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Tuesday, June 23, 2015
Florida's Uncertain Legal Landscape for Fantasy Sports: A Closer Look
The emerging growth and popularity of daily fantasy sports has focused increased attention on whether such activity--which some equate to sports betting--is legal. While much of the debate has focused on federal law, and, in particular, the Unlawful Internet Gaming Enforcement Act, state law may represent the greater sphere of uncertainty (and vulnerability) for the fantasy sports industry. Five states—Iowa, Louisiana, Montana, Arizona, and Washington—already expressly prohibit fantasy sports, and a sixth--Michigan--may soon be considered off-limits due to recent comments from that state's top gaming regulator. Additionally, the legality of fantasy sports (of all types) is especially murky in those states (such as Arkansas, North Dakota, Tennessee, Texas, and Vermont) in which even a modicum of “chance” would transform the contest into an illegal lottery, and, thus, run afoul of those states' gambling prohibitions.
But is Florida being overlooked? While there are there no Florida statutory provisions that directly address the legality of fantasy sports, the Florida Attorney General has weighed in on this issue, albeit, more than 20 years ago. On January 8, 1991, then-Attorney General Robert A. Butterworth issued an advisory opinion concluding that Section 849.14,Florida Statutes “prohibits the operation and participation in a fantasy sports league whereby contestants pay an entry fee for the opportunity to select actual professional sports players to make up a fantasy team whose actual performance statistics result in cash payments from the contestants’ entry fees to the contestant with the best fantasy team.” Fla. AGO 91-03, 1991 WL 528146, at *1 (Fla. A.G. Jan. 8, 1991).
As underscored by AGO 91-03, the question of legality in Florida does not turn on the “skill” vs. “chance” dichotomy, as it does in many other jurisdictions (which apply varying tests, but almost all of which embrace some form of the “skill” vs. “chance” analysis). While Florida’s gambling laws are primarily concerned with games of chance, there are specific provisions within Chapter 849 that also make it illegal to bet or wager on “contests of skill.” Along those lines, Section 849.14 provides as follows:
Whoever stakes, bets, or wagers any money or other thing of value upon the result of any trial or contest of skill, speed or power or endurance of human or beast, or whoever receives in any manner whatsoever any money or other thing of value staked, bet or wagered, by or for any other person upon any such result, or whoever knowingly becomes the custodian or depositary of any money other thing of value so staked, bet, or wagered upon any such result, or whoever aids, or assists, or abets in any manner in any of such acts all of which are hereby forbidden, shall be guilty of a misdemeanor of the second degree, punishable as provided on s 775.082 or s. 775.083.
Fla. Stat. § 849.14 (emphasis added)
There are four categories of potential violators that Section 849.14 was designed to reach: (1) the player, for betting or wagering on the contest of skill; (2) the sponsor, for accepting the bet or wager from the player; (3) banks and payment processors, for becoming the custodian or depositary of the money wagered, and (4) those who "aid, assist or abet in any manner" any of such acts. This last category should not be underestimated because it could subject “non-operators,” such as those assisting in the advertising and promotion of the activity to criminal liability merely for encouraging or assisting the primary violation of Section 849.14. Potentially at risk here are the investment banks, venture capital funds, professional sports leagues and teams, media broadcast companies, and entertainment companies that partner with the fantasy sports industry. These entities need ensure that the fantasy sports contests with which they are affiliated are legal in Florida, and, further, that their actions do not cross the line into “aiding and abetting” (as that concept is defined under Florida law).
Deciphering “Stake, Bet or Wager” Under Florida Law
As stated earlier, the touchstone for a primary violation of Section 849.14 is whether the activity at issue constitutes a “stake, bet or wager.” Strangely, for a state with such an active gambling industry, Florida has very little case-law defining what constitutes a "stake, bet or wager." The most frequently cited decision is Creash v. State, 179 So. 149 (Fla. 1938), which distinguishes between a "stake, bet or wager" and a "purse, prize or premium" as follows:
In gamblers' lingo, 'stake, bet or wager' are synonymous and refer to the money or other thing of value put up by the parties thereto with the understanding that one or the other gets the whole thing for nothing but on the turn of a card, the result of a race, or some trick of magic. A 'purse, prize or premium' has broader significance. If offered by one (who in no way competes for it) to the successful contestant in a fete of mental or physical skill, it is not generally condemned as gambling, while if contested for in a game of cards or other game of chance, it is so considered. . . .
