The New York Daily Fantasy Sports Case - Part IX

The Four Tests

The whole New York DFS saga showed the potential danger: any claim on future contingent events where skill matters can be disguised as a game, thus leading to a non-gambling determination. Given the fact it is absolutely critical to distinguish games from claims, how does one do that? What are some practical tools that can be used? 

This post is dedicated to four intuitive, yet powerful tests developed by NSEI. These tests can help determine whether any activity is a game or a claim, which should be the threshold step for the Penal Law to operate properly.

  1. The Pandemic Test

The relevant inquiry under this test is: Can this activity be played during a pandemic?

Gameplay did not stop during the pandemic; if anything, with the stay-at-home orders in effect, many families turned to games to entertain themselves. Monopoly remained an all-time favorite. People could still play cards, backgammon, charades, chess, etc. Organized sports had largely stopped because public policy choices limited when and where sports could be played, but that did not eliminate sports games entirely. A father and son could still shoot hoops in the backyard or a game of golf could still be played.

DFS, on the other hand, could not be “played” during the pandemic when professional sports events stopped. Sports betting stopped as well. What does a gambling operator do when there is nothing to bet on, anyway? E-sports betting was approved in the state of Nevada in April of 2020. West Virginia approved, then immediately walked back betting on elections.  One sportsbook even started taking bets on the weather.

Why was the DFS “game” not an option during the pandemic? The answer comes easy to anybody who has studied the role of games in culture. Johan Huizinga, a Dutch historian, observed in his seminal work Home Ludens: A Study of the Play-Element in Culture:

Play is distinct from “ordinary” life both as to locality and duration. This is the third main characteristic of play: its secludedness, its limitedness. It is “played out” within certain limits of time and place. It contains its own course and meaning. 

Quick digression: When we submitted an amicus brief (PDF) to the Indiana Supreme Court in a Name/Image/Likeness case, we pointed out that DFS is not a game, and cited, as we do now, Huizinga. FanDuel and DraftKings must have felt threatened by that argument. They had no good answer on the merits, so they tried something else in their response brief (this is the case docket, their response brief is filed on 06/11/2018):

Amicus NSEI, citing mid-twentieth-century European historians and sociologists, makes the surprising argument that online fantasy sports “is not a game” at all because it “could not conclude without having a connection to real life.” NSEI Br. 7, 9. Even leaving aside that this “definition” of a game would render myriad activities—from Monopoly to charades—not “games” because they have a connection to real life, NSEI’s argument does not aid Appellants.

So being a mid-twentieth-century intellectual means your work is irrelevant?  By that logic, Einstein also did not contribute anything to humanity. We’ll leave it there. 

As far as Monopoly and charades, we never said that a game cannot incorporate real-life information in some fashion. We just said if an activity cannot conclude without knowing how the real-life event turned out, it cannot be a game in the first place. Any game can start, and conclude, regardless of what is happening in the real world. Whether life stops because of a pandemic is of no concern to the player, a game has literally nothing to do with future events in real life.

There is a footnote in our amicus brief (PDF) that highlights the distinction. It was essentially a response to the FanDuel and DraftKings statement above. We don’t forget: 

Real-world information may be relevant in certain games, e.g. trivia or charades. Critically, however, the skill is in knowing what happened in the past, not predicting the future. Knowing who won the Super Bowl LV is sports trivia skill, risking money on Super Bowl LVI is a sports bet.

In any event, we find it odd that the State of New York now tries to ignore the ‘future contingent event’ argument, when they themselves made it when they viciously attacked the DFS industry back in 2015. Here is what we said on our amicus:

The State of New York took the same position: “In the words of FanDuel, the outcome of the game is, quote, ‘contingent on the positive performance of all of their players,’ unquote, in the real sports events. In fact, if the athletes do not perform or the games are not held, there can be no daily fantasy sports winner or loser.” Transcript 8. It would bely common sense for Appellants to prevail now by arguing the exact opposite.
  1. The Mars Test

We developed The Mars Test, our original, which will always have a special place in our hearts. We discussed this test quite a bit in our 2016 amicus brief (PDF) to the New York Supreme Court Appellate Division, which the court did not have the opportunity to consider because the then-Attorney General Eric Schneiderman settled with the DFS operators.

The relevant inquiry under this test is: Can this activity be played on Mars?

