Fantasy Sports Bets Aren't Forbidden Gambling, Says Illinois High Court

"Head-to-head [Daily 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."

|The Volokh Conspiracy |

In Dew-Becker v. Wu, decided last Thursday, Colin Dew-Becker sued Andrew Wu, based on a FanDuel contest; Dew-Becker claimed he had lost $100 to Wu, but was entitled to his money back:

The complaint further alleged that the DFS [Daily Fantasy Sports] contest constituted illegal gambling under Illinois law and, therefore, plaintiff was entitled to recover the lost money under section 28-8(a) of the Criminal Code of 2012, a statutory provision which allows the loser of certain illegal bets [of $50 or more] to seek recovery from the winner.

At a bench trial, plaintiff testified that in a DFS contest each participant creates a virtual roster of players by selecting from among current athletes in a real professional or amateur sports league. Each participant then earns fantasy points based on how well the selected athletes perform individually in their actual professional or college sports games on a given day. After all such games are completed, a total score is calculated for each of the virtual rosters, and the winner of the contest is the participant whose roster has the most points. A head-to-head DFS contest is one that involves only two participants who compete against each other directly.

Plaintiff testified that on April 1, 2016, he and defendant each paid a $109 entrance fee to participate in a head-to-head DFS contest on the FanDuel website. The contest involved National Basketball Association (NBA) games, and both plaintiff and defendant selected a fantasy roster of nine NBA players. Plaintiff stated that he understood when entering the contest that the winner would keep $200, the loser would get nothing, and FanDuel would keep $18. Plaintiff testified that defendant won the DFS contest by a score of 221.1 to 96.3 and that defendant received the $200 due him….

Section 28-1(a)(1) of the Criminal Code of 2012 states that a person commits gambling if he or she "knowingly plays a game of chance or skill for money or other thing of value, unless excepted in subsection (b) of this Section." Subsection (b)(2), in turn, provides an exception to gambling for a participant in any contest that offers "prizes, award[s] or compensation to the actual contestants in any bona fide contest for the determination of skill, speed, strength or endurance or to the owners of animals or vehicles entered in such contest." In this case, there is no question that when plaintiff and defendant entered into the DFS contest, they were "actual contestants" who had before them a possible "prize," "award," or "compensation." The question is whether plaintiff and defendant were engaged in a "bona fide contest for the determination of skill."

Answering this question can present difficulties because the outcome of every contest depends, at least to some degree, on chance. Even chess, a highly skill-based contest, can be affected by the random factors of who draws white (and thus goes first) or whether one's opponent is sick or distracted. To address these difficulties and determine whether a contest is one of skill and, hence, exempt from gambling laws, courts have applied three general tests. See Marc Edelman, The first test, and the one adopted by the majority of courts, is typically referred to as the "predominant purpose test" or "predominate factor test." Under this test, contests in which the outcome is mathematically more likely to be determined by skill than chance are not considered gambling….

A second test used to differentiate between contests of skill and gambling is called the "material element test." Under this test, a contest is considered a game of chance if the outcome depends in a material degree upon an element of chance, even if skill is otherwise dominant.

The third test is the "any chance test." As its name suggests, this test finds a contest to be gambling if it involves any chance whatsoever.

This court has not previously adopted any of the three recognized tests for determining whether a contest is one of skill or chance. We find, however, that the predominate factor test is the most appropriate. The any chance test is essentially no test at all, as every contest involves some degree of chance. The material element test depends too greatly on a subjective determination of what constitutes "materiality." The predominate factor test, in contrast, provides a workable rule that allows for greater consistency and reliability in determining what constitutes a contest of skill. Notably, too, our legislature has used the predominate factor test in other, similar contexts.

At issue then is whether head-to-head DFS 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. Several recent, peer-reviewed studies have established that they are. Daniel Getty et al., Luck and the Law: Quantifying Chance in Fantasy Sports and Other Contests, 60 SIAM Rev. 869 (2018); Brent A. Evans et al., Evidence of Skill and Strategy in Daily Fantasy Basketball, 34 J. Gambling Stud. 757 (2018); Todd Easton & Sarah Newell, Are Daily Fantasy Sports Gambling? 5 J. of Sports Analytics 35 (2019). In particular, it has been shown that "skill is always the dominant factor" in head-to-head DFS contests involving NBA games. Indeed, the fact that DFS contests are predominately skill-based is not only widely recognized to be true but has created a potential revenue problem for the DFS websites. Because skilled players can predominate the DFS contests, new and unskilled players are often hesitant to participate.

{A recent decision from the intermediate court of New York has recognized the role of skill in determining the outcome of DFS contests, noting that research has "demonstrated that lineups chosen by actual contestants beat those chosen at random and contestants improve their performance over time." White v. Cuomo (N.Y. App. Div. 2020). The decision concluded, however, that such contests are games of chance under the material element test.}

Arguing for a different result, plaintiff points to an Illinois Attorney General opinion letter that concluded DFS contests are illegal gambling under Illinois law. See 2015 Ill. Att'y Gen. Op. No. 15-006. However, that opinion did not have the benefit of the more recent research that has established the predominance of skill in DFS contests. Moreover, the opinion relied heavily on a decision from the Texas Attorney General's Office, Tex. Att'y Gen. Letter Op. LO-94-051 (June 9, 1994). Texas employs the any chance test, not the predominate factor test.

