The New York Daily Fantasy Sports Case - Part XI

Why Have We Assumed Fantasy Sports Is A Game?

Often, unconscious assumptions are made when one is answering seemingly simple questions. A hypothetical example is: What are the summer months? Most people would respond, incorrectly, that the summer months are June, July, August. The correct answer, of course, is that it depends. Specifically, it depends on whether one is in the Northern or Southern hemisphere. When the question is silent on the hemisphere, a threshold matter that literally changes the answer to the question, it is typical for most people to not clarify and instead assume the first step, presumably based on where they live. Without realizing that they skipped a crucial step, they proceed directly to the second step. Thus, an unconscious assumption could lead to the wrong answer.

Another example would be: What is 3+2? Most people are so accustomed to thinking in the decimal, or base-10 numeral system, they wouldn’t think twice before answering five. The correct answer, again, is that it depends. Specifically, it depends on the choice of the numeral system. In a binary, or base-two system, the answer would be one. The question is not a difficult one; a high-school student could easily answer it correctly once the numeral system is specified. Yet, without that clarity, the same student would likely assume the most commonly used one, namely the decimal system. That is the world we live in, after all. Thus, the student would likely be unaware of the unconscious assumption made and proceed directly to the second step.

We make a lot of assumptions and it’s not exactly clear why. It could be because the brain needs to save energy or there could be heuristics biases in play. Assumptions could also have evolutionary roots which may have evolved through fight-or-flight type responses. Thorough fact-finding may not have been the optimal response if there was a fifty percent chance that the animal staring at you was a lion. 

Regardless of why assumptions are made, the reality is we make them often. Sometimes they get corrected and in other cases, things happen to line up in a way and the faulty assumption is never corrected. This is precisely what has happened with fantasy sports. 

Fantasy sports was deemed to be a game by so many for so long, it turned into a “fact” that was never validated. The notion that fantasy sports is a game is an intermittent gap in legal thinking, a gap that is filled by our latest amicus brief (PDF) to the New York Court of Appeals. Still, it would be fair to ask, why was there a gap in the first place? With more than 60 million people “playing fantasy sports,” why hasn’t anybody questioned this before?

There are multiple factors that contributed to this gap, creating a perfect storm. 


Labels

Labels matter. The name, “fantasy,” perhaps not intentionally, but conveniently for DFS, hard-wired the world to think it’s a self-contained game that happens in a vacuum, completely disconnected from reality. Fantasy sports is often seen as just fun and games. The fact that it involves organized sports, which itself consists of a collection of fun games, further fueled that belief. 


Dedicated Spaces

As we mentioned in Part IX, one of the defining characteristics of a game is that there is a dedicated space for it. Let us cite Roger Caillois again, this is from his seminal work Man, Play and Games:

In effect, play is essentially a separate occupation, carefully isolated from the rest of life, and generally is engaged in with precise limits of time and place. There is place for play: as needs dictate, the space for hopscotch, the board for checkers or chess, the stadium, the racetrack, the list, the ring, the stage, the arena, etc. Nothing that takes place outside this ideal frontier is relevant.

This is critical. A game happens within the four corners of that dedicated space. Some gambling claims, at least initially, “mimicked” games from a spatial separation perspective. Betting on horses occurred at the racetrack where the horses ran. Fantasy sports drafts happened at a restaurant, in a conference room etc., with all participants gathering around a table.  They could have played cards. Instead, they were participating in fantasy sports. The fact that athlete performances, future contingent events that the DFS outcomes are based on, took place elsewhere isn’t something that people have given much thought to. 


Lack of Financial Incentives

Fantasy sports wasn’t on the economic map. The sports leagues, especially the NFL, cared enough about fantasy football that they successfully lobbied for a carve-out when Congress passed the Unlawful Internet Gambling Enforcement Act (“UIGEA”) in 2006. Still, the total fantasy market wasn’t something to write home about. The estimated total number of fantasy “players” in 2005 was 12.6 million, certainly a meaningful number, but it wasn’t generating much business activity. Traditional, season-long fantasy sports is a low-stakes, social activity that you participate in with your friends or colleagues. There wasn’t a big incentive to question whether it is a game or not.

Then came Humphrey. As is often the case, the dispute coincided with the ascent of fantasy sports; the 2008 estimate would end up being just shy of 30 million “players.” The UIGEA did not make fantasy sports legal, as some would later claim, it was just an enforcement statute. Yet, it must have given the industry and the sports fans some level of comfort. 

The Humphrey Court did not question whether DFS is a game in the first place (PDF opinion), which is arguably the only question that mattered. There were some other nuances in this one (e.g., establishing the boundaries of qui tam statutes); however, with the Humphrey Court making the unconscious assumption that fantasy sports is a game, it must not have been that difficult for the court to rule in favor of the fantasy sports industry. This outcome likely kept litigation at bay for a few more critical years, which gave DFS enough runway to get bigger, ultimately leading to the New York Times expose and all the subsequent legal woes.

DFS would ultimately take away everything that made traditional fantasy sports a less harmful form of gambling (but gambling nonetheless). The camaraderie was gone, now the other participants were mostly random people. It wasn’t low stakes anymore, the “prizes” were in the millions. It didn’t last a whole year, the new group of customers needed instant gratification. People were not getting together in a dedicated space anymore, now you were hanging out in the “lobby.” In addition, practically every game from chess to poker was also on the internet now, so that didn’t lead to the question of whether or not fantasy sports is a game; it was simply part of that trend.

