Letters Are Limited to Fantasy Contests That Require Payment for Participation and Offer Cash Awards

On Thursday, the Delaware Department of Justice formally notified DraftKings, Inc., FanDuel, Inc., and Yahoo! Inc. that their respective online fantasy sports activities are not permitted under Delaware law, and asked that the companies add Delaware to their respective online lists of states in which players are not legally permitted to win monetary prizes. DOJ had initially notified state regulators in March of this year that these types of games were not permitted under Delaware law, and this information was subsequently shared by those agencies with certain of the companies in question. The Department initially refrained from taking formal action because certain online fantasy sports companies indicated that a change in Delaware law would be proposed in the state legislature. However, with the General Assembly’s session expiring on June 30th and no such changes in the law having occurred, DOJ sent formal notices to the companies Thursday.

The Delaware Constitution clearly articulates the general prohibition of gambling in the State. Specifically, Article II, section 17 prohibits “[a]ll forms of gambling” except “(a) Lotteries under State control for the purpose of raising funds.” Online fantasy sports games that are offered in Delaware are not presently “under State control.” Relying on the Delaware Constitution, as well as State and Federal case law, DOJ attorneys determined that online fantasy contests that involve payment for playing and monetary rewards constitute gambling because chance, as opposed to skill, is the dominant factor in the outcome of these contests.

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 games of chance, these contests are lotteries that must be operated under the control of the State or permitted through appropriate and specific legislation, otherwise they are illegal under Delaware law. While it is acknowledged that certain individuals may use their respective sports knowledge in selecting their fantasy players and otherwise participating in such contests, that factor alone does not make the contests games of skill. Put simply, current Delaware law does not permit online fantasy sports contests where there is payment required for participation and a possibility of winning money like those offered by DraftKings, Inc., FanDuel, Inc., and Yahoo! Inc. To the extent that these companies are willing to offer their contests without the possibility of winning money or should Delaware law change in the manner proposed in House Bill 444, such games might be offered legally. DOJ has not and will not demand that currently available online fantasy sports contests that do not include a requirement of payment for participation and the possibility of a monetary reward cease and desist operation in Delaware. 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.

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