DraftKings, FanDuel Fight Illinois Ban

FanDuel and DraftKings have both filed lawsuits against Illinois Attorney General Lisa Madigan (l.) after she issued a ruling that daily fantasy sports are illegal in the state. Illinois joined New York, which also saw its attorney general declare the games illegal in that state. The two largest DFS sites continue to maintain that their contests are legal games of skill. Iowa may also act to change the rules on DFS.

Illinois became the latest battleground for the daily fantasy sports industry after the state’s Attorney General Lisa Madigan declared the games illegal in the state.

DraftKings and FanDuel—the two largest DFS operators—immediately filed a lawsuit seeking to stop Madigan from shutting the sites down in Illinois. Both sides then agreed to an expedited hearing process.

Much like their arguments in a similar case in New York—where that state’s Attorney General Eric Schneiderman is also trying to shut down the sites—the two companies argued in Illinois that daily fantasy sports is a game of skill and allowed by state law.

The suit charges that Madigan’s action “has set off a chain of events that—if unchecked—will unjustly destroy a legitimate industry,” according to the Associated Press.

Illinois residents make up 10 percent of DraftKings customers, according to the court filing.

Madigan’s office has had no comment on the two challenges.

According to DraftKings lawsuit, Illinois law does allow games of skill and their players use “their strategic know-how and ingenuity to select” a winning lineup. The argument that the games are a contest of skill has been steadily used by the two sites as they face bans and possible regulation in several states.

The lawsuit asks the court for an expedited opinion requests that the court prevent Madigan’s office from taking any enforcement action, the AP reported.

“We filed suit to ask a court to declare daily fantasy sports legal under Illinois law, and to do so on an expedited basis, so that the hundreds of thousands of Illinois fans who have played DFS openly and honestly for nearly a decade will know they can continue to enjoy the fantasy sports games they love,” Randy Mastro, an attorney for DraftKings, said in a statement.

Madigan’s ruling that the sites violate state law declared that daily fantasy sports doesn’t meet the state’s allowance of giving prizes to “actual contestants.”

“Persons whose wagers depend upon how particular, selected athletes perform in actual sporting events stand in no different stead than persons who wager on the outcome of any sporting event in which they are not participants,” Madigan wrote.

Madigan also sent a letter to the two sites asking that they block players from Illinois. Madigan has until January 22 to respond to the suits.

Meanwhile, Democratic State Representative Michael Zalewski has proposed legislation to legalize and regulate the contests in Illinois. His proposal would require players to be 18 and allow sites to review players for child support or tax debts, the AP reported.

Madigan’s ruling acknowledged the pending legislation and Zalewski said the ruling provides “clarity” to the issue as the bill moves forward.


Iowa Action

Of the 45 million fantasy sports players in the U.S. and Canada, about 354,000 are Iowans, according to the Chicago-based Fantasy Sports Trade Association. However, Iowa is one of a few states in which cash payouts are illegal or subject to unclear laws. Now state Rep. Jake Highfill said he may rewrite and resubmit a bill the Senate approved last session that would have legalized cash payouts for fantasy sports players. The measure failed to clear the House. “People love fantasy sports, and I am hearing about this all the time back home,” Highfill said.

Highfill’s legislation would set an age limit of 18 or 21 and establish a regulatory structure and tax provisions, he said, which would make lawmakers more likely to approve it. State Senator Jeff Danielson, chairman of the Senate State Government Committee, said online business models, including fantasy sports games, represent the future of the gaming industry. “We cannot scare ourselves to death about issues that come up. This is Iowa. We learn to adjust and protect our citizens, and we will do that in the online gaming environment as well,” Danielson said.

However, state Rep. Dan Kelley said he strongly opposes legalizing fantasy sports games payouts. He stated although the industry claims the games involve skill, “A daily game means that chance plays a bigger role in it. Injury can affect the outcome and weather conditions, and a bad bounce of the ball.” A majority of Iowans also do not want cash prizes legalized, according to a Des Moines Register Iowa Poll conducted in February that indicated 26 percent of respondents approved, 63 percent opposed and 11 percent were uncertain.

Iowa Gaming Association President Wes Ehrecke said the group has not taken a position on the proposed legislation but agrees with its restrictions regarding minors, consumer protections and other regulations.

Iowa attorney general’s office spokesman Geoff Greenwood said top fantasy sports operators DraftKings and FanDuel prohibit players in Iowa.

“We can only assume that their legal counsel looked at Iowa’s existing social gaming laws and determined that they couldn’t comply. Our state law mandates a bona fide social relationship for social gaming, a la the type of gathering you would find when Iowans are together somewhere selecting fantasy sports teams or are participating in an office March Madness pool.” Greenwood added under Iowa law a player may have wins and losses up to $200 in a 24-hour period, although DraftKings and FanDuel allow players to exceed those limits. Furthermore, under Iowa law only social gaming event participants may collect winnings; event organizers are not allowed to collect a percentage.

Records provided by DraftKings via the New York attorney general’s office show in 2014 DraftKings collected $5,676 in entry fees from Iowans, ranging from 25 cents to more than $5,000 with prizes totaling millions of dollars. However, Greenwood said, based on documents DraftKings provided, it’s not clear whether DraftKings allowed Iowa players to participate or if the money was refunded. “All I can say at this point is that we are reviewing the information,” Greenwood said.

DraftKings and FanDuel lobbyist John Cacciatore declined to comment on the lawsuits but noted he’s talking with Iowa policymakers about passing fantasy sports payouts legislation.


Other developments

Indiana could be the next state to introduce legislation to regulate the DFS industry. Republican State Representative Alan Morrison is expected to file the legislation this week.

The expected bill propose to restrict play to those over 18 and give the state oversight through a state agency. The sites would also be required to undergo yearly audits. The state’s casinos would also be able to host and run fantasy sports, according to WTTV in Indianapolis.

In California, Assemblyman Marc Levine has called on that state’s Attorney General Kamala Harris to shut down online daily fantasy sports betting sites in the state.

“California should have the strongest consumer protections in the country,” Levine told reporters. “By flouting California’s laws, these online betting websites are taking advantage of unwitting bettors who are likely to lose their money.”

Legislation to regulate DFS sites has also been proposed in California and the state has begun public hearings on the matter.

In New York, the attorney general has asked the state Supreme Court to lift a temporary stay that has allowed the two sites to continue operating while his case against the sites plays out in court. Schneiderman argued in his filing that the stay simply allows the industry to continue to grow and attract players in the state.

A bill to allow and regulate daily fantasy sports has also been proposed in the state.

In Texas, reports say DraftKings and FanDuel are forming a political action committee to lobby against any efforts to block the sites in that state. Texas is one of several states—including Florida and Wisconsin—where the industry has launched lobbying efforts.

In the U.K., DraftKings said it will delay its planned launch until “early this year.” The company was expected to launch its games in December. No reason for the delay was given, though DFS sites are not being challenged under U.K. gambling laws.