Klein Moynihan Turco’s Response to COVID-19 – Click here

Klein Moynihan Turco

Online Gambling Law

Advertising a Game of Chance? Contact a Sweepstakes Lawyer

by David Klein

Businesses often use games of chance to promote products, increase traffic to their websites, and increase revenues. When set up correctly, games of chance can be a boon for business. However, when fashioned incorrectly, the consequences include reputational harm, civil litigation and even criminal liability. Games of skill (as opposed to chance) are regulated at both the state and federal level. Each state evaluates games of skill by using either: 1) the dominant factor test; 2) the material element test; or 3) the any chance test. A sweepstakes lawyer can help analyze the risk associated with promoting games of chance and skill based on the various jurisdictional tests.

How do states evaluate games of skill?

[Read More]

Sweepstakes Law Follow Up: Draper James Sued

by David Klein

In April, we blogged about how Reese Witherspoon’s fashion line, Draper James, LLC (“Draper James”), was roundly criticized for creating the false impression that all teachers who registered on its website would be given a free dress. In reality, teachers were merely entered into a sweepstakes for a chance to win only one of a limited 250 dresses available to entrants. Recently, a group of teachers in California sued both Draper James and Reese Witherspoon over the failed marketing stunt.  The complaint alleges, among other things, that “[t]here was no indication this was some form of lottery, or that Defendants would only be making an unreasonably limited number of products available under this offer or place an unreasonable limitation on quantity, or that there were any other material limitations on this offer.” Had Draper James retained a sweepstakes law attorney prior to launching their promotion, they would have likely avoided the ensuing social media firestorm. 

How do you comply with sweepstakes law?

[Read More]

Planning on Running a Facebook Sweepstakes? Here’s What you Need to Know

by David Klein

Sweepstakes promotions are great promotional tools which serve to engage consumers and attract new ones. When advertising sweepstakes on social media, businesses must be careful to abide by each respective social media platform’s distinct promotional contest rules, policies and guidelines. By way of example, in this blog we highlight the rules that sweepstakes operators must follow when creating and advertising Facebook sweepstakes promotions. 

What are Facebook’s sweepstakes policies?

[Read More]

Your Giveaway May Violate Sweepstakes Law

by David Klein

Brands often use giveaways as a marketing tool to create buzz among the consuming public. When done correctly, businesses can see an increase in revenue and consumer loyalty through use of giveaways. However, when a giveaway campaign is poorly structured, brands can suffer irreversible reputational harm. A recent example of a giveaway gone wrong concerns one offered by Reese Witherspoon’s fashion line, Draper James, LLC (“Draper James”). The subject Draper James Instagram giveaway post read: “Dear Teachers: We want to say thank you. During quarantine, we see you working harder than ever to educate our children. To show our gratitude, Draper James would like to give teachers a free dress.” The post did go on to explain that a registration form needed to be completed and that the offer was only “valid while supplies last.” Despite the additional language, the Draper James disclosure proved to be insufficient. After publishing the promotional post, many of the thousands of teachers who signed up believed that they would each receive  a free dress, when, in reality, teachers were entered into a sweepstakes for a chance to win one of only a limited 250 dresses available to entrants. After nearly one million entries were received, Draper James’ sweepstakes site crashed. Teachers who did not receive a dress went to social media to express their outrage about the deceptive giveaway. In an attempt to quell the firestorm, Draper James: 1) publicized that it would make an unspecified donation earmarked to help educators support their remote classrooms; and 2) gave every registrant a Draper James discount code. How this response plays out both in the court of public opinion and with regulators, remains to be seen. The Draper James campaign example is a reminder to brands that they need to use clear language to explain when a promotion is, in fact, really a sweepstakes and not a giveaway with prizes provided to all who sign up. In order to avoid situations similar to this, it is wise to speak with a promotions law attorney who is familiar with the nuances of sweepstakes law and other games of skill and chance. 

What should brands know when offering giveaways?

