In mid-October, the Nevada Gaming Control Board ruled that pay-to-play daily fantasy sports (DFS) constitute gambling under Nevada law. And just this week, New York followed suit. State Attorney General Eric Schneiderman sent cease-and-desist letters to operators of DFS games ordering them to stop accepting wagers in the state. In Nevada, companies like FanDuel and DraftKings that operate DFS games online must now obtain a license from the Gaming Board in order to operate legally. In New York, operating DFS games is now illegal.
In DFS, players compete against other by building a team of professional athletes from a particular league and earn points based on the actual statistical performance of the players. As of September 2015, both FanDuel and DraftKings have an estimated value of over $1 billion. In total, an estimated 57 million people in the United States and Canada played a DFS game this year, and companies hosting DFS games are expected to collect $14.4 billion dollars in entry fees by 2020.
Federally, the Wire Act and the Unlawful Gambling Enforcement Act (UIGEA) govern DFS games. The UIGEA prohibits gambling businesses from accepting payments in connection with bets or wagers that involve the use of the Internet, but it specifically excludes certain fantasy sports and skill-games. Meanwhile, the Federal Wire Act prohibits the wire transmission in interstate commerce of wagers on any sporting event or contest. So far, though, DFS games have not been prosecuted as sports wagering under the Wire Act. A sports wager, in general, must involve a game subject to chance. Many argue that DFS games involve more skill than chance, as participants must use their knowledge of a particular sport to assemble teams of players likely to earn a high number of points, and thus are not illegal under the Wire Act.
If DFS games are not a form of sports wagering under federal law, state law comes into play. The recent Nevada ruling indicated that DFS games constitute sports wagering and may constitute lotteries under Nevada law. The ruling emphasized, though, that DFS games are not illegal in Nevada and that operators of DFS games simply need a license. The New York ruling also indicated that DFS games constitute sports wagering, but under New York law, gambling is illegal except in specific instances enumerated in the State Constitution.
While the rulings in Nevada and New York have no legal effect in other states, Congress has considered holding hearings on the legality of DFS games under federal law, and other states are sure to address the issue in the coming months and years. The legal landscape of DFS is changing quickly.
Kyle Williams is an editor on the Michigan Telecommunications and Technology Law Review, and a member of the University Michigan Law School class of 2017.