Last week, a putative class action Complaint was filed against a major fantasy sports company in the United States District Court for the Eastern District of New York. In Ballentine v. Underdog Sports, LLC, Plaintiffs allege that Defendant violated NY’s fantasy sports law by offering illegal sports bets that it deceptively marketed as daily fantasy sports. As a result of Defendant’s purported wrongdoing, Plaintiffs allege that they are entitled to recover the money they lost on Defendant’s platform, as well as attorneys’ fees and costs.
As our readers are aware, the New York State Gaming Commission adopted Rule 5602.1(a)(4) in October 2023, outlawing fantasy sports contests that are based on proposition betting. By adopting this rule, New York made clear that sports “pick’em” contests, offered by companies such as Defendant, constitute sports betting by another name. Note that Defendant is not licensed to operate a sportsbook. As such, Plaintiffs claim that judgment should be rendered against Defendant for violating NY fantasy sports law by operating an illegal sports betting platform.
The Facts at Issue in the Ballentine v. Underdog Sports, LLC Proceeding
Defendant is a company that offers “pick’em” style contests to residents of 18 states. In a “pick’em” contest, consumers place bets on how particular real-world athletes will perform against metrics set by the contest operator. In “pick’ em” contests, participants are not typically competing against other participants, but against the house (in this case, the Defendant).
The lead Plaintiffs collectively reside in New York, Texas, and California. All four Plaintiffs registered on Defendant’s app, participated in “pick’ em” contests through the app, and suffered losses. All four Plaintiffs allege that they were never shown Defendant’s Terms of Service, nor did they ever accept said Terms. Furthermore, Plaintiffs assert that Defendant never informed them that it was offering games in violation of NY fantasy sports law. Consequently, they filed the subject lawsuit.
Applying NY Fantasy Law to the Ballentine Claims
The relevant NY fantasy sports law provision states, in part, that: “[c]ontests shall not be based on proposition betting or contests that have the effect of mimicking proposition betting. Contests in which a contestant must choose, directly or indirectly, whether an individual athlete or a single team will surpass an identified statistical achievement, such as points scored, are prohibited.”
In a traditional fantasy sports game, participants assemble imaginary teams composed of actual professional sports players. Points are then awarded based on how these athletes cumulatively perform in live games. Each participant buys in, and the manager of the highest scoring “team” is usually awarded all or most of the prize pool. Participants in Defendant’s contests instead bet that an individual athlete’s statistics will be “over” or “under” a threshold chosen by Defendant. Participants pay a fee to Defendant to participate in these contests. If they choose the “over” or “under” correctly, they win back their fee plus a prize amount. Otherwise, Defendant keeps the fee.
The NY State Gaming Commission has made clear that these over/under DFS contests operate in contravention of NY fantasy sports law. New York is not the first state of the Union to make clear that these contests are not fantasy games, but rather meet the definition of sports betting. In fact, Massachusetts, Arkansas, Florida, Maryland, West Virginia, and Wyoming gaming authorities have issued cease and desist letters to Defendant for conducted related to its “pick’ em” games. In this uncertain climate, payment processors, and other entities integral to gaming operations, have become increasingly reliant on legal opinion letters to gauge the legality of sports gaming platforms.
Federally, fantasy sports contests are regulated by the Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”). UIGEA makes it illegal to knowingly transmit a bet over the Internet unless sports betting is legal where the bet is “initiated.” However, UIGEA does explicitly carve out certain “fantasy sports games” from this prohibition that meet certain criteria. The UIGEA fantasy sports carveout was intended to allow for a pool of participants to compete against each other by putting together teams of players drawn from different real life sports teams for a chance to win prizes.
Why is Ballentine Relevant to Your Business?
NY fantasy sports law was amended to more closely preserve the original intent of the UIGEA daily fantasy sports exemption. Defendant nevertheless continued to tread the line between fantasy sports and sports betting and now faces a putative class action lawsuit. This is not the first lawsuit in which a plaintiff has accused Defendant of violating a gaming statute, and, if it does not tweak its model or attain sports betting licensure, it may not be the last.
Companies that offer “pick’ em” games need not necessarily cease operations – they just need to change the construct of their contests or apply for sports wagering licensure. State authorities have made clear that they will not allow the line between sports gambling and DFS to be blurred. Fantasy sports and sports wagering are two separately regulated forms of gaming that, in many state jurisdictions, were legalized under two different initiatives.
If your business operates a sports wagering or daily fantasy sports platform, it is important to stay current with ever-changing regulations. Hiring counsel experienced with applicable laws and regulations can be instrumental in navigating this difficult endeavor.
The attorneys at Klein Moynihan Turco are constantly monitoring evolving fantasy sports and sports wagering regulations so that clients remain compliant with applicable state and federal laws. Our attorneys regularly assist clients with payment processor approval by reviewing contests and drafting related opinion letters.
If you require assistance with gaming law compliance or the drafting of an opinion letter, please email us at info@kleinmoynihan.com or call us at (212) 246-0900.
The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
Attorney advertising
Photo by Jakob Owens on Unsplash
Similar Blog Posts:
Massachusetts to Tax Fantasy Sports?