Id. at 152 (emphasis added). The key difference, according to the Florida Supreme Court, is that in a "stake, bet or wager," all participants compete for thing offered, whereas, in the "purse, prize or premium" scenario, the sponsor does not compete for the thing offered.
But, at the same time, the Supreme Court cautioned against relying too heavily on labels in determining whether gambling has taken place. Rather, as Creash counseled, courts should look to the substance of the game under consideration (not its form), explaining:
Chance actuated by the hope of getting something for nothing is the controlling element in gambling. Any agreement or inducement by which one risks his money or other thing of value with no prospect of return except to get for nothing the money or goods of another is gambling. If the contest for a "purse, prize, or premium" or a "stake, bet or wager" has this element in it, it is gambling, regardless of the name by which it is called, the implements employed to accomplish the act, or the manner in which it is conducted.
As an illustration of this approach, the Creash court characterized as illegal "gambling" a contest where participants "contribute[d] to a fund from which the 'purse, prize, premium' is paid, and wherein the winner gains, and the other contestants lose all." Id. Thus, regardless of whether the thing played for was a "purse, prize, or premium," or a "stake, bet, or wager," the Florida Supreme Court held that a conviction for illegal gambling would be warranted if the evidence showed that: (1) the amount paid by each player to enter the game went into the common fund from which prizes were paid; (2) the primary purpose for entering the game was to play for money or something of value; (3) the prize or prizes played for were won and paid to the winner; and (4) the other players lost all they paid in. Id. at 153.
Attorney General Opinions 91-03, 90-58 and 94-72
It is against this backdrop that the Florida Attorney General considered the legality of fantasy sports nearly one-quarter of a century ago. In AGO 91-03, the fantasy sports league at issue was operated "by a group of football fans" in which contestants paid an entry fee of $100 for the right to "manage" one of eight fantasy football teams. Each contestant would "draft" players from current National Football League (NFL) rosters, and compete against other contestants on a weekly basis. The winner of each week's head-to-head match-up was determined by combining the individual performance statistics of the "drafted" players from actual NFL games played that week. At the end of the season, the entire $800 in proceeds (representing the aggregate amount of entry fees) was paid based on the performance of the fantasy team.
In analyzing whether participants in this fantasy sports league were "betting or wagering" on a contest of skill in violation of Section 849.14, the Attorney General looked to the correlation between the entry fees paid and the prizes awarded and whether all participants had a chance of gain and risk of loss (echoing language in Creash). Pointing to the fact that the "the $800 in proceeds from the entry fees [were] used to make up the prizes," the Attorney General concluded that this characteristic transformed the payment of the entry fees into a "'stake, bet or wager' as defined by the courts." Id. at 2.
The Attorney General then contrasted this situation with an earlier advisory opinion (AGO 90-58), in which he concluded that "a contest of skill where the contestant pays an entry fee, which does not make up the prize, for the opportunity to win a valuable prize by the exercise of skill, does not violate the gambling laws of this state." Id. at n.8.
So does this mean that the legality of fantasy football turns solely on whether the "entry fees make up the prize"? Not necessarily. There are three important distinctions between the fact patterns in AGO 91-3 and AGO 90-58 (which involved a hole-in-one golf contest sponsored by a third party). First, in AGO 91-3, there was a direct correlation between the entry fees received and the prize awarded (e.g., the prize consisted of the aggregate entry fees received), whereas, in AGO 90-58, the prize was not contingent on the amount of funds earned from contest entry fees. Rather, it was paid out of the general assets of the sponsor of the contest. Second, in AGO 91-3, all participants paid an entry fee and competed for the same prize (with each person having a chance of gain and a risk of loss), whereas, in AGO 90-58, the sponsor of the contest was not competing for the thing offered. Id. Third, in AGO 91-3, while there was certainly skill involved in drafting NFL players for each fantasy team, the prizes were paid to contestants based upon the performance of those third party players, whereas in AGO 90-58, prizes were awarded based upon the individual contestants' own performance in the hole-in-one golf contest.
