The California Opinion On Daily Fantasy Sports Drops: What You Need To Know

A spokesperson for Gov. Gavin Newsom says he disagrees with the opinion, which declares DFS illegal in the state.

The California Department of Justice released a much-anticipated opinion from Attorney General Rob Bonta on the legality of fantasy sports in the state.

The short story: Real-money daily fantasy sports contests are illegal, at least according to the AG. No DFS operator has left the state, yet, to my knowledge.

Press release here, opinion here.

One interesting development after the opinion came out: Gov. Gavin Newsom disagrees with the opinion: “While the Governor does not agree with the outcome, he welcomes a constructive path forward in collaboration with all stakeholders,” a spokesperson told a California reporter.

Here’s what you need to know about the opinion:

What does the opinion say about daily fantasy sports?

The California AG was asked this by a lawmaker in the state:

Does California law prohibit the operation of daily fantasy sports games with players physically located within California, regardless of whether the operators and associated technology are located outside the State?

Here is the short answer that the AG gave:

Yes, California law prohibits the operation of daily fantasy sports games with players physically located within California, regardless of where the operators and associated technology are located. Such games constitute wagering on sports in violation of Penal Code section 337a.

So does this mean daily fantasy sports contests are now illegal?

No. The opinion is just an opinion and doesn’t carry the force of law.

The key question is whether the AG will try to enforce the law based on this opinion. More on that below.

What does Penal Code section 337a say?

From the opinion:

California law prohibits betting or wagering on sporting events. Under Penal Code section 337a(a)(6), it is a crime if a person

[l]ays, makes, offers or accepts any bet or bets, or wager or wagers, upon the result, or purported result, of any trial, or purported trial, or contest, or purported contest, of skill, speed or power of endurance of person or animal, or between persons, animals, or mechanical apparatus.

Are any DFS operators leaving the state?

No operators appear to be leaving the state, so far.

What are DFS operators saying about the opinion?

• JT Foley, Executive Director of the Coalition for Fantasy Sports: "We agree with Governor Newsom — AG Bonta got it wrong. As the Court said yesterday, this opinion ‘does not effect any change in law’ and does ‘not carry the weight of law.’ The law has not changed, a fact the last two Attorneys General, Kamala Harris and Xavier Becerra, recognized as they specifically declined any similar action. We are hopeful the Attorney General heeds the Governor's call to find a constructive solution that preserves the games that California sports fans love.”

  • The coalition represents PrizePicks, Underdog, Betr, Dabble and Splash Sports.

• A DraftKings spokesperson: “DraftKings respectfully disagrees with the interpretation expressed with respect to peer-to-peer fantasy sports contests in the non-binding advisory opinion issued by the Attorney General of California. We believe peer-to-peer fantasy sports contests, including Salary Cap, Pick 6 and Best Ball, are legal in California, and we intend to continue offering them -- as we have done without challenge or issue for over 13 years. Notably, the overwhelming body of law from 24 states and Congress confirms that fantasy sports contests are legal games of skill. In addition, the highest courts in Illinois and New York previously held that peer-to-peer fantasy sports contests are legal games of skill. We intend to work with stakeholders, including the Office of the Attorney General, to try to find an amicable resolution.”

• A FanDuel spokesperson: “We look forward to meeting with the Attorney General’s office to talk through our next steps.”

Does the opinion note the different types of DFS, or does it just declare all DFS illegal?

Yes and yes.

The opinion talks about the various types of DFS, from pick’em (parlays against the house) to the more traditional DFS as offered by FanDuel and DraftKings for more than a decade. But it says all of them are illegal under state law.

Here are some excerpts from the opinion (emphasis added):

Pick’em

• In pick’em, players try to win money by predicting the performance of individual athletes in a single real-world game—for example, whether Steph Curry will score more or fewer than 20 points, or whether Jimmy Butler will grab more or fewer than 7 rebounds. We conclude that pick’em violates section 337a because the game’s entry fees are “bets” or “wagers” placed “upon the result . . . of [a] trial . . . or contest . . . of skill, speed or power of endurance of person . . . or between persons.”

  • Our conclusion is consistent with the view of out-of-state regulators. Regulators in Virginia, Arizona, Wyoming, and Florida, for example, have all concluded that state laws regulating sports wagering apply to pick’em.

  • The pick’em operators offer several arguments that section 337a does not apply, but we are not persuaded. First, the operators contend that skill predominates over chance in pick’em — that is, that success in pick’em depends more on skill and judgment than luck or chance. As discussed below, this argument is directly relevant to a lottery analysis: for a game to be prohibited as a lottery under California law, chance must predominate over skill. But that is not a requirement for a “bet” or “wager” under section 337a: the California Supreme Court has explained that, “unlike a lottery,” betting or wagering “may involve skill or judgment.” The operators have not cited a single authority construing section 337a(a)(6) to require that chance predominates.”

