DraftKings Tries To Make Its Case That Daily Fantasy Sports Are Not Gambling

A week after New York state sued DraftKings, alleging that the daily fantasy sports (DFS) site is an illegal gambling operation, DraftKings has filed a brief with the court to make its argument that DFS isn’t gambling at all.

The lawsuit filed by New York state Attorney General Eric Schneiderman claims that DFS sites are “gambling” under the state’s legal definition of the term, i.e. when a person “stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome.”

DraftKings counters that this isn’t the case with DFS. In its memorandum of law [PDF] filed this morning in a New York federal court, the company contends first that DraftKings players never “stake or risk” anything. Instead, these players are paying “entry fees” to compete for fixed prizes, a practice the company says has been previously upheld by courts.

Additionally, DraftKings notes that — unlike a casino, horse track, or sports book — where the party accepting a bet stands to lose money if a gambler wins, DFS sites are not staking or risking anything based on the outcome of sporting events. The prize pool is going to be paid out regardless.

“The entry fees that DraftKings charges its customers are paid unconditionally for participating in DraftKings’ contests,” reads the memo. “DraftKings retains these payments, which compensate it for its work and expenses in providing DFS games to its customers, regardless of the outcome of any contest or future event. DraftKings fixes and announces the prize in advance of each DFS contest so that this information is known to each player before he pays his entry fee. DraftKings never competes in the contests it offers; it serves only as a neutral third-party administrator.”

If DraftKings loses money on a DFS contest, it’s not because the Eagles lost or because Mark Sanchez has a penchant for throwing interceptions, but because not enough players signed up for the event, leaving the company on the hook for prize money that had to be paid out anyway.

The second half of DraftKings’ “we’re not gambling” argument involves the state’s definition of “contest of chance” as “any contest, game, gaming scheme or gaming device in which the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein.”

Once again, DraftKings stands by its position that “skill inherently predominates in determining the outcome” of a DFS contest.

“Success at DFS games is determined by how skillfully a player assembles his lineup within the overarching constraint of a salary cap that mitigates chance-based variables,” reads the brief. “A successful fantasy player must exercise extensive skill to research, prepare, and develop a strategy accounting for variables including weather, injury reports, athletes’ statistical history, coach and athlete strategic tendencies, athlete consistency, game psychology, team and athlete matchups, and salary cap, among others.”

While critics of DFS have pointed out that poker is largely a game of skill and yet is still widely considered to be gambling, DraftKings believes there is a noteworthy difference.

“Unlike card games, where cards are randomly distributed, there is no random distribution element in DFS to introduce a ‘material degree’ of chance,” explains the company. “The composition of a player’s fantasy lineup is not a random ‘draw’; it is carefully determined using skill.”

In a brief supporting its complaint, the state attempted to address this issue of skill versus chance. It gave the example of two people playing chess and two people watching them. To the state, DFS is no different than these two spectators placing wagers on the chess match based on their knowledge of the players involved and other conditions. According to the state, “the degree of talent or knowledge a bettor displays in making a prediction is irrelevant,” because whether you win or lose money depends on that “future contingent event” not under the spectators’ control.