Nguyen: Massachusetts Investigates the Legality of DraftKings

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Wednesday, September 23, 2015

AiVi Nguyen, GoLocalWorcester MINDSETTER™

The Massachusetts Attorney General’s office has launched an investigation of Draft Kings, a Boston-based daily fantasy sports website. If you are even a remote NFL fan, you have seen the commercials for Draft Kings and its persistent challenge asking you “are your dreams big enough to cash a giant check?”

In fantasy sports, people draft their own teams based on real-life players and earn points on how well those players perform in real-life. For example, in fantasy football, you are part of a draft, like in real life, and you take turns picking players until you have a team assembled. Then you earn or lose points based on what those players do on the field each week. If you drafted Tom Brady as your quarterback, these past two weeks have probably been very good for you.

Fantasy leagues are usually just a group of friends who play against one another. Draft Kings is a website that lets people bet real money on their teams and play against strangers online. Winning on Draft Kings offers a range of different prizes, including VIP sports experiences or “a giant check” of hundreds of thousands to millions of dollars.

The question is whether what Draft Kings does is considered illegal online betting or not. In order for Draft Kings to operate in a state, it must comply with both state and federal law regarding online betting. Draft Kings does not comply with Arizona, Iowa, Louisiana, Montana and Washington state law and residents from those states are ineligible.

On its website Draft Kings states: “We are a US-based skill games company, and all of our contests are operated 100% legally under United States and Canadian law. The US government and 45 of the 50 states consider fantasy sports a game of skill.”

Note the word “skill.” The legality of Draft Kings hinges in large part on whether fantasy sports are considered a game of skill and not a game of chance.

In Massachusetts, an online contest is considered legal if it involves more skill than chance. With respect to federal law, Draft Kings relies on the Unlawful Internet Gambling Enforcement Act (UIGEA), which essentially holds that fantasy sports are a “game of skill” and not a “game of chance.” The law says fantasy betting is legal if (1) the prizes and awards are made known to participants before they enter (2) the winning outcomes “reflect the relative knowledge and skill of the participants” and are determined mostly by “accumulated statistical results” of players, and (3) doesn’t depend solely on the outcome of a single game or one player’s performance in a single game.

Most fantasy participants would argue that traditional fantasy sports, where you put up one team for the entire season and painstakingly pick your starters every week, is definitely a game of skill. Draft Kings, however, is a little different. The lure of Draft Kings is that it provides much more instant gratification than a traditional fantasy league, with its website boasting that “[o]ur rapid-fire contests are a much shorter duration than the traditional season-long leagues and require no team management after the draft.” It’s the “no team management” part that begs the question of whether there is skill involved. A huge part of fantasy sports is being able to manage your starters and your bench for the entire season.

As of right now, the investigation seems to only be an exploratory one which makes sense, because the AG’s office should be interested in any new business that raises and spends the kind of money the Draft Kings does. It has been reported that Draft Kings is a $1.2 billion company that raised $375 million from venture capital funding and spent $81 million in advertisements since August 1, 2015.

People really love their fantasy sports.

AiVi Nguyen is a business and trial lawyer with the Law Firm of Bowditch & Dewey, LLP.

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