Delaware DOJ Orders Fantasy Sports Sites to Get Out

The Delaware Department of Justice sent cease-and-desist letters to FanDuel DFS, DraftKings DFS and Yahoo Fantasy Sports last week on the grounds that their business models violate state anti-gambling laws.

A statement released by the Delaware DOJ on Friday explains that the daily fantasy model violates Article, 2 Section 17 of the state constitution. The relevant text in the constitution explains that all forms of gambling are prohibited in the state with the exception of certain lotteries, horse racing betting and bingo. The state’s three licensed casino are also allowed to gambling games and online gambling due to an interpretation that those games qualify as “lotteries.”

The DOJ explains that daily fantasy sports contests in Delaware are classified as gambling based on two factors:

• Fantasy contests involve payment for playing and monetary rewards
• Chance, as opposed to skill, is the dominant factor in the outcome of these contests

Although pro-fantasy sports types have long contended that Delaware fantasy sports contests are games of skill, the DOJ sees the issue differently. The letter explains the DOJ’s reasoning as follows:

“An online fantasy sports contestant selects fantasy players and teams, but has no role in how these players actually perform once the real-life games or events occur. Real-life players perform better on some days than on others. The weather can affect how a real-life player performs. A manager or coach can decide not to use certain real-life players, who may be injured during a game or, for example in the football context, may not run the ball as often or catch as many passes as a skilled participant might expect. The most skilled participants might lose and less skilled participants might win because of what actually happens during the real-life game. In other words, real-life players are human and human behavior is unpredictable. This is why chance – and not skill – is the dominant factor in online fantasy sports contests and why these contests are illegal in Delaware.”

As of Saturday the 9^th, none of the three fantasy sports sites mentioned by the DOJ have added Delaware to their lists of restricted states. It seems unlikely that the operators will fight this order given the expense of fighting such legal challenges and the possibility that Delaware will eventually pass legalization.

In fact, the statement issued by the DOJ mentions House Bill 444, which was a legislative effort to legalize, regulate and tax fantasy sports contests in Delaware. The statement explains that the DOJ warned state regulators and operators ahead of time that it considers fantasy sports to constitute illegal gambling under existing law, but chose to wait until HB 444 either passed or failed before sending out cease-and-desist letters.

HB 444 died last month after the legislature adjourned before the bill could be considered. That put an end to all Delaware daily fantasy sports legalization efforts for the current legislative season. If there is any good news to come out of this, the wording of the statement does include some “it’s nothing personal” language:

“We are certain that many Delaware residents and visitors would enjoy participating in the full array of fantasy sports contests, including those that require payment for participation and have cash awards. But until such contests can be offered legally, the Department of Justice must enforce the law.”

In other words, the DOJ doesn’t hold any particular grudge towards the daily fantasy sports business model. They just have to enforce the law as it is but will relent if favorable legislation is eventually passed. With that in mind, daily fantasy operators in Delaware will probably opt to work with the state legislature to come to a favorable conclusion rather than risk the ire of the DOJ by defying the order and beginning an expensive legal challenge.