Last week, a putative class action Complaint was filed against a major fantasy sports company in the United States District Court for the Eastern District of New York.
Last week, a putative class action Complaint was filed against a major fantasy sports company in the United States District Court for the Eastern District of New York. Read More Gaming
Last week, a putative class action Complaint was filed against a
major fantasy sports company in the United States District Court
for the Eastern District of New York. In Ballentine v. Underdog Sports, LLC,
Plaintiffs allege that Defendant violated NY’s fantasy sports
law by offering illegal sports bets that it deceptively marketed as
daily fantasy sports. As a result of Defendant’s purported
wrongdoing, Plaintiffs allege that they are entitled to recover the
money they lost on Defendant’s platform, as well as
attorneys’ fees and costs.
As our readers are aware, the New York State
Gaming Commission adopted Rule 5602.1(a)(4) in October 2023, outlawing
fantasy sports contests that are based on proposition betting. By
adopting this rule, New York made clear that sports
“pick’em” contests, offered by companies such as
Defendant, constitute sports betting by another name. Note that
Defendant is not licensed to operate a sportsbook. As such,
Plaintiffs claim that judgment should be rendered against Defendant
for violating NY fantasy sports law by operating an illegal sports
betting platform.
The Facts at Issue in the Ballentine v. Underdog
Sports, LLC Proceeding
Defendant is a company that offers “pick’em” style
contests to residents of 18 states. In a “pick’em”
contest, consumers place bets on how particular real-world athletes
will perform against metrics set by the contest operator. In
“pick’ em” contests, participants are not typically
competing against other participants, but against the house (in
this case, the Defendant).
The lead Plaintiffs collectively reside in New York, Texas, and
California. All four Plaintiffs registered on Defendant’s app,
participated in “pick’ em” contests through the app,
and suffered losses. All four Plaintiffs allege that they were
never shown Defendant’s Terms of Service, nor did they ever
accept said Terms. Furthermore, Plaintiffs assert that Defendant
never informed them that it was offering games in violation of NY
fantasy sports law. Consequently, they filed the subject
lawsuit.
Applying NY Fantasy Law to the
Ballentine Claims
The relevant NY fantasy sports law provision states, in part,
that: “[c]ontests shall not be based on proposition betting or
contests that have the effect of mimicking proposition betting.
Contests in which a contestant must choose, directly or indirectly,
whether an individual athlete or a single team will surpass an
identified statistical achievement, such as points scored, are
prohibited.”
In a traditional fantasy sports game, participants assemble
imaginary teams composed of actual professional sports players.
Points are then awarded based on how these athletes cumulatively
perform in live games. Each participant buys in, and the manager of
the highest scoring “team” is usually awarded all or most
of the prize pool. Participants in Defendant’s contests instead
bet that an individual athlete’s statistics will be
“over” or “under” a threshold chosen by
Defendant. Participants pay a fee to Defendant to participate in
these contests. If they choose the “over” or
“under” correctly, they win back their fee plus a prize
amount. Otherwise, Defendant keeps the fee.
The NY State Gaming Commission has made clear that these
over/under DFS contests operate in contravention of NY fantasy
sports law. New York is not the first state of the Union to make
clear that these contests are not fantasy games, but
rather meet the definition of sports betting. In fact,
Massachusetts, Arkansas, Florida, Maryland, West Virginia, and
Wyoming gaming authorities have issued cease and desist letters to
Defendant for conducted related to its “pick’ em”
games. In this uncertain climate, payment processors, and other
entities integral to gaming operations, have become increasingly
reliant on legal opinion letters to gauge the legality of sports
gaming platforms.
Federally, fantasy sports contests are regulated by the Unlawful
Internet Gambling Enforcement Act of 2006 (“UIGEA”).
UIGEA makes it illegal to knowingly transmit a bet over the
Internet unless sports betting is legal where the bet is
“initiated.” However, UIGEA does explicitly carve out
certain “fantasy sports games” from this prohibition that
meet certain criteria. The UIGEA fantasy sports
carveout was intended to allow for a pool of participants to
compete against each other by putting together teams of players
drawn from different real life sports teams for a chance to win
prizes.
Why is Ballentine Relevant to
Your Business?
NY fantasy sports law was amended to more closely preserve the
original intent of the UIGEA daily fantasy sports exemption.
Defendant nevertheless continued to tread the line between fantasy
sports and sports betting and now faces a putative class action
lawsuit. This is not the first lawsuit in which a plaintiff has
accused Defendant of violating a gaming statute, and, if it does
not tweak its model or attain sports betting licensure, it may not
be the last.
Companies that offer “pick’ em” games need not
necessarily cease operations – they just need to change the
construct of their contests or apply for sports wagering licensure.
State authorities have made clear that they will not allow the line
between sports gambling and DFS to be blurred. Fantasy sports and
sports wagering are two separately regulated forms of gaming that,
in many state jurisdictions, were legalized under two different
initiatives.
If your business operates a sports wagering or daily fantasy
sports platform, it is important to stay current with ever-changing
regulations. Hiring counsel experienced with applicable laws and
regulations can be instrumental in navigating this difficult
endeavor.
The attorneys at Klein Moynihan Turco are constantly monitoring
evolving fantasy sports and sports wagering regulations so that
clients remain compliant with applicable state and federal laws.
Our attorneys regularly assist clients with payment processor
approval by reviewing contests and drafting related opinion
letters.
Similar Blog Posts:
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Ohio!
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Change?
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