Justice Karmeier dissented, arguing:

[The majority] properly asserts the fundamental inquiry of the predominate factor test that "'[t]he test of the character of the game is, not whether it contains an element of chance or an element of skill, but which is the dominating element that determines the result of the game, or, alternatively, whether or not the element of chance is present in such a manner as to thwart the exercise of skill or judgment.'"To this extent, I agree. In applying the predominate factor test to a DFS contest, however, the majority oddly ignores its own statement of the test and finds DFS is a contest of skill based on the results of statistical studies.

From the outset, I must highlight the impropriety of the majority's reliance on scientific studies—that are not found in the record or in either party's briefs—to make the factual determination that skill is the predominate factor in a contest. While defendant's brief presents a bare assertion that DFS was a game of skill, he fails to support this contention with any authority. Because the studies were not presented at any stage of this litigation, reliance on these studies raises "concerns about witness credibility and hearsay normally associated with citations to empirical or scientific studies whose authors cannot be observed or cross-examined." The majority should not take the position of an advocate and defend against plaintiff's suit by hastily accepting the validity of studies that it searched for outside the record, especially considering the majority failed to engage in its own analysis of the studies' validity or credibility. The injustice resulting from this mistake is exceedingly apparent considering that, under a proper predominate factor analysis, the evidence presented at trial proved that the contest here is clearly a game of chance….

[T]he vast majority of predominate factor jurisdictions have adopted a qualitative approach. A review of these jurisdictions clarifies that, to be a contest of skill, the participant's efforts or skill must control the final result, not just one part of the larger scheme. If chance can thwart the participant's efforts or skill, it is a game of chance. "It is the character of the game, and not the skill or want of skill of the player, which determines whether the game is one of chance or skill."

Although scientific studies may aid in this determination, under the qualitative approach, games or contests whose outcome depends on the results of a contingent event out of the participant's control, like DFS, are games of chance as a matter of law. This is so because predictions, regardless of the likelihood of being true, are mere guesses innate with chance. The knowledge of past records, statistics, contest rules, and other information can increase a participant's chances of correctly predicting the result of the event, but it cannot control the outcome, as no amount of research or judgment can assure a certain result will occur. No one knows what may happen once the event commences. "What a man does not know and cannot find out is chance to him, and is recognized as chance by the law." Thus, skill can improve or maximize the potential for winning in such contests, but it cannot determine the outcome….

It is true that every game, to some extent, involves chance or an unknown. Nevertheless, no court would doubt that a person participating in a simple human footrace is a game of skill. The critical distinction between a game of chance and a game of skill is the participant's ability to overcome chance with superior skill. Runners can train for severe weather, divert their routes to avoid competitors, or increase their speed to make up for lost time. But a person who places a wager on the race lacks any ability to control the outcome of the race. It is this type of chance inherent in a game, which a person cannot influence, that contributes to the undeniable evils at which antigambling statutes are aimed. Thus, the exemption under section 28-1(b)(2) may apply only to contests in which the participant's own skill has the opportunity to overcome chance….

As a result, the majority opinion risks legalizing traditional concepts of gambling anytime a study concludes that it involves skill more than chance. One example is poker. Our courts, like many other courts, have determined poker and other card games [such as blackjack] to be games of chance despite statistical evidence that skill dominates. Under the majority's opinion, however, because studies show skill dominates in poker, these cases are effectively overruled, and poker is now legal. This absurd result could not have been intended by the legislature….

Applying the proper standard here, a DFS contest is a game of chance. Once a lineup is set and the athletic games commence, the DFS participant cannot influence the athlete's performance or how points are accumulated. At this point in the game, the outcome of the contest relies entirely on a contingent event that the participant lacks all control over, and there is no subsequent opportunity for the participant to overcome the chance involved. Accordingly, a DFS contest is a game of chance.

It should be noted, however, that the legislature has since authorized sports wagering, through its enactment of the Sports Wagering Act. Although the Act does not explicitly reference daily fantasy sports, it defines "sports wagering" as "accepting wagers on sports events or portions of sports events, or on the individual performance statistics of athletes in a sports event or combination of sports events, by any system or method of wagering, including, but not limited to, in person or over the Internet through websites and on mobile devices." Therefore, … because daily fantasy sports requires a wager in an attempt to accumulate the most points based on the individual performance statistics of athletes in a combination of sport events over the Internet, the Act clearly governs daily fantasy sports. While the Act has no bearing on this case, the ability to recover losses from DFS contests, when played in accordance with the Act, has now come to an end.

 

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  1. The name says it all; fantasy – – – – – –

  2. This was a really interesting case, as it’s far afield from the areas of law I’ve done. I was not even aware that courts use 3 different tests to make this determination (or some inchoate blend). The tests have a lot of problems themselves. For an “Any Chance” court; what sporting event does NOT have chance. For baseball, luck plays a huge role. Just the ground balls that hit the bag, turning a double play into a hit. Or the pop fly that gets caught in a sudden ray of sunlight and where the fielder is blinded, turning an easy out into a double. In hockey, I would guess that 10% of all goals are partly a result of luck…so many goals are shots that go through a maze of sticks and skates, with weird deflections that cannot be predicted.