[Read More]

Important Illinois Fantasy Sports Law Decision

by David Klein

On April 16, 2020, the Supreme Court of the State of Illinois (the “Supreme Court”) rejected a claim that online fantasy sports constitute illegal gambling under the State’s criminal code. In Dew-Becker v. Wu, the plaintiff initiated suit seeking to recover the $100 he had lost to defendant in a fantasy basketball league on FanDuel. Plaintiff based his lawsuit on a section of the State’s criminal code that allows individuals who lose money through illegal gambling to seek recovery from the winner. The trial court, the intermediary appellate court, and ultimately the State’s highest court, all rejected the plaintiff’s attempt to shoehorn this criminal statute into a case involving fantasy sports law. 

What did Plaintiff allege?

[Read More]

Fantasy Sports Law Today

by David Klein

Daily fantasy sports exploded onto the landscape approximately five (5) years ago.  Since then, the industry has been shaped by substantial fantasy sports law developments that have required deft navigation by operators that offer fantasy sports contests to consumers.  The flurry of legal changes has given rise to nuanced regulatory differences across various jurisdictions. This has made it easy to lose sight of some of the requirements that are common to all jurisdictions.

What are some of the common fantasy requirements across jurisdictions? 

[Read More]

HBO’s McMillion$: A Reminder to Comply with Sweepstakes Law

by David Klein

If you want to enter the sweepstakes business, familiarize yourself with sweepstakes law and consult legal counsel to ensure compliance.

February 14, 2020

HBO’s new docuseries, McMillion$, is the fascinating story of how the sponsors of the McDonald’s Monopoly sweepstakes were scammed out of $24 million dollars in the 1990s. Despite the scam, the McDonald’s Monopoly sweepstakes was an otherwise successful partnership between two iconic brands (the fast-food chain and the board game), a promotion that was often used by McDonald’s over the years to increase foot traffic when sales were low. Any business owner who has watched episode 1 of the series may be prompted to introduce a sweepstakes to generate excitement among her/his customers. Before doing so, however, it is wise to speak with a promotions attorney who is familiar with the nuances of sweepstakes law. 

What are the basics of sweepstakes law?
[Read More]

Daily Fantasy Ruling Could Spur Change To NY Gambling Ban

by David Klein

A New York State appellate court has issued a ruling on daily fantasy sports that could change the State’s constitutional ban on gambling.

By Zachary Zagger

Law360 (February 11, 2020, 10:21 PM EST) — A New York state appellate court has thrown daily fantasy sports into hot water by finding that contests like those offered by DraftKings and FanDuel are illegal. But the ruling could actually push lawmakers to change the state’s constitutional prohibition on gambling expansion, potentially clearing the way for mobile and online sports betting at the same time.

The New York Appellate Division, Third Department, found Thursday that daily fantasy sports, or DFS, contests are gambling under the state penal code. The court struck down a 2016 law passed at the eleventh hour to legalize DFS amid enforcement actions by the state attorney general against DraftKings and FanDuel, finding the law violated the state constitution’s prohibition on gambling expansion.

But the new ruling comes after DFS has already gained a foothold in New York and amid a growing push to legalize online and mobile sports betting now that the U.S. Supreme Court has allowed it. Such sports betting has proven to be a strong source of tax revenue for neighboring New Jersey, but could be limited in New York by the same constitutional prohibition at the center of the DFS ruling.

Attorneys say that while the DFS ruling is sure to be appealed, lawmakers would be smart to start the long process of amending the state constitution to allow state lawmakers to keep DFS and permit mobile sports betting so as not to get left behind neighboring states.

“Does it call for a constitutional amendment? Absolutely, and I think it is likely that it will happen,” said gambling industry attorney David O. Klein, the managing partner at Klein Moynihan Turco LLP. “They’ll kill two birds with one stone so to speak and [propose] a constitutional amendment to change the law such that both fantasy sports and sports gambling will be legalized.”

