A global shutdown of live sports has kept the most skilled players off the playing field. Recently, however, “skilled” players of another kind won a significant victory. In Dew-Becker v. Wu, the Supreme Court of Illinois rejected a daily fantasy sports (“DFS”) player’s argument that his $109 loss in a DFS game resulted from an act of gambling and it should therefore be recoverable under Illinois’ illegal gambling recovery statute. The decision is a major victory for the DFS industry, which benefits and gains more room to grow where, as here, courts narrowly construe state law definitions of “gambling” to exclude DFS games.
DFS is a popular form of online fantasy gaming where users typically pay an entry fee to compete for cash prizes based on the performance of professional athletes whom users select and then track in their respective professional sports competitions. As DFS is often described as combining elements of fantasy sports and conventional sports betting—the former traditionally considered legal (as a game of skill), the latter illegal (as a game of chance)—the legality of DFS has been subject to challenge since its inception. Although several states have explicitly legalized DFS by statute, the majority have not. Where states have not specifically regulated or outlawed DFS, its legality has been determined by existing state gambling laws and the prevailing legal doctrines governing traditional gaming such as poker, sports betting and the like in each state. As DFS is a new technology, it does not fit neatly into this preexisting regulatory paradigm. Where legislators have been silent, courts have been required to parse the issues.
The Supreme Court’s 2018 decision in Murphy v. National Collegiate Athletic Association was watershed moment in sports gambling regulation. In Murphy, the Court struck down the Professional and Amateur Sports Protection Act (“PAPSA”), a federal law passed in 1992 that had the effect of prohibiting individual states from legalizing sports gambling. In its decision, the Court ruled that by deputizing states to outlaw gambling, PAPSA violated state sovereignty protections under the U.S. Constitution, including the anti-commandeering doctrine and the Supremacy Clause.
Although Murphy overturned the federal ban on sports gambling, it left something of a de facto nationwide ban in its wake in the form of individual state gambling regulations. With federal preclusions no longer in place, states like Illinois were left to regulate and define gambling themselves without federal cover.
Colloquially speaking, an act of “gambling” is an “enterprise undertaken or attempted with a risk of loss and a chance of profit or success.” State regulation generally prohibits activities where a person (1) pays consideration, (2) for the opportunity to win a prize, (3) as the result of a chance-based activity. Defining gambling, then, generally requires a determination of the presence—or primacy—of “chance”.
Legislators and courts have struggled to articulate a single approach that determines the primacy of “chance” in any activity that might be considered gambling. Most games of chance, such as black jack and poker, require at least a modicum of skill, rather than the blind luck associated with other games like randomized slot machines. Determining the degree to which skill predominates, however, is a tricky—and often subjective—distinction.
States have sought to find a balance between skill and chance in determining what is and is not gambling, and have employed three main tests to do so: (1) the predominant purpose test; (2) the material element test; and (3) the any chance test.
Under the “predominant purpose test,” a contest is not considered gambling where the outcome is mathematically more likely to be determined by skill than chance. As a New Jersey court opined, the relevant question is therefore not whether the game contains an element of chance or an element of skill, but rather “which of them is the dominating element that determines the result of the game.” A majority of states, including California, Massachusetts, Pennsylvania, Ohio, and North Carolina apply this test, which is the most permissive used by state courts. The predominant purpose test presents activities like DFS—where users exhibit skill in researching and selecting certain athletes based on anticipated performance—the greatest likelihood of sidestepping state gambling regulations.
Under the “material elements test,” a contest is considered gambling if the outcome depends to a material degree upon an element of chance—even if a skill is otherwise dominant, as articulated by a Missouri appellate court. For example, courts have found poker to be “gambling” in most material element jurisdictions, because chance plays a material role, regardless of whether a player’s skill impacts the outcome of a given hand. The material elements test has produced unfavorable results for DFS, most notably in White v. Cuomo, where a New York appellate court embraced the material element test in ruling that because “the skill level of [a DFS] contestant cannot eliminate or outweigh the material role of chance in [DFS] contests,” the practice must be gambling under New York penal law.
Under the any chance test, a game is gambling if it involves any chance whatsoever. Because virtually all contests involve chance, most skill games cannot survive scrutiny under his analysis. This restrictive view is a minority approach, which has been implemented in Arkansas, Arizona, Iowa, and Tennessee, among others.
In Becker, the plaintiff sought to recover DFS losses under Section 28-8(a) of the Illinois Criminal Code, which allows recovery of any sum of money lost in illegal gambling. To prevail under the statute, the plaintiff had to prove that DFS is, in fact, a gambling activity. In support of his theory, the plaintiff pointed to a 2015 Illinois Attorney General opinion letter which concluded that DFS is illegal gambling under the Illinois criminal code, as is any act where a person knowingly “plays a game of chance or skill for money.” In the wake of the Murphy decision, the Illinois state legislature loosened gambling restrictions in its 2019 Illinois Gambling Expansion Bill, but the bill did not specifically address the legality of DFS.
As the Supreme Court of Illinois had never determined which (if any) test might be apply to evaluate games of chance, it was unclear as to whether Section 28-8(a) also applied to DFS losses. The court in Becker ultimately chose to apply the predominant factor test—sharply criticizing the material element test as “depend[ing] too greatly on a subjective determination,” and the any chance test as “no test at all, as every contest involves some degree of chance.” The court went on to find DFS contests to be “predominantly skill based,” because “skilled players can predominate the DFS contest.”
Although the Becker decision only directly applies to DFS in Illinois, the court’s well-reasoned analysis might cast a long shadow. As DFS is a relatively new technology, there is little case law specifically applying the various common-law gambling tests to it. This means that the Becker decision could be instructive to states seeking to apply the predominant purpose test to DFS, and other emerging online gaming where the “skill to chance” ratio is less than clear. Becker will then stand as a welcome transitional measure while DFS users await full ratification of pro-DFS legislation in all fifty states.