Illinois ruling huge for daily fantasy sports

An Illinois lawsuit over a $100 bet and involving a 200-year-old statute has led to one influential state Supreme Court decision siding in favor of daily fantasy sports.

The state’s highest court ruled April 16 that fantasy sports at their core are games of skill, not chance, through a decision involving a 2016 bet made through FanDuel.

The background

Plaintiff Colin Dew-Becker lost a head-to-head NBA roster-setting match against defendant Andrew Wu in April 2016. Both participants put up $109 to win $100. Wu more than doubled Dew-Becker’s scoring total in the match, and the latter decided to sue for his money back under the state’s Loss Recovery Act, which was first established in 1819. In essence, the law allows people who lose money on illegal gambling wagers to legally regain their money.

At the time of the contest, no specific rules governed the legality of DFS in the state. The only recent comment on the subject came in an opinion from then-attorney general Lisa Madigan, who said in 2015 that illegal gambling occurred any time someone “plays a game of chance or skill for money.”

Even since the contest, the state’s legislature did not address the DFS landscape in its Sports Wagering Act passed in 2019 that paved the way for most legalized sports betting. In deciding this particular case, the court was left to use one of three recognized tests for determining whether a game is of skill or chance.

Citing its reliability and consistency in defining skill games, the court opted for the “predominant factor” method used by the majority of U.S. states as its baseline for gambling. Such a test considers whether skill or chance is the dominating element that determines a result, not whether either or both those elements are present.

Other standards employed by some states are the “material element” test, which asks whether an outcome depends in a material degree upon chance, even if skill dominates the contest; and the less-used “any chance” test, which finds a contest to be gambling if chance is involved in any manner at all.

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Through peer-reviewed studies, the court concluded head-to-head DFS contests were predominantly skill games, denying Dew-Becker’s claim by a 5-1 decision on the seven-judge panel (one judge was not part of arguments) and stating that the contests are not illegal gambling.

The implications

The scope and importance of this decision is tricky, legal experts say. After all, both DraftKings and FanDuel are operable in 43 states and were conducting games in Illinois before the decision was made. When contacted by Gaming Today, a DraftKings spokesperson said the company was happy about the decision but wouldn’t be issuing a formal statement.

The takeaways, then, come down to mounting evidence and advertising.

“From a lawyer’s standpoint, it’s a fascinating decision because a new standard was chosen. Illinois hadn’t followed a particular test,” said Daniel Wallach, a Florida-based lawyer who specializes in sports gaming laws and is a co-founder of the sports wagering and integrity certificate through the University of New Hampshire’s law school. “Illinois had been viewed by many as a risky state for DFS, and with this decision, its legality is well-established now with the predominant standard.

“It comes as a pleasant surprise to the industry because it reinforces that skill-based notion, and for any state without a particular statute authorizing daily fantasy sports, it’s helpful to the industry.”

Jeff Ifrah, a gaming lawyer based out of Washington, D.C. who has argued previous loss recovery cases in Illinois, said it’s telling that a state Illinois’ size would use the least restrictive test in determining a game of predominant skill. Plus, he said it’s notable that Illinois went going against an attorney general’s prevailing opinion.

Those effects are more wide-ranging in the state than would be perceived at first blush. DraftKings and FanDuel’s choices to operate in Illinois before the decision was not reflective of the industry’s reticence to jump in with both feet.

“This makes a huge difference to investors, compliance officers, banks who process payments and advertisers. There were TV and print media who didn’t like ads in Illinois because of that opinion,” Ifrah said.

The future

As more states legalize fantasy sports, the influence of these state-level decisions will be reduced over time, Wallach said.

“This decision was somewhat the last of a dying breed,” he said.

But both lawyers said new frontiers in sports gaming litigation are coming. For his part, Ifrah said the Illinois decision may offer an avenue of legitimacy for other skill games, particularly in the esports and mobile industries, which have seen increased attention during the quarantine phase of the COVID-19 pandemic.

The amount of attention paid to those industries from a legal standpoint has been minimal to date, he said.

“They operate in an environment similar to daily fantasy sports, and there have not been a ton of cases to provide comfort that you are a skill game, just like DFS,” Ifrah said.

Wallach said he is watching what is occurring in several densely populated states, as California and Florida weigh potential sports gambling legislation in the coming years against restrictive guidelines in those states’ constitutions. Developments in New York state this winter have thrown DFS into question, and a direct constitutional challenge to the state’s broader sports wagering legalization push are under way, he said.

And he’s following current litigation on the reach and interpretation of the half-century-old Federal Wire Act, which prevents interstate mobile betting, among other transactions.

Ifrah says Europe’s more established sports wagering structure provides the next phase of legal developments and safeguards for domestic bettors.

“If you look over there, what you see is litigation around advertising, consumer protection, and litigation around fraud and collusion,” he said. “Those are all things that could come to U.S., but operators are working hard to be responsible and not cross the line when it comes to advertising and promotions. But those are three potential areas operators are concerned about.”