bona fide contests of skill and thus do not fit within the definition of gambling. In so doing, the Court relied on numerous studies and described the fact that daily fantasy sports contests are games of skill as a fact that is “widely recognized to be true . . . .” Id.

Dew-Becker Is in Line With the Federal Unlawful Internet Gambling Enforcement Act (UIGEA)

The UIGEA, which by its terms does not overrule other state law, defines “unlawful internet gambling” to mean “to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet.” See 31 U.S.C. §§ 5362, 5363. The statute goes on to provide a definition of “Bet or Wager,” which specifically excludes participation in any “fantasy or simulation sports game,” provided that the following criteria are met:

  1. No fantasy or simulation team is based on the current membership of an actual team that is a member of an amateur or professional sports organization.

  2. All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.

  3. No winning outcome is based: (1) On the score, point spread, or any performance or performances of any single real-world team or any combination of such teams; (2) Solely on any single performance of an individual athlete in any single real-world sporting or other event.

  4. All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by participants.

See 31 U.S. C § 5362(1)(E)(ix) (hereinafter the “fantasy sports safe harbor”). Thus, both Federal law and the Illinois Supreme Court agree that fantasy sports do not equate with gambling.

Continuing Priority: Emphasize the Critical Distinction Between Fantasy Sports and Traditional Gambling to Avoid Onerous Regulation

As we have pointed out in prior alerts, opponents of sports gambling often point to the risk to the integrity of the game (i.e., the risk that a gambler will attempt to “fix” a game). Stated another way, they highlight the risk that a gambler with a substantial bet on a game will attempt to bribe or extort a player or referee in order to affect the result of the game. Clearly, a player who purposefully misses shots or makes mistakes can hinder his or her team’s chances to win one game in which he or she plays. Similarly, a referee could easily change the result of a game by making calls that favor one team over another. Fantasy sports contests pose no such integrity risk.

By their very nature, fantasy sports teams are made up of players from a variety of different real-world teams playing in a variety of real-world events. Thus, there is little, if any, risk that fantasy sports contestants could, even if they wanted to, “fix” a fantasy sports contest by bribing or extorting a player or official. Thus, onerous regulation designed to ensure the integrity of sporting events is inappropriate for fantasy sports companies. The fantasy sports industry must continue to work hard to educate regulators and lawmakers so that they resist the temptation to pass only one set of laws and regulations and rather pass two – one properly suited for traditional gambling and one properly suited for fantasy sports.

Specific Do’s and Don’ts for Fantasy Sports Companies

As we have also pointed out in prior alerts, there are some simple things that fantasy sports companies can do to maximize the chances for properly tailored regulations.

First, they should religiously adhere to the “safe harbor” requirements in the UIGEA, including but not limited to ensuring that their contests have prizes that are set in advance, involve multiple real-world events, and are not dependent on any single athlete. Fantasy sports companies should also refrain from using careless nomenclature that appears to equate traditional gambling with a fantasy sports contest. Gambling terms like “bet” and “wager” should be replaced by “contest entry fee” or something similar. Similarly, fantasy sports companies should avoid terms like “rake” or “vig” and instead use “service fee” or something similar when referring to what a company charges to run a fantasy sports game.

Contacts

Continue Reading