Let’s hypothesize that Elon Musk, the infamous entrepreneur who wants to colonize Mars, gets his wish and starts shuttling people to Mars, say, 100 at a time.  It is not hard to imagine that after eating, sleeping, and socializing, these brave adventurers will eventually get bored and start playing games. They can play chess, if they brought a chessboard and the pieces with them, and if not, they can always improvise with the rocks on Mars. A deck of cards would undoubtedly lead to a variety of card games. If there are children in the group, a spelling bee contest would surely be organized sooner or later.  

Roger Caillois, another “mid-twentieth-century sociologist”, who has a literary prize named after him, explained why in 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.

DFS, on the other hand, cannot be “played” on Mars. Participants can pick their teams, but then what? Once the fantasy teams are formed, it is conceivable that a newcomer to fantasy sports would ask, “How will we determine the winners?”, to which the fantasy sports operator would confidently reply, “We’ll assign points to each player on our imaginary teams based on how they perform and add them up.”  Puzzled, the newcomer may inquire, “How will we know how they perform?  We are on Mars.”

The simple reality that is inconvenient for DFS is this: There can never be a winner of a fantasy sports “game” on Mars, while every other game can identify a winner based on a predetermined set of rules. DFS is not ring-fenced the way sports games are. What happens outside the DFS app, e.g. football, is relevant. As such, DFS is not a game, but rather a claim on future contingent events.

  1. The Information Test

The relevant inquiry under this test is: Does having information on events or people that are not players in the game matter? 

One can surely evaluate their opponent based on their past behavior (e.g., does LeBron James go to his right more often?), or try to guess how much someone will play. Yet, the only focal point is the opponent, and information on events or people outside the playing field is irrelevant. As Roger Caillois observed:

[Games] certainly cannot spread beyond the playing field (chess or checkerboard, arena, racetrack, stadium or stage.

A DFS participant, on the other hand, cares not so much about other DFS participants, but all the athletes that can be drafted to field a collective fantasy roster. Thus, how well LeBron James is going to play in the next game, a future contingent event from the DFS participant’s perspective, is relevant not because LeBron James is the opponent, but because the DFS participant’s payoff would change accordingly.

Ultimately, it comes down to this: When your payoff is contingent on future events, having better information about those events gives you an opportunity to predict those events with better accuracy and gives you an edge. Games simply do not depend on future contingent events (more on this in Part X). Claims do. 

  1. The Rulebook Test

The relevant inquiry under this test is: Does the rulebook change? 

Rules can be changed to make a game more or less skill-based, thus potentially changing the gambling characterization. As one Florida state court observed:

Accordingly, we hold that the games … are not per se violative of our gambling laws. This conclusion does not preclude appropriate proceedings if at any time these games ... are so manipulated as to cease to be games of skill.

Some legal scholars argued that one can make DFS more skill-based, thus reducing legal risk. Here is Marc Edelman: 

A third strategy to reduce the legal risks of ‘daily fantasy sports’ is to ensure that, if the contest allows for player selection based on draft lists, these draft lists do not perfectly correlate in-game player salaries with players’ expected statistical output.

That suggestion, though well-intended, actually proves why DFS is not a game in the first place. If salary tweaks make DFS cross the skill threshold and turn it into non-gambling, would DFS still be gambling when those tweaks are not made? It would be an absurd conclusion to believe that DFS is gambling on some days but not on others. Similarly, the characterization of sports betting as gambling cannot depend on bookmakers tweaking the odds here and there. The reason such changes don’t matter is because these are not rule changes at all, they are price changes. If hypothetically, a four-point line was to be introduced in basketball, that change would be reflected in the rulebook. The DFS rulebook, on the other hand, won’t tell you what Tom Brady’s salary is. It can’t because it changes every week.

Rule changes in games can happen, but they are rare; it took the NBA more than 30 years to adopt the three-point line. Athlete salaries in DFS, on the other hand, change much more frequently and depending on the sports, sometimes daily. Betting odds may change by the minute. Again, these are price changes, not rulebook changes. To the extent those price changes make skill more important, that is simply irrelevant from a gambling characterization perspective as neither DFS nor sports betting is a game in the first place.

These tests are carefully, well-thought-out tests that we have developed in-house. You will not find them in case law. Yet, we are confident that they, individually and collectively, could assist any court or lawmaker trying to determine whether or not an activity is gambling. 

Next up: What are the two things that confuse many people when it comes to skill-based gambling and future contingent events?

Start at the beginning with Part I