Friday, April 24, 2020

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

By Eugene Volokh - April 24, 2020 at 01:14PM

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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