The Attorney General alluded to this last factor in AGO 90-58 when, quoting directly from Faircloth v. Central Florida, Inc., 202 So.2d 608 (Fla. 4th DCA 1967), he explained that the legislative intent behind Section 849.14 was to "proscribe 'wagering' on the results of ballgames, races, prize fights and the like, as opposed to 'playing' games of skill for prizes." Fla. AGO 90-58, 1990 WL 509068, *2 (Fla. A.G. July 27, 1990) (quoting Faircloth, 202 So.2d at 609). "To hold otherwise," the Attorney General wrote (again quoting from Faircloth), "we would have to find all contests of skill or ability in which there is an entry fee and prizes to be gambling. The list could be endless: golf tournaments, dog shows, beauty contests, automobile racing, musical competition, and essay contests, to name a few. No one seriously considers such activities to be gambling." Id.
The fact-patterns in AGO 91-03 and 90-58 represent opposite ends of the spectrum: in the former, the entry fees made up the prize, whereas, in the latter, none of the entry fees were used to make up the prize. This begs the question: would the opinion in AGO 91-3 have been different if only a portion of the entry fees had made up the prize? A later Attorney General Opinion, AGO 94-72 suggests that the answer to that question is no. In AGO 94-72, the Attorney General concluded that the purchase of a ticket containing the names of sports teams selected at random violates Section 849.14 when the winning ticket is determined by the sports teams that have scored the most points and part of the proceeds from ticket sales is used to make up the prize. The Attorney General explained:
According to your letter, the contestants would purchase a ticket to participate in the contest. Part of the proceeds from the ticket purchases would be used to make up the prize. Such monies, therefore, would appear to qualify as a "stake, bet or wager" as interpreted by the courts.
Fla. AGO 94-72, 1994 WL 508760, at *2 (Fla. A.G. Aug. 23, 1994)
This trio of advisory opinions provides several insights into the factors that the Florida Attorney General (and a Florida court) would likely consider when assessing the legality of a fantasy sports league in the present environment. As gleaned from these opinions, the pertinent considerations include: (1) the correlation between the entry fees and prizes awarded; (2) whether the prize amount was contingent on the amount of entry fees received; (3) the source of the prize money (e.g., whether the amount paid by each contestant went into a "common fund" from which prizes were paid or, alternatively, was paid out of the general assets of the sponsor); (4) whether all contestants had a chance of gain and a risk of loss; (5) whether the sponsor of the event was a participant for the prize; and (6) the dependency on the performance of third parties in ascertaining the winner of the contest.
Might the conclusion reached in AGO 91-3 have been different if some of the facts were changed? For example, let's assume that the prize awarded to the winner(s) of the fantasy sports league in AGO 91-3 was paid by a third-party sponsor (such as a Yahoo or CBS Sports) which did not compete for it. Let's also assume that the prize money was not contingent upon, or directly proportionate to, the amount of entry fees received, and was paid out of the general assets of the sponsor. Under these assumed facts, a strong case could be made that the opinion reached in AGO 91-3 would have been different. And since many of today's popular fantasy sports leagues share some of these characteristics, an attorney representing a fantasy sports league operator or participant in a criminal prosecution or an enforcement proceeding would be well-served to point out those differences.
Since issuing this trilogy of opinions in the early 1990's, the Florida Attorney General has not revisited the issue of whether operating or participating in a fantasy sports league contravenes Section 849.14. This is surprising considering the explosive growth of fantasy football over the last two decades and the specific exemption that fantasy sports was recently accorded under the Unlawful Internet Gaming Enforcement Act (UIGEA). But it also underscores the risk that fantasy sports operators and their business partners face in Florida, absent clarification from the Attorney General.
