Forbes; February 19, 2013
Most sports fans are probably unfamiliar with the pending lawsuit Langone v. Kaiser & Fan Duel. However, this case is likely to shape the future of the daily fantasy sports industry.
The case’s plaintiff, Chris Langone, is an Illinois lawyer who is seeking to recover third-party gambling losses from the winners of daily fantasy sports contests run on the website Fan Duel — a website that has recently secured millions of dollars in funding from Comcast Ventures.
The defendants, meanwhile, argue that they are not gambling “winners” but rather operators of the game itself. Thus, they argue that Langone has sued the wrong party.
In addition, Fan Duel claims that its games are exempt from Illinois gambling law because it purports the games are based on skill, not chance – an argument that no court has directly addressed in the context of daily fantasy sports.
On the one hand, Fan Duel’s argument that its games are skill-based has some legal merit. For example, the U.S. District Court for the District of New Jersey has already held in the case Humphrey v. Viacom that traditional fantasy sports games involve predominantly skill because of the complex nature of the game’s strategies and the negotiations that occur among team owners.
However, on the other hand, it seems hard to imagine that any daily fantasy sports contest fits as neatly into the Humphrey safe haven as traditional fantasy sports. This is because only traditional fantasy sports allow contestants to “trad[e] players over the course of the season.” In addition, the number of iterations in traditional fantasy sports games is far greater than in daily games – reducing the impact of a single act of randomness.
For the nearly $5 Billion fantasy sports industry, securing a clear answer to the legal status of daily fantasy games is imperative. Risk-tolerant businesses such as Fan Duel have already gained a financial edge by entering into a market with great legal uncertainty. Meanwhile, more established fantasy businesses such as ESPN and Yahoo!, as well as perhaps other more legally conservative start-ups, have waited on the sidelines for legal clarity — thus losing the early opportunity to profit from the daily fantasy sports phenomenon.
It would be a twisted case of irony to allow a limited number of daily fantasy sports businesses to secure huge market share just because they were the only ones willing to enter an industry with uncertain legal status.
Hopefully, Langone v. Kaiser & Fan Duel will provide much needed answers about how at least one court views daily fantasy sports games.
Of course, such as ruling will not address the nuanced differences in gaming law between the states. However, it will at least help both fantasy sports businesses and participants to make more rational decisions about whether to enter the daily fantasy sports marketplace.