Business

Illinois AG says daily fantasy sports contests are illegal

DraftKings, headquartered in Boston, is facing rulings that its operations are illegal in some states.

Associated Press

DraftKings, headquartered in Boston, is facing rulings that its operations are illegal in some states.

In yet another setback for the daily fantasy sports industry, the attorney general of Illinois on Wednesday ruled that the contests offered by DraftKings Inc. and similar companies are illegal under that state’s gambling laws.

Attorney General Lisa Madigan said that in light of the decision, she expected Boston-based DraftKings and its New York rival, FanDuel Inc., to stop accepting entries from players in Illinois — including the large, sports-loving Chicago market.

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Madigan said that Illinois law explicitly forbids most contests for money, rejecting arguments by daily fantasy companies that their contests are legal because they rely on players’ skill, not chance.

“The statutory language is straightforward and unequivocal. It clearly declares that all games of chance or skill, when played for money, are illegal gambling in Illinois, unless excepted,” Madigan wrote in her opinion, which was requested by state legislators earlier this month. “While the contest organizers assert that daily fantasy sports contests are games of skill rather than games of chance, that argument is immaterial, because [Illinois law] expressly encompasses both.”

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In New York, one of the country’s largest daily fantasy markets, Draft-Kings and FanDuel immediately filed lawsuits after that state’s attorney general, Eric Schneiderman, issued a similar decision in November, declaring their games illegal.

Both companies withdrew from Nevada in October after gambling regulators there said the contests were a form of gambling that required licensure.

“We respectfully disagree with the attorney general’s opinion and the reasoning behind it,” DraftKings attorney David Boies said in a statement. “We believe daily fantasy sports, which Illinois residents have been playing for years, are lawful under state law.” He said DraftKings would “promptly seek a judicial resolution of its right to offer daily fantasy sports contests to Illinois residents.”

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In a statement, FanDuel blasted Madigan’s decision and threatened to rally Chicago sports fans to its side; the company did not say whether it would stop taking entries from Illinois or fight Madigan in court.

“Why the attorney general would tell her 13.5 million constituents they can’t play fantasy sports anymore as they know it — and make no mistake, her opinion bans all forms of fantasy sports played for money — is beyond us,” the statement read.

There is a glimmer of hope for the companies and their customers in Illinois: A bill before the Legislature would exempt daily fantasy sports from the state’s gambling ban, and it has support from a number of legislators.

The potential loss of the Illinois market could sting badly for the companies: Eilers Research estimated Illinois has 200,000 paying daily fantasy customers, fourth-most after California, New York, and Florida. Losing those customers, who account for more than 6 percent of the industry’s US revenues, according to Eilers, would further erode daily fantasy revenues that are already slipping.

“You’re talking about one of the biggest markets in the country, and you already have New York on the outs,” said Jeff Ifrah, a lawyer who represents smaller daily fantasy sports companies. “For this to come along in a state that represents a nice-sized market in terms of revenue, that’s a pretty devastating blow to the industry.”

In daily fantasy sports contests, players pick rosters of real-world athletes from different teams and then are awarded points, based on how those athletes perform in games. Players whose rosters earn the most points win cash prizes.

There is an exception to Illinois’ gambling ban that allows contestants to earn prizes based on their own performance, such as a runner winning a payout for finishing first in a marathon. Daily fantasy companies have argued their contests are matches of skill in their own right, akin to marathons. Rather than gambling on the performance of athletes, the companies argue their players are competing on their own ability, using sports knowledge and statistical analysis, to finish ahead of other contestants.

But Madigan determined that the exemption in state law — for “actual contestants in any bona fide contest for the determination of skill, speed, strength or endurance” — applies only to athletes, not to daily fantasy players.

Her decision adds to a months-long controversy around the two daily fantasy sports companies; federal investigators in several states are probing whether DraftKings and FanDuel are violating federal gambling laws.

In Massachusetts, Attorney General Maura Healey has recommended sweeping consumer-protection rules but has not moved to shut the companies down, saying state gambling laws don’t explicitly ban fantasy sports.

David O. Klein, a New York lawyer who advises daily fantasy companies, said the industry was surprised by the Illinois ruling.

“We didn’t see it coming,” Klein said. “I know that [Madigan] was deliberating on this and had been asked to render an opinion, but the expectation was that it was going to become a moot issue because the Legislature was going to consider whether fantasy sports should be exempt from the state’s anti-gambling laws.”

Illinois State Representative Michael J. Zalewski, who is the sponsor of one of the bills that would explicitly exempt daily fantasy from state anti-gambling laws, said Madigan’s decision gave the Legislature clarity.

“While I do not believe daily fantasy sports involve gambling, I have explained my concern from the outset of my work that Illinois law is unclear on this issue,” Zalewski wrote on his Facebook page. “Now that we have more clarity, I look forward to working with all involved in the upcoming legislative session to allow Illinoisans to continue to play these contests and provide the necessary strong consumer protections for safe, fun play.”

Dan Adams can be reached at dadams@globe.com. Follow him on Twitter @DanielAdams86.
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