  • Fourth, the operators cite a federal statute, the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). “UIGEA makes it illegal for a ‘person engaged in the business of betting or wagering’ knowingly to accept certain financial payments from an individual who is engaged in ‘unlawful Internet gambling.’” Although the statute defines a “bet or wager” to include “risking . . . something of value upon the outcome of . . . a sporting event . . . upon an agreement . . . [to] receive something of value in the event of a certain outcome,” it excludes from the definition participation in “fantasy or simulation sports game[s]” meeting certain criteria. The operators argue that the pick’em games fall within that exclusion. But UIGEA’s definition of “bet or wager” has no bearing on Penal Code section 337a. UIGEA expressly states that “[n]o provision of [the statute] shall be construed as altering, limiting, or extending any Federal or State law.”

Draft-style games

• In draft style games, players compete against each other to see whose team of selected athletes has the strongest aggregate performance on designated metrics in each athlete’s next real-world sports game. We conclude that draft style games also involve betting on sports under section 337a(a)(6).

  • The game entry fees satisfy the definition of a “bet” or “wager” because players “promise to give money” based on “the determination of an uncertain or unascertained event” (the sports competitions) “in a particular way” (the relative aggregate performance of each player’s selected team of athletes). As with pick’em, each player’s financial success depends on the outcome of the underlying sports games.

  • To be sure, in some of these States, the Legislature has subsequently legalized draft style games. We are told that 24 States have amended their laws to expressly allow designated fantasy sports activities. … Under the ordinary meaning of state laws prohibiting sports betting, entry fees in draft style games constitute bets or wagers on sports—unless and until the state Legislature or the electorate change those laws. We are not aware of a single state or federal regulator concluding that a statute like section 337a that prohibits all types of sports betting does not bar draft style games.

Peer-to-peer pick’em

• We are told that some operators offer pick’em as a peer-to-peer competition, in which participants compete against each other to make the highest number of correct predictions. In our view, this version of pick’em also constitutes sports wagering because the entry fees satisfy the definition of a “bet” or “wager” under section 337a.

Does skill in DFS matter to the AG?

All of the above applies to an analysis under 337a. In that analysis, the AG says it doesn’t really matter whether skill is present in DFS contests or not. If you read above (it’s highlighted in bold) the AG says something can be a bet or wager and also involve skill. There is, of course, some skill involved in almost any form of sports betting.

The AG also considers whether DFS qualifies as a lottery — skill would matter here — and says it cannot opine on that.

Although we conclude that section 337a prohibits daily fantasy sports games, we cannot determine whether they are also barred by California’s prohibition of lotteries. …

Here, we are unable to opine as to whether daily fantasy games satisfy the distribution-by-chance requirement. Attorney General opinions under Government Code section 12519 are limited to “question[s] of law.” But whether skill or chance predominates is a question of fact. Although the answer will sometimes be clear, games like daily fantasy sports that combine elements of skill and chance pose a closer question. Resolving the issue here, for example, might require evaluating expert statistical analyses—a fact-intensive undertaking far outside our purview. And the answer might also vary by game, given differences in rules or administration. Because we cannot determine whether skill or chance predominates, we cannot opine as to whether daily fantasy sports are also prohibited as lotteries under Penal Code section 319 et seq.

What does the opinion say about season-long fantasy sports?

Real-money season-long fantasy appears not to be impacted, per the opinion:

"The opinion request asks only about the legality of daily fantasy sports games. We therefore need not consider whether season-long fantasy sports fall outside of section 337a, such as whether the greater degree of player interaction in those games suggests that players are participating in their own contest."

Will the California DOJ take any action beyond the opinion?

We don’t really know as we sit here. The opinion is just an opinion. The press release only says the opinion was released and nothing else. The DOJ certainly could try to take action, but the presence of the opinion on its own doesn’t mean there will be further action.

Cease-and-desist letters would make sense if the AG wants the opinion to be more than a piece of virtual paper. But if the goal was just to release the opinion as was asked of the AG, then it’s feasible we might see nothing further from the state. The DOJ releasing the opinion and then doing nothing to enforce it would be an interesting outcome. And will Newsom’s stance complicate any potential enforcement?

Stay tuned.

So what’s next for DFS operators?

That’s the big question, right? Things that could happen, in no particular order.

• One or more operators sue to stop potential future enforcement of the AG opinion.

• Operators keep serving California until and if the AG tries to enforce the opinion.

• Some operators decide to leave California because of the opinion.