While AGO 91-03 may seem antiquated to many, it remains the current (and only) law in Florida addressing the legality of fantasy sports. If you think that AGO 91-03 is no longer a concern, consider this: at least one significant player in the daily fantasy sports industry blocks Floridians from entering their contests and last year one out-of-state gaming regulatory body cited AGO 91-03 in opining that “if a fantasy sports league has a buy-in (no matter what it is called) for its managers and gives a prize, then all three elements of an illegal lottery [e.g., chance, prize and consideration] are present." In concluding that a real-money fantasy sports league constituted illegal gambling, this Kansas regulatory body observed that “[t]he Florida Attorney General’s office reached the same conclusion in AGO 91-3.” While I have previously maintained that this Kansas regulatory opinion (since superseded) mischaracterized AGO 91-3 (which did not turn on the "skill vs. chance" dichotomy), the existence of that opinion (which prompted the Kansas Legislature to clarify its law) underscores the very real risk that other regulators (and courts) could conclude that certain (or even many common) types of fantasy sports contests are illegal in Florida.
How much weight should be given to the Attorney General's opinion? Is it controlling? Although not binding on a court, an attorney general's opinion "is entitled to careful consideration and generally should be regarded as highly persuasive." State v. Family Bank of Hallandale, 523 So.2d 474, 478 (Fla. 1993). Nonetheless, there have been instances where Florida courts have found attorney general opinions to be unpersuasive. See In re Advisory Opinion to the Governor, 600 So.2d 460, 463 n. 3 (Fla 1992) (disapproving opinion of attorney general); Willens v. Garcia, 53 So.3d 1113, 1117 (Fla. 3d DCA 2011) (finding an attorney general's opinion to "based upon questionable reasoning."); De La Mora v. Andonie, 51 So.3d 517, 522-23 (Fla. 3d DCA 2010) (same). Since the legality of fantasy sports has not yet been tested in a Florida court, it is difficult to predict what, if any weight, a judge will accord these two-decade-old advisory opinions.
Need for Legislative Clarity
Although there have been no criminal prosecutions of fantasy sports operators or participants (or alleged aiders and abetters) since the issuance of AGO 91-3, it is not beyond the realm of possibility that an aggressive state prosecutor could seek to target the industry, which has changed dramatically since 1991. As more money flows into fantasy sports and the character of the games begin to more closely resemble gambling (rather than an informal social game), the risk of a criminal prosecution heightens. As unlikely as that may seem to many, all it takes is one aggressive prosecutor or attorney general to jeopardize Florida's lucrative and established fantasy sports market.
While the industry has devoted substantial lobbying efforts towards changing the law in Iowa, Kansas, and Louisiana to explicitly legalize fantasy sports, Florida is a much more vital and strategic market, as it is the home to nearly 20 million residents (more than the aforementioned states combined), two major fantasy sports operators (CBSSports in Fort Lauderdale and FanDuel's new Orlando office), and seven major professional sports teams (nearly all of which have entered into sponsorship deals with the fantasy sports industry). The stakes for the industry are simply too high to ignore the risk posed by Florida's arguably antiquated (but still-on-the-books) Attorney General's opinion.
One option might be to seek a legislative amendment to Section 849.14 to specifically carve out fantasy sports from the ambit of the statute. With the Florida Legislature poised to consider significant gambling expansion during next year's legislative session, the time may be right to explicitly legalize fantasy sports in Florida. One model that could be pursued is the Pennsylvania and Indiana approach, which seeks to legalize fantasy sports for casinos and racetracks. Florida is one of the largest gambling markets in the United States, with 31 licensed pari-mutuel operators. However, many of these operators have been reluctant to embrace fantasy sports because of concern about the lack of legal clarity in Florida, and, for those operators with multi-state properties, the risk of attracting the ire of gaming regulators in other states and potentially jeopardizing their valuable gaming licenses. A one-line fix to Section 849.14 could stabilize the industry in Florida and potentially open up a brand new revenue stream. It's worth a look.