[Editor’s note: FanDuel is an advertiser of PFT and PFT Live on NBC Sports Radio. Also, NBC Sports has an equity stake in FanDuel.]
It’s one thing for a successful industry to face civil litigation; every large business inevitably gets sued. It’s quite another for a successful industry to face potential criminal liability.
According to Florida attorney Daniel Wallach, via Michael McCann of SI.com, the United States attorney’s office in Tampa currently is investigating daily fantasy sports operators for violation of the federal Illegal Gambling Business Act of 1970 and Florida law.
The Illegal Gambling Business Act defines an illegal gambling business as one that: (1) violates the laws of a state where its business is conducted; (2) involves five or more persons who manage, operate, or own the business; and (3) has been in operation for more than 30 continuous days or has gross revenue of $2,000 in any one day.
Section 894.14 of the Florida statutes provides that "[w]hoever stakes, bets or wagers any money or other thing of value upon the result of any trial or contest of skill, speed or power or endurance of human or beast” shall be guilty of a crime. So if DFS violates Florida gambling law, an operation with five or more persons running the business violates the Illegal Gambling Business Act.
That’s where the express permission for daily fantasy provided by Congress (and reportedly lobbied for by the NFL) in 2006 potentially intersects with state law that still considers daily fantasy gambling, even if federal law doesn’t. It’s the “B” side of the current national marijuana conundrum, where some states have made it legal and federal law still hasn’t. For daily fantasy, it’s not a federal crime standing alone, but where it’s a violation of state law it can become a federal crime based on the size of the operation.
In English, this means that the industry needs to tread lightly in states where the law conflicts with the federal finding that daily fantasy isn’t gambling because it’s premised not on chance but on skill. Currently, the daily fantasy industry does not operate in Montana, Louisiana, Arizona, Washington, and Iowa. (Montana has the only clear, specific ban on fantasy sports.)
"[S]tates are the ones that make the determinations about whether something is legal or not legal,” Commissioner Roger Goodell told reporters on Wednesday when discussing the DFS phenomenon. “We follow the law and we will do that.”
Daily fantasy companies are and have been operating in Florida. The language of the Florida anti-gambling law cited by Wallach specifically encompasses games of skill. As noted in this excellent legal primer from Professor Marc Edelman, a 1991 advisory opinion from the Florida Attorney General concluded that it is illegal to participate “‘in a fantasy sports league whereby contestants pay a fee for the opportunity to select actual professional sports players.’”
The mere existence of a federal grand jury exploring violations of the Illegal Gambling Business Act and Section 894.14 of the Florida statutes means that the U.S. attorney in Tampa already believes that: (1) Florida law prohibits DFS; and (2) federal law imposes criminal liability on any five-person-or-more DFS operation doing business in Florida. At some point, a federal judge may have to decide whether that interpretation is accurate.
Regardless of whether DFS is gambling in Florida, betting that it isn’t instantly has become a high-stakes game of chance for the DFS companies, with federal penalties of up to five years in prison and forfeiture of all money used in whatever is determined to be an illegal gambling operation in Florida.
The U.S. attorney in Florida may end up being flat-out wrong. And, ultimately, I continue to believe that people should be allowed to risk their money on any and all games of chance, games of skill, and/or the game of Risk. But it’s human nature for folks to push back against the perception of unregulated windfalls, and whether it’s class-action lawsuits or grand-jury investigations, the accelerated life cycle of the DFS industry already has reached the point where it has become a very large target for its enemies.