    On the other hand, if using the predominant purpose test, high-level poker would not be gambling, nor would playing single-deck blackjack against someone adept at counting cards. Over the long haul, the better players will win against low-skill players almost every time, due to the good players’ (intellectual) skill, and–for poker–the skill of being able to bluff better, and to accurately read the bluffs of other players. And it seems odd to claim that poker and blackjack are not “gambling.”

    I think a better standard is the Potter Stewart one: I can’t define it, but I know it when I see it. (I’m writing that only partly tongue in cheek.) In this case; I sorta wish the judge/judges had ruled, “Plaintiff, you’re a welching whiney bitch. And there’s no way we’re gonna let you make a straightforward fair bet and then run to the court when you get your ass totally handed to you and you lose that bet.” (I personally suspect that that’s what happened here, and the judges worked backwards from that premise.)

    1. And it seems odd to claim that poker and blackjack are not “gambling.”

      Then call me odd. Poker is not gambling. (Blackjack is.)

      1. Yeah, I’m on board for that – though I personally think that the aforementioned example of single-deck blackjack and card counting would indeed be more skill than luck, although good luck finding anywhere that’ll let you do single-deck blackjack for actual money.

      2. Poker is playing the percentages, but that doesn’t mean chance isn’t a factor. The same is true with Blackjack, just with chance being a greater factor. Poker isn’t a skill-based game in the same sense as Basketball or chess. There is an element out of control of any competitor.

      3. >Blackjack is

        The famous MIT blackjack team suggests there can be skill involved, even in multi-deck games.

  3. There is also the prospect of rewarding a sore loser.

    1. No more or less so than whenever this law is invoked.

  4. It should not escape notice that in our “free “country we cannot play poker on-line for money except in very limited places and circumstances, while most of the rest of the free world, and not so free world can. Although I must admit I had never defined the mixed luck and skill games the way the dissent did, I don’t agree that the dissent’s view ultimately brings a fair or useful result.

    1. The dissent’s view is more consistent with how gambling has traditionally been defined in the US, though.

      Online poker should be legal. But it’s actually kind of dangerous that gambling purveyors can develop novel ways for people to lose their money and then escape gambling prohibitions. Anything with a skills-chance balance comparable to traditional forms of gambling should be considered gambling.

      1. Well, except for the states though, right?

  5. The dissent has a decent argument about the studies being considered without proper opportunity for challenge. The dissent is off the rails with the claim that chance being able to thwart skill matters. That logic devolves to the ‘any chance’ rule and swallows all definitions of skill. Runners may do everything in their power to get train for all conditions and to get the best possible equipment but still lose when a shoe comes untied causing the runner to fall and break a leg.

    If the dissent thinks the right standard should be ‘any chance’, the judge should have said so, not tried to shoehorn silly hypotheticals into the ‘predominance’ standard.

    1. You missed the point. The runner is not gambling but the person betting on the race is. Is betting on horse-racing gambling? It’s the same thing.

  6. At the risk of getting off topic, what’s the utility of the chance/skill differentiation?

    My sense is that no one likes the prospect of the kids starving because Dad gambled away his paycheck. But does it really matter to the kids if Dad lost the money playing dice, playing the state run lottery, at chess, or being bad at day trading or picking funds in his 401k?

    1. That’s a very good question. I suspect the primary reason that gambling is prohibited is that it (and dancing, and same-sex marriage) is not “moral” as the lawmakers and public have defined “morality.”

      1. There’s a moral component, but there’s also issues of underage gambling, people not paying taxes, and addiction.

        Gambling should be legal, but strictly regulated.

  7. The plaintiff is a horrible person.

    1. … with way too much free time. (Brings this suit over losing $100?)

      1. The most likely cause is the plaintiff sandbagged to establish a precedent.

        That kind of thing is common in the lawfare world.

  8. This is the rare case where I find the dissent far more compelling than the majority opinion. It makes me wonder why it didn’t carry the day.

    1. In most states it would have.

  9. The whole skill/chance distinction is absurd, as is the apparent presumption that the distinction is inherent to the game and independent of other factors.

    Should my foolishly wagering on myself playing the World Backgammon Champion in a race-to-100 match be legal, but become suddenly illegal if the scenario changes to a 1-game match between me and a similarly-skilled opponent? Chance plays effectively no role in the first scenario, but is a big factor in the second; yet they are both Backgammon.

    This whole legal discussion seems a perfect storm of incoherent law grounded in bankrupt moral principles, misinterpreted by the sometimes-misinformed and often-innumerate.

  10. One could argue that card counting makes blackjack a skill-based game because it requires use of ones knowledge of statistics and the card deck. The traditional view is what is primarily involved.

    1. That is, regarding knowledge of statistics as a skill that makes a game skill based is absurd. Statistics is about chance.

  11. Crazy

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