by: John Allaire & Brian Schaller

Given the rapid pace of change and innovation in the world of online real money gaming, state gaming laws seem to be top of mind for regulators, State Attorneys General, and the plaintiffs’ bar. Recently, they have turned their attention to daily fantasy “Pick ‘Em" style games (also known as “DFS 2.0”). Those that run fantasy sports on their website/app (“Operators”) should assess the risks of running these “DFS 2.0” games in any state/territory in which they operate. We also recommend that anyone doing business with such Operators (e.g. service providers, payment processors, affiliates, marketers, and platforms) take heed, as supporting “Pick 'Em” games could open the door to fines, criminal penalties, and class action litigation.

In this article, we will discuss the evolution and mechanics of these “Pick 'Em” games, highlight some key state developments, and outline ways that your business can help minimize risk.

From “DFS 1.0” to “DFS 2.0”

Online daily fantasy sports games for real money have been around for more than a decade. The first iteration of daily fantasy sports (or “DFS 1.0”) and the common conception of daily fantasy sports is a peer-to-peer product. Typically, these games are organized by a website/app Operator that is responsible for collecting a set entry fee from each user who enters a contest, organizing the contest and administering the rules, and then paying the contest winner. A number of these contests are run via a salary cap format, where a user drafts a lineup of athletes, each athlete has an assigned salary, and the total cost of that lineup can’t exceed a certain dollar amount.

Unlike the traditional DFS games described above, “DFS 2.0” is a relatively newer phenomenon and is played against the house and not other people. In this “Pick ‘Em” format, users choose a set number of players rather than create a full team. A user then predicts the outcome of more than two player stat projections, often consisting of either “Higher” or “Lower” for a given stat projection. The user plays directly against the Operator in return for a payout equal to multiple times their entry fee. Like traditional sports betting parlays, in these "Pick ‘Em” games, the prize increases as you add more player picks.

The Status of “DFS 2.0”

Some argue that these “Pick ‘Em” style daily fantasy games are de facto sports betting, or as the president of the American Gaming Association put it, “unlicensed sports betting masquerading as daily fantasy products.” Many states are now prioritizing enforcement and new legislation aimed at targeting this issue. Below, we highlight some recent developments:

• On February 27, the Massachusetts Attorney General’s office announced that the group has sent cease and desist orders to ten fantasy operators offering Pick ’Em-style fantasy games. In the letters, the Massachusetts AG classified these games as “sports betting” under Massachusetts law.

• On February 23, 2024, Ohio Casino Control Commission Executive Director Matt Schuler approved the NCAA’s request to prohibit player-specific prop bets on college athletes.

• On February 15, 2024, the Arkansas Department of Finance and Administration sent cease and desist letters to two Daily Fantasy Sports operators (Underdog and PrizePicks) that the Department believes to be offering unlicensed sports betting in violation of Amendment 100 to the Arkansas Constitution.

• On February 12, 2024, PrizePicks announced they were ceasing operation of their “Pick ‘Em” style contests in New York. A day later, it was announced that PrizePicks also agreed to pay nearly $15 million to the New York State Gaming Commission for operating without a license. In October 2023, the Commission adopted New York Rule 5602.1(a)(4), outlawing fantasy sports contests that are based on proposition betting. Another popular Operator, Thrive Fantasy, recently announced they were ceasing operations in New York on February 13, 2024.

• On January 31, 2024, The Florida Gaming Control Commission (following up on cease-and-desist letters sent in September 2023), warned three online fantasy sports Operators they will be facing potential criminal prosecution if they do not cease operating in the state soon). One Operator,  PrizePicks, has said that it plans to shut down in the state.

A number of other states, including Kansas, Maryland, Maine, Michigan, Wyoming, and Virginia have also weighed in on this very issue, and we expect many more states, including California, to soon follow suit. As a response to the rapidly changing legal landscape, a number of companies offering these “Pick ‘Em” style games have begun to tweak their offerings and restructure gameplay, with some launching new peer-peer and free products in states that have outlawed these types of “Pick ‘Em” style games.

Takeaways

The crackdown on DFS 2.0 serves as a strong reminder of the legal challenges facing Operators and other participants in the rapidly evolving landscape of online gaming. We have outlined some steps below that businesses can take to minimize risk:

• Look at your business’s operations and contracts to assess whether your company is running or doing business with Operators offering online real money gaming, and if so, whether “Pick ‘Em” style games are involved.

• Check contracts that you have with Operators and perform any necessary due diligence. It is important to assess the type of relationship with Operators and the likelihood that your business could be aiding and abetting the operator.

• Operators can review their current offerings, state statutes, regulations, and regulators/AG’s positions on “Pick ‘Em” style games to assess the risk.

• Continue to monitor developments from state gaming commissions as well as other developments at the state and federal level.

Here at ILG, we have extensive experience in navigating the laws, licensing regimes, and regulations applicable to all types of real-money gaming. We are pleased to deploy a wide-ranging team of legal professionals in this space – including lawyers and paralegals, and we’re here to help!

Originally published by InfoLawGroup LLP. If you would like to receive regular emails from us, in which we share updates and our take on current legal news, please subscribe to InfoLawGroup’s Insights HERE.