The newest trend is daily fantasy sports.
Taking a step back, what makes a game used in promotion not gambling? And what, then, makes a daily fantasy sports business model not gambling?
In order to use a game for promotion, the sponsor of the game must remove one of three key elements of the game:
So, daily fantasy sports like Draft Kings and Fan Duel must be able to do that in order to run a non-gambling game.
But those games also must have a set of rules and must also be run fairly, with a level playing field.
Here is a lightly-edited transcript of the podcast:
Hi there, this is Anthony Verna and on this episode of the Law & Business Podcast, I am flying solo.
You can reach me at email@example.com. If you’re listening and you have any comments, I’d love to hear those comments there on iTunes. So please leave some feedback.
I’ve been getting a lot of questions about DraftKings and FanDuel.
So let’s talk about daily fantasy sports.
But in order to do that, I want to take a step backwards and talk about games and contests in general.
Games and contests, in general, are not gambling and they’re excellent promotions for businesses. However, there are lots of rules that you need to consider and, frankly, you have to remember that there are 50 states, 50 separate ways of doing this. There’s also DC, there are territories, Puerto Rico, Guam. If your business is reaching to all 50 states, DC, territories, that’s over 50 separate jurisdictions on how games can be played, but they’re excellent promotions.
Here’s what I would recommend and for you to remember: a game is gambling if there is a chance, and a prize, and consideration.
So the key is that, for most of you out there, you’re not going to want to run a game without giving a prize. That’s the point of playing the game you, as a business owner, want, in exchange for a chance to win, for phone numbers, email addresses, physical addresses, names, maybe some demographic information, and the business will give away some money or a product and that’s perfectly acceptable.
You don’t want to give up the prize.
For most people, a game of chance is just easier to run, especially in consideration of the difficulty of running a game of skill.
The third part for most businesses that run a game, the business wants to make sure that it can avoid that consideration.
That’s what you really need to avoid as the consideration.
How do you avoid one of these three topics? Consideration is the requirement of something that requires effort. So if it takes a couple of minutes to fill out a form, it’s not really going to be consideration, though there used to be a time when requiring Internet access was deemed consideration.
Having a web only game was considered consideration because not everybody had the internet, but today everybody has the Internet. Therefore, you can require a web only game. I would still say you need to require an alternate means of entry and I think you’ll be in compliance. A web only game is going to be okay in most jurisdictions, but that’s not everything you need to do to try to avoid heavy entry forms. When I say heavy, I mean a form that takes a lot of time.
If you have an entry form that takes 15 minutes, if you have a game that takes 15 minutes to play, even if it’s online, you know that’s going to be consideration. If you are requiring somebody to mail it in, that stamp might be consideration even though it’s only less than 50 cents. So you need to avoid consideration or if you’re trying to avoid only consideration, that’s how you would do it.
If you are trying to create a game of skill, you really need to make sure that that skill is what’s highlighted. And that’s going to be, I think, the big issue here.
The way that some games get around those requirements to have some questions, some trivia questions that can be asked. So it’d be skill since knowledge is a skill.
What we have here in daily fantasy sports is basically a game-based business model. And that’s why for many people it feels like gambling.
And I would say that’s not necessarily correct. If this is a skill, and that’s really going to be the key, how do you turn that game of chance into a game of skill?
I would say that’s going to be the hard part.
If you’re running a promotion, in this particular instance we’re talking about a game based business. So therefore that game of chance must not really be a game of chance. It must be a game of skill. And the argument in daily fantasy sports is that the skill is understanding what the conditions are so that a person who chooses athletes on a team understands that certain athletes are better than others and that certain athletes are healthier than others. And that therefore that knowledge turns into the ability to figure out under certain rules what team is going to amass the most points under a certain, you know, under that rule scheme. And that’s what the skill is.
That’s really how these daily fantasy sports are being turned into businesses.
Now, once again, yeah, you only have to take away one thing of chance or prize or consideration and you’re putting up money. So there’s consideration. There’s obviously a price. There are obviously lots of prizes that are given away and these must be considered skills. Now the one thing that is going to be tricky is that they also must be run fairly and that everybody must have some kind of equal ability in winning.
Again, understanding that these are skill-based games. Some people have better skills than others, there’s no doubt about that. And I wonder if these sites are going to be very quick to stay or not. And that’s going to be the real issue under American law.
We see that the New York State Attorney General has issued a letter to both DraftKings and FanDuel and we know that Massachusetts is looking into the issue as to whether these are skill or chance kinds of games.
The New York letter though has nothing to do with this being chance, price or consideration. It has to do with how it’s run totally. Because if you’re going to be running a game, you as the, the creator, the sponsor of the game have to make sure that it is run fairly and that everybody who enters has the same chance of winning. If this is a game of chance or that it’s the skill that matters. And as we are seeing, there might be some insider information from one competitor that is then used in on the other competitors, uh, site in order for an employee of the competitor to, to win and beat out most people. And therefore that use of insider data means that even with this skill, other people are unable to win. And so that’s going to be an issue is that people who enter really don’t have a chance of winning because of the type of information that’s, that’s, uh, had by one particular employee. So that’s going to be a big issue as well. If you’re running a game, you need to make sure that it’s run fairly. And if there’s going to be an issue like this, you need to nip it in the bud very fast, very quickly.
One thing I think you’ll see the cynical lawyers say to the business that wants to run games or be some kind of game-based business model is that these state attorney general’s attorneys general, let me use the proper plural are politicians.
The attorneys general are politicians. They’re there to enforce the law. But more than that they are politicians who are there for big splash.
And if your business intent on trying to make money through a game that’s going to attract attention and since the money is flowing, I mean both fan duel and draft kings have sports leagues as investors and our advertising everywhere. When the money gets that big, you are going to see that the state attorney’s general are going to scrutinize your business and therefore you need to really, you need to make sure, no matter the size of the business that you’re adhering to rules, not just from the jurisdiction, but also the rules that you’ve written in your contest. The game rules are important. The game rules must be public. There are lots of regulations.
I mean you, you have to broadcast winners. You don’t have to, put their name and their last name and an address and things like that, but, but you have to broadcast through the winters are, you have to have a means for people to ask who the winners are. There are checks and balances in there so that the state realizes how the game is being run and making sure that game is being run fairly. People can’t have advantages and that really the key, if you’re running a game, remember, in order for it to not be gambling, you got to get rid of chance or prize or consideration.
The claim is that these are games of skill, but now that somebody has insight information, now those games may not be run fairly. And so you have to run the game fairly after run the game under the rules.
What I would also add to this my own opinion, it feels like gambling, doesn’t it? You know, what an athlete does on a certain day, one particular game isn’t indicative of, of an athlete’s total worth that. That’s my own opinion. And so one particular game is really gambling, but why are brief restricting things like this? That that’s my own opinion is that I wish we were a little more open as a society on gambling. And I think that people earn money and they have a right to do what they pleased with the money. And uh, that, that’s my particular thought on this now that said, if you’re running a game, games are great promotions for your businesses and I wish more people did it and you still just need to make sure that you follow the regulations and that you run the game fairly understand when you need to be bonded for your prizes and understand that there are companies out there that will run the games for you so that therefore there’s a separation there.
But if your business model is based on a game, you have to make sure that, that their skill involved in that particular game. I’m Anthony Verna, Managing Partner of Verna law PC. If you have any questions, my email address is firstname.lastname@example.org.
Please, please leave some reviews on the iTunes interface and we’ll get back to more discussions with the next episode. Thanks very much for listening.