DoJ Issues Letters to Stop Real Money Daily Fantasy Contests in Delaware

Delaware is set to join the list of states that have banned daily fantasy sports (DFS) in their states under the claim that the real money fantasy contests represent a form of gambling activity. Last Friday, on the 8th of July 2016, the Delaware Department of Justice announced that they had sent letters to the leading DFS operators in the state, DraftKings, FanDuel and Yahoo, to stop their real money fantasy services, in the state, after legislators failed to amend laws to explicitly authorise their offerings.

The Delaware Department of Justice claimed that the real money services that these DFS operators provide “are not permitted under Delaware law;” and they have been asked to add Delaware to the list of the ten other states where DFS is currently not permitted.

The House Gaming and Parimutuels Committee met to discuss the legality of DFS in the state for the first time on the 20th of January 2016.

Delaware is an exception

Most forms of online gambling, with exceptions for games of skill, are prohibited in the United States; however, Delaware is one of four states that are allowed to offer sports betting as it was inked into the grandfather clause of a federal law in 1992. The Finance Secretary of Delaware, Tom Cook, the State Attorney General, Matt Denn, and the Department of Justice had started looking in to the legality of daily fantasy contests early this year, in hopes of releasing an official opinion soon after.

State Rep. Helene Keeley, D-Wilmington, said that daily fantasy sports legislation are moving through the ranks in other states very quickly; they are being accepted, legalised and regulated, fast becoming a part of modern day gaming and therefore “cannot be ignored whether we like it or not.”

She added, “I think waiting for the attorney general’s opinion is probably a wise decision, but I will say that if the attorney general comes forward and says that it’s something we should be doing, it’s not something that in my belief that we should sit on. I think it’s something that we should try and move forward with.”

Sarah Koch, the assistant director of government affairs from DraftKing, said, “[DraftKings] would welcome a regulatory environment [in Delaware]” that can protect both their players and the company’s interest.

The numbers

According to Koch, there are 30,000 people living in Delaware that took part in daily fantasy services in 2015 and 150,000 players were reported to have taken part in daily fantasy sports. Despite this sizable interest from a state of around a million residents, the Delaware Department of Justice notified state regulators in the month of March of 2016 that daily fantasy sports should be considered illegal gambling in the state.

The Delaware Department of Justice officials said, “Chance, as opposed to skill, is the dominant factor in the outcome of these contests.”

Under Delaware law, all gambling except lotteries under State control are prohibited in the state; they had also emphasised that the state had no control over the DFS activities of any of the leading DFS sites.

While the DraftKings and FanDuel has spent much of last year and millions of dollars in lobbying efforts to establish that their services comprise of games of skill, the Delaware Department of Justice disagreed and clearly stated that they believe chance is the dominant factor in DFS contests because while a contestant may select the individual athletes to form the virtual team by using their knowledge of the athletes abilities, performance history and gaming style, he or she “has no role in how these players actually perform. The most skilled participants might lose and less skilled participants might win” simply because “real-life players are human and human behaviour is unpredictable.”

No movement

Information regarding the Department of Justice’ legal position had been relayed to the DFS operators earlier in the year but as “certain online fantasy sports companies” were confident and claimed that Delaware was on the cusp of amending its laws to permit DFS, the Delaware Department of Justice refrained from taking any further action at the time. However, given that the latest session for the Delaware General Assembly ended last month, on the 30th of June 2016, and no new laws had been issued to explicitly legalise DFS, the latest move has been made – the cease and desist letters have been sent to the leading DFS providers.

Keeping in mind that almost one in three Delaware residents enjoy some form of DFS gameplay, the department of Justice have decided to only block paid contests on the sites and allow Delawareans to continue to enjoy the contests that do not require an entry fee.

The Delaware Department of Justice have also said that they cannot support the kind of “gambling” the DFS sites have to offer, as they have been rendered unlawful for now and until the state legislature endorses real-money play, “The Department of Justice must enforce the law.”

No public comments

None of the three named DFS operators, Draftkings, FanDuel or Yahoo, have issued any public comments in response to the letters as of yet. However, taking from past experience, the DFS operators have historically been known to honour such requests in the states that have a smaller population and therefore a smaller number of players – such as Hawaii, where they were asked to stop paid fantasy services in February of 2016 but ignore similar letters in bigger states, with a sizable customer-base that can cause significant damage to the bottom line – such as Texas; in March 2016 when the DFS providers were issued with cease and desist letters, FanDuel immediately complied and agreed to stop real money contests in accordance with the notice but DraftKings decided to challenge the warning and continue with services until clearer laws are been established to ban DFS in the state.

 

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