Hours before Wednesday night’s MLB games began, sports fanatics could log on to FanDuel Sportsbook and place a two-leg parlay of new Baltimore Orioles pitcher Jack Flaherty to throw more than 5.5 strikeouts and Atlanta Braves pitcher Max Fried to exceed his strikeout prop of 5.5.
A very similar type of market can be found on popular daily fantasy sports operator PrizePicks. So would that parlay be sports betting or fantasy sports? It depends who you ask.
Pick’em-style fantasy games available through popular operators like Underdog Fantasy and PrizePicks have customers choose an over or under for various player statistical categories, and players receive a predetermined payout if the picks hit. Some regulators say those games look too much like sports betting, especially as other DFS games have customers playing against peers, rather than the house.
But DFS operators, including Underdog Fantasy in a letter to its customers, say they are within the bounds of the law and that the country’s two biggest sportsbooks by market share are using strong-arm tactics to keep them down.
States target fantasy sports operators
Ohio and Maryland are among the states that don’t allow pick’em-style contests to be viewed as daily fantasy sports, while regulators in Wyoming and Maine recently started looking into the topic and issuing warnings to DFS operators, according to Legal Sports Report.
Recently proposed fantasy sports regulations in Michigan include language that would jeopardize the ability of some fantasy operators, like PrizePicks, to offer the option above and to do business in the state.
The regulations, which still require approval by the Michigan Legislature before they could take effect, would prohibit fantasy sports operators from offering “proposition selection or fantasy contests that have the effect of mimicking proposition selection.” The proposed rules would prohibit operators from offering “any fantasy contests that involve, result in, or have the effect of mimicking betting on sports.”
Underdog Fantasy, which offers similar markets to PrizePicks, hasn’t operated in Michigan since 2022.
Michigan isn’t the first state taking a closer look at how fantasy operators like PrizePicks and Underdog Fantasy operate, and Massachusetts regulators have joined those looking into the topic.
“I just wanted to note that we are certainly aware of this issue, and we’re in the process of reviewing it. … it’s certainly an issue that the commission may need to address directly itself,” Todd Grossman, the Massachusetts Gaming Commission’s interim executive director and general counsel, said Tuesday.
In New York, the state’s gaming commission updated its Register last week, shooting down the idea that some pick’em-style games are different enough from sports betting to be labeled as internet fantasy sports.
The Alabama Attorney General’s Office recently tweaked the state’s DFS guidelines. Alabama doesn’t have legal sports betting.
“We are appreciative to the officials at the Alabama Attorney General’s Office who have been incredibly collaborative in ensuring that fantasy enthusiasts in the state of Alabama can access our popular skills-based fantasy contests,” a PrizePicks representative told Sports Handle. “We now have an updated product offering in Alabama that has become extremely popular over the past month and look forward to innovating additional entertaining game types in the future.”
Marc Edelman, a gaming law expert and professor of law at Baruch College, Zicklin School of Business, isn’t surprised to see state regulators cracking down on fantasy sports operators.
“My biggest surprise is that it took this long,” Edelman said. “This really is low-hanging fruit for gaming regulators.”
Skill or chance?
Underdog Fantasy CEO Jeremy Levine stated in a letter released Wednesday that to be viewed as fantasy sports contests under the law, games need three things:
- To be “based on skill”
- To use “predictions on two or more athletes from different teams”
- To have “outcomes based upon those athletes’ accumulated statistics in real-world contests.”
Levine is adamant his company’s offerings are legal as fantasy sports.
“Every single one of our contests meets that simple definition,” Levine said. ”Fantasy sports is not limited to only FanDuel and DraftKings’ salary-cap contests.”
Three legal tests often shed insight into whether a game is one of skill or chance:
Predominant factor test: This test means a jurisdiction must determine whether the outcome of a sporting event is more about skill or chance. Many states that use this test have determined that sports betting, like some card games, are more games of skill than chance.
Material element test: With this test, a jurisdiction must determine if chance plays a relevant role in a game of skill. The test is a slippery slope in that the phrase “material element” is not itself defined.
Any chance test: This test dictates that if there is any chance involved in a game, it is deemed a game of chance rather than skill.
Sports betting is also defined as a game of skill in most U.S. jurisdictions.
Legal opinions vary
Edelman, previously hired as a legal expert in a case against PrizePicks, has long believed pick’em-style contests against the house are a form of sports betting. He’s written about the subject dating back to 2014, prior to PrizePicks’ founding.
Edelman believes pick’em-style offerings could lead to operators facing consequences not only from state regulators, but also at the federal level.
“I do think the Department of Justice is well within reason to come after the operators of these games and the payment processors who fund them, as operators of illegal interstate sports gambling in violation of the federal Wire Act,” Edelman said.
Other stakeholders are adamant that PrizePicks and Underdog should be legally viewed as fantasy operators even amid questions, including some about players competing against the house rather than other players.
“The role of the operator, or the ‘house,’ is largely irrelevant to that analysis,” Darren Heitner, a gaming lawyer and founder of Heitner Legal, wrote for Action Network. “Over the years, game operators, for instance, offered puzzles for a small entry fee where contestants could win various prizes. Participants competed against the ‘house,’ not other competitors, but it did not change the fact that these were still games of skill.”
Heitner commented that the early versions of FanDuel and DraftKings products were similar to what PrizePicks and others offer now.
“In this case, the same statistical experts with PhD degrees from the most prestigious math departments in the country, who DraftKings and FanDuel used to prevail in their seminal court cases, have also analyzed modern versions of daily fantasy sports contests,” Heitner wrote. “Their conclusion: Skill prevails over chance in these modern games the same way it does in salary-cap versions.”
Edelman doesn’t see that line of thinking preventing state regulatory action.
“If those were the cards that the Underdog and PrizePicks of the world have just shown, they just showed us a 2-7 offsuit,” Edelman said.
Industry impact
Levine’s response to the recent regulatory pressure took direct aim at a pair of sports betting behemoths.
“As you may have seen, the right to play our fantasy sports contests has recently come under attack,” Levine wrote in his letter. “The attention is not organic – it’s being directly fueled by the companies with a virtual monopoly in sports gaming: FanDuel and DraftKings.”
Levine says the two mobile sports betting operators are pushing regulators and others to take action against companies like Underdog, trying to stifle competition.
“They are waging a campaign in back rooms across the country, using their deep pockets and political muscle to try to influence government officials, and exerting their market power to influence our business partners,” Levine said.
— Jeremy Levine (@JerLevine) August 9, 2023
State regulatory pushback — and the response from Underdog — deepens the debate about whether the offerings are considered sports betting. If the pick’em offerings are deemed sports betting, those operators need sports wagering licenses in order to legally operate in certain states.
If the activities aren’t viewed as sports betting, the popular operators may continue as fantasy sports operators. That comes with a few perks, including potential revenue from customers in the three biggest U.S. states — California, Texas, and Florida. All three allow DFS but not sports wagering.
Levine believes the legal arguments are just a cover for DraftKings and FanDuel to try to squash potential threats.
“What do monopolists do when they are afraid of competition?” Levine wrote. “They use their money, power, and influence to target competitors. That’s the playbook FanDuel and DraftKings are following, leaning on backroom lobbyists and pressing business partners to do their dirty work for them. It’s a classic play for entrenched big businesses who are afraid of competition.”
