Daily Fantasy Sports Is Gambling, Nevada Attorney General’s Office Says

October 17, 2015
Daily Fantasy Sports Is Gambling, Nevada Attorney General’s Office Says

The Nevada Attorney General’s Office published a detailed opinion on the legality of daily fantasy sports late Friday. The investigation was requested on behalf of the Nevada Gaming Control Board in July.

The memorandum describes how daily fantasy sports is considered gambling under Nevada law. The report states that any company offering the contests in the state must hold a gaming license. The 17-page memorandum cites many sources to back up the opinion, including past statements made by DraftKings CEO Jason Robins.

Daily fantasy is sports betting, according to Nevada law

The Office of the Nevada Attorney General determined that daily fantasy sports contests are sports pools under NRS 463.0193. That finding equates it to sports betting under state law.

The report describes the similarities between daily fantasy sports and proposition bets on individual player performances. Nevada has been regulating these types of wagers “for decades.”

Skill versus luck

The skill versus luck debate is addressed in the letter. The Nevada Attorney General concluded that the argument does not apply to the state’s definition of a sports pool. “Under Title 41 of the Nevada Revised Statutes, the determination of whether an activity involves skill, chance, or some combination of the two, is relevant only when analyzing lotteries,” the report states.

SB 9 is cited in this opinion. That bill, which legalized skill-based slot machines during the 2015 Nevada legislative session, “distinguishes between games of skill, games of chance, and hybrid games of both skill and chance, while recognizing that all three are gambling games,” according to the letter.

The Nevada Attorney General’s Office did investigate whether a daily fantasy sports contest could be considered a game of skill under state lottery laws, even though it already found that the activity was a sports pool as defined by statute.

The 1961 case Las Vegas Hacienda, Inc. v. Gibson involved a promotion where a guest could invest $.50 and win $5,000 if a hole-in-one was made on a local golf course. The Nevada Supreme Court found that this activity was not gambling because the participant had a direct effect on the outcome and that skill was the dominating element.

“By contrast, in daily fantasy sports, the outcome of any simulated game is determined by third parties — the actual players on actual teams and not by the owners, regardless of their skill in choosing lineups and assessing various other factors that may contribute to the outcome of the simulated game,” the report concluded.

“UIGEA did not legalize fantasy sports”

One section of the document asserts that the “UIGEA did not legalize fantasy sports.” Daily fantasy proponents often argue otherwise. Some sites mention the UIGEA on their legal pages to claim that the contests are fully legal.

DraftKings stated earlier this year on its legal disclosure page, “Operating in full compliancy with the Federal UIGEA law passed in 2006.” That statement was later changed to “Operating in full compliancy with Federal and State Laws.”

DraftDay states on its legal page, “All of our games are 100% legal, based on the Unlawful Internet Gambling Enforcement Act (UIGEA) that deemed fantasy sports gaming a game of skill and legal in the United States.” DraftDay then goes through the UIGEA exemption line-by-line.

Many affiliate sites use similar statements. The Nevada’s Attorney General Office refutes this argument under Nevada law.

“A point of clarification is in order because there are some operators and commentators who have taken the position that the Unlawful Internet Gambling Enforcement Act of 2006 (‘‘UIGEA’’) legalized fantasy sports within the United States,” the report says. “Given the explicit language of UIGEA, that position is simply untenable.”

The UIGEA states that “No provision of this subchapter shall be construed as altering, limiting, or extending any Federal or State law or Tribal-State compact prohibiting, permitting, or regulating gambling within the United States.”

“Thus, it is clear that UIGEA neither made legal nor illegal any form of gambling within the United States,” the report concluded.

DraftKings CEO statements and business practices cited

The memorandum from the Nevada Attorney General’s Office mentions DraftKings 17 times, including once as an image taken from the company’s website. DraftKings CEO Jason Robins is mentioned three times. No other daily fantasy site or employee is mentioned in the letter.

The investigation found that Jason Robins stated in a 2012 Reddit thread that the concept for DraftKings was “almost identical to a casino.” It also notes that DraftKings holds a gaming license in the United Kingdom for pool betting and gambling software.

A press release from DraftKings announcing its UK gaming license did not describe the types of licenses it was granted. That omission was noted by the report. “It appears that DraftKings recognizes the appearance of inconsistency between its position that it should be unregulated in the United States and its decision to submit to gaming regulation in the United Kingdom.”

The report also attributes a comparison of daily fantasy sports to poker to the DraftKings CEO. The ‘‘concept is a mashup between poker and fantasy sports,” Robins is quoted as saying. “Basically, you pick a team, deposit your wager, and if your team wins, you get the pot.”

“Additionally, the DraftKings CEO repeatedly refers to the payments on his sites as wagers and bets, and the activity as betting,” the Nevada investigation found.

The search engine optimization practices at DraftKings were also cited. An image advertising “paying out $1 billion this year” is included on many pages of the DraftKings website. The investigation found that the image often has alt tags that include the word “betting” in the code. Examples include “weekly fantasy basketball betting,” “weekly fantasy hockey betting,’’ ‘‘weekly fantasy football betting,’’ and ‘‘weekly fantasy college football betting.’’

An alt tag is text that is embedded in an image that only appears when hovered over by the mouse cursor. It is read by web crawlers and helps with placement in search engine results. It is a common search engine optimization practice.

The Nevada memorandum noted, “It appears that although the sites’ representatives publicly state that they do not believe daily fantasy sports involve ‘wagers’ or ‘bets,’ they do use the terms ‘betting’ and ‘wagering’ when they are not dealing with law enforcement agencies.”

“In our case, you win the total wager amount of all the people who had teams in that contest,” Robins is quoted as saying. “If there were 10 people and each put in $10 dollars, you’d win $100 (minus 10% which goes to us).” The memorandum uses these comments made by Robins to back up the conclusion that DraftKings operates a percentage game under Nevada law.

Will other states follow Nevada’s lead?

The report from the Nevada Attorney General’s Office was released late Friday. It came after business hours for most of the country.

While Nevada law does apply to other states, the opinion draws conclusions that other jurisdictions may find relevant to their gaming laws and regulations. The quotes attributed to the DraftKings CEO and his company’s business practices mentioned in the investigation may also be seen as important to other states, as well as federal investigations.

Investors that are not comfortable with the use of gambling terms to describe daily fantasy sports may also be interested in the report compiled by the Nevada Attorney General’s Office.

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