Notably, the appellate court rejected the legislature’s determination that DFS — in which contestants compete for cash prizes by selecting an imaginary roster of athletes with points awarded on the real- life performance of those athletes over a short period of time — contests are games of skill, and therefore not gambling.

Lawmakers had relied in part on evidence presented by fantasy sports operators that showed DFS contests are games of skill since those with better research and statistical analysis skills perform much better in the contests. The evidence showed that a small percentage of DFS contestants win a large percentage of the overall prize money.

But the appellate court said that the legislature just cannot simply call DFS a skill-based game to avoid the constitutional prohibition because that would render the constitutional prohibition meaningless.

To make matters worse for DFS operators and proponents, the court went on to find DFS met the state’s definition of gambling. No matter how much preparation and skill is used in setting a DFS lineup, the actual performance of the real-life players is dependent on factors outside the DFS contestants’ control, the court said.

“I think this hammers home why the state of New York should have addressed this some time ago, not only for fantasy sports but also for mobile and online sports betting,” said C.J. Fisher, a gambling and sports industry attorney at Fox Rothschild LLP. “I would anticipate that even if there is a bill passed to expressly allow internet and mobile sports betting outside the commercial casino facilities, that that bill would also similarly be challenged in the state.”

New York’s constitutional amendment process is long and complicated, requiring legislative approval in two separate sessions and a statewide voter referendum. But attorneys point to some key differences between now and 2016, when the DFS law was passed, that might make a constitutional amendment more possible.

When then-Attorney General Eric Schneiderman was pursuing illegal gambling enforcement actions against DraftKings and FanDuel in 2015, several other state regulators followed suit.

But now many of those states have joined New York in legalizing DFS or their authorities are not actively pursuing DFS operators. In the Empire State, DFS companies have even formed partnerships with professional sports teams. Madison Square Garden, for instance, has opened several areas branded as “DraftKings Daily Fantasy Sports Lounges.”

There is also a strong push for mobile and online sports betting in New York now that the U.S. Supreme Court has opened the door for states to legalize sports betting. While New York has legalized in-person sports betting at upstate casinos that have popped up since a 2013 constitutional amendment, neighboring states New Jersey and Pennsylvania brought in more than $30 million each in taxes from sports betting that mostly occurred online or through mobile phone apps.

“New York is almost an island in and of itself. Is it going to be stuck far behind and are we going to be stuck based on this Third Department [ruling]? Or are we going to make the decision to move forward and get behind daily fantasy sports?” said Buffalo-based sports and entertainment attorney Anthony Kroese of Goldberg Segalla. “If they don’t make a change now, we are going to be way behind.”

Still, attorneys say an appeal is almost certain to occur, meaning New York’s highest court, the Court of Appeals, will have its say. The state has yet to confirm it plans to appeal the ruling, but New York does provide for an appeal to the Court of Appeals for cases involving substantial constitutional issues.

The Appellate Division panel analyzed DFS contests under New York’s definition of gambling, which follows a minority of states in defining gambling as wagering something of value on a game where chance is a “material” factor in the outcome. More states look at whether chance is the dominant factor, lowering the bar for the amount of skill necessary.

“This is an industry that is still subject to varied state laws and this decision highlights how those distinctions in the gambling laws that were drafted years ago could impact decisions in various states,” said BakerHostetler advertising attorney Linda Goldstein, who has represented fantasy sports and other gaming companies.

Goldstein said the New York appellate court ruling’s lone dissent by Justice Stan L. Pritzker, which said the court should not second-guess the legislature when there is a rational basis for its interpretation of the law, could give the Court of Appeals an alternative argument to latch onto to keep the DFS legalization law intact.

Either way, the ruling shows that the constitutional question will continue to be an impediment for state lawmakers to open the door to new forms of sports-related games and wagering.

“I really always thought that was the best way to deal with this issue once and for all, … just go through the constitutional process,” said attorney Irwin Kishner, co-chair of the sports law group at Herrick Feinstein LLP. “It has been done before. It takes time, but that is the way to go.”


–Editing by Emily Kokoll and Michael Watanabe.