We are not saying that any of these things was what turned gaming into gambling. Fantasy sports was already not a game. It, too, was gambling given all the prongs of the gambling test under the Penal Law were met. The State of New York thinks that our “not-a-game” idea is meritless (their response brief in PDF), but they were arguing just a few years ago that traditional fantasy sports is gambling and that DFS outcomes are based on contingent events. They already agreed with practically everything that we are saying, it just so happens that they now find themselves in the unfortunate position of defending a position that they viciously attacked six years ago. So what has changed other than the fact the State of New York now finds itself on the other side? Nothing, and that is precisely the danger of passing an unconstitutional law favoring an industry you previously attacked. As we noted in Part I earlier, the new Governor, Kathy Hochul and the new state Attorney General, Letitia James, had nothing to do with it either; they just inherited this problem from ex-Governor Andrew Cuomo and ex-Attorney General Eric Schneiderman. 


Power of Narratives

Narratives matter. Over the last decade, the DFS industry deserves some credit for turning the legal debate into a referendum between a game of skill and a game of chance. Using the Humphrey decision as a launchpad, the industry continued to hammer on the game-of-skill narrative. The legal and legislative victories they scored were a direct result of that narrative taking hold. In fact, even when the decisions didn’t go their way, like the New York Supreme Court injunction in December 2015, the DFS industry was arguably losing the battle but winning the war. Another example is how White v. Cuomo has evolved. As noted by Rob Rosborough in his DFS article (published PDF version), the New York Supreme Court, which was the trial court, was clearly thinking about ‘future contingent events:’

The drafters of the constitutional ban on gambling intended to prohibit “contests based on future contingent events,” which DFS clearly is, the trial court reasoned, regardless of the skill involved.

Then, something significant happened. The Appellate Court, at first glance, seems to have taken an even stronger position on the unconstitutionality of the Interactive Fantasy Sports (“IFS”) bill (this is what the New York Legislature called its daily fantasy sports bill) than the trial court. As Rosborough noted:

The Appellate Division, thus, affirmed the trial court’s holding that the IFS law is unconstitutional. But the majority didn’t stop there. It also modified that portion of the trial court judgment that had upheld the IFS law’s provisions decriminalizing DFS games. Although the court held that the legislature had to [sic] power to decriminalize DFS, it could not sever the provision from the rest of the IFS law and, thus, declared it unconstitutional as well.

Yet, the opinion weakened on another front, which was critical. According to the Appellate Court, DFS is gambling because it is a game of chance. The phrase ‘future contingent event’ appeared only a couple of times in the majority opinion, both of which were in reference to Penal Law § 225.00. 

The State, unsurprisingly, latched on to it in their opening brief:

Supreme Court (though not the Appellate Division) separately concluded that interactive fantasy sports contests are gambling because they involve wagers on “a future contingent event not under [the player’s] control or influence,” but that conclusion too is mistaken. (emphasis added).

What seemed harsher was not. The latter opinion had the flavor of the false referendum between a game of skill and a game of chance, which is exactly where the DFS industry wants it to be. The New York Court of Appeals now has an opportunity to fix this issue. 


The “Boiling Frog”

While all these factors were no doubt important, the reason why this chain never broke is because incremental changes happened over a long period, akin to the proverbial “boiling frog.” But how did the frog get into the pot in the first place?

It all started with Strat-O-Matic. As Marc Edelman noted in his paper titled A Short Treatise on Fantasy Sports and the Law: How America Regulates its New National Pastime, Strat-O-Matic was the brainchild of a mathematics student.

[I]n 1961, Hal Richman, a Bucknell University mathematics student, devised a more complex simulation game. Richman’s game, Strat-O-Matic Baseball, included one playing card for each Major League Baseball player. Each card contained various ratings and result tables that corresponded to dice rolls. For each game, Strat-O-Matic participants would select teams and batting orders, roll the dice, and then review charts to determine game results.

Here is where the frog gets into the pot. Under the erroneous header, “A New Game is Created,” Edelman writes:

With both traditional ‘table games’ and ‘computer simulation games’ failing to provide sports fans with a way to predict players’ future performances, some highly educated sports fans began to experiment with ways of creating sports simulation games that incorporated future events.” (emphases added)

This was precisely when a line was crossed. It was not a game anymore. Instead of being scored on ratings created within the game itself,  the outcome now depended on future contingent events, i.e. athlete performances. This was the moment when the activity turned from a game to a claim, literally changing how the New York Penal Law, and similar laws would apply to such activities. That was a direct result of incorporating future contingent events into the structure.   

The story of the “boiling frog” is often told to describe situations when incremental changes take place over a long time rather than all at once. According to Wikipedia:

The premise is that if a frog is put suddenly into boiling water, it will jump out, but if the frog is put in tepid water which is then brought to a boil slowly, it will not perceive the danger and will be cooked to death. The story is often used as a metaphor for the inability or unwillingness of people to react to or be aware of sinister threats that arise gradually rather than suddenly.

Fantasy sports is akin to a “boiling frog.” When Strat-O-Matic turned into fantasy sports, a game became a gambling contract. The “fantasy” label created inertia, the fact that people generally gathered in a physical space early on gave it some further momentum, the lack of financial incentives as well as a favorable court opinion (Humphrey) further fueled that momentum, the DFS industry successfully advanced the game-of-skill narrative and the fact that all of these happened slowly over time masked what fantasy sports really is: a claim on future contingent events. Under the New York Penal Law, that constitutes illegal gambling.

Start at the beginning with Part I

Continue to the final Part XII


White v. Cuomo - New York State Court of Appeals - APL-2020-00027

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