Illinois rules daily fantasy sports illegal

Brent Schrotenboer | USA TODAY Sports

The attorney general of Illinois has ruled that daily fantasy sports contests are illegal under state law, delivering another punch to the guts of FanDuel and DraftKings after New York made a similar decision last month.

The latest decision was issued Wednesday by Illinois Attorney General Lisa Madigan.

“It is my opinion that daily fantasy sports contests constitute illegal gambling under Illinois law,” Madigan wrote.

In a separate letter to the companies' representatives, Madigan’s office said that “we expect that both Fan Duel and DraftKings will amend their Terms of Use to include Illinois as an additional state whose residents are not eligible to participate in contests unless and until the Illinois General Assembly passes legislation specifically exempting daily fantasy sports contests” from state gambling law.

Madigan’s decision notes there is legislation pending in the state legislature which proposes, in part, to exempt fantasy contests from the general prohibition against gambling.

But unless and until that happens, this once-promising new industry finds itself in another troubling spot — forced to fight for its life in a big state. Other states could follow, leading the companies to ramp up lobbying efforts and appeal to their customers for grassroots support in an effort to stay viable.

Officials in Texas and California have been considering this issue, too, while New York has taken its case to court in an effort to shut them down.

DraftKings issued a statement late Wednesday that says the company disagrees with Madigan and intends to fight for its right to operate in Illinois, just like it's doing in New York.

"The company intends to promptly seek a judicial resolution of its right to offer daily fantasy sports contests to Illinois residents," said David Boies, counsel to DraftKings. "As it does so, it will continue to abide by all relevant laws and will follow the direction of the courts. Pending that resolution the company will preserve the status quo."

FanDuel also issued a statement noting the popularity of sports and fantasy sports in Illinois, particularly in Chicago.

"So why the Attorney General would tell her 13.5 million constituents they can't play fantasy sports anymore as they know it — and make no mistake, her opinion bans all forms of fantasy sports played for money — is beyond us," the company's statement said. "Hopefully the legislature will give back to the people of Illinois the games they love. A sports town like Chicago and a sports-loving state like Illinois deserves nothing less."

FanDuel and DraftKings dominate the daily fantasy sports industry, a growing new business phenomenon in the digital age with high-profile partners and investors in pro sports and media, including the NBA, which owns a stake in FanDuel.

In exchange for an entry fee, they offer fans a chance to win big cash prizes based on the statistical performance of real-life players in real-life games. But that’s a problem according to Illinois law, Madigan wrote.

She noted that Illinois criminal law declares that “all games of chance or skill, when played for money, are illegal gambling in Illinois, unless excepted.”

She also noted that the law “exempts only those who actually engage in a bona fide contest for the determination of skill, speed, strength, or endurance, and not a daily fantasy sports contest participant who pays a fee to build a `team’ and who may win a prize based on the statistical performance of particular athletes.

“In this regard, persons whose wagers depend upon how particular, selected athletes perform in actual sporting events stand in no different stead than persons who wager on the outcome of any sporting event in which they are not participants,” Madigan wrote.

The companies have argued that they are games of skill and not chance like traditional gambling. They also cite a 2006 federal law that cracked down on online gambling but exempted paid fantasy sports games played under certain conditions.

That law, however, doesn't give it protection from state laws that might prohibit such games.

Before October, the companies already had decided not to operate in five states where the law was not on their side. Then Nevada declared them to be gambling operations in October, banishing them unless they got gambling licenses there. In November, New York Attorney General Eric Schneiderman followed with his effort to shut them down there.

And now Madigan of Illinois has issued her opinion after being asked about the legality of these companies by two state representatives.

Her opinion didn't directly address the legality of traditional, season-long fantasy sports games, which also are played for money but are played over the course of a season instead of a day or a week. As FanDuel noted, her legal reasoning could apply to traditional fantasy sports games, too, possibly threatening a popular pastime that's been around for decades.

By contrast, Schneiderman of New York distinguished between traditional fantasy sports and daily fantasy sports and only has tried to shut down the latter, declaring it to be illegal gambling. Traditional sports gambling is largely illegal in the U.S. outside of Nevada. But New York lawmakers also have indicated they might change the law there to protect fantasy sports.

Boies, counsel to DraftKings, said the company looks forward to working with lawmakers in Illinois who wish to enact "common-sense legislation" involving daily fantasy sports.

"We also believe, as the Attorney General has said, that this is a policy question for state legislators to address," Boies said.

Follow sports reporter Brent Schrotenboer on Twitter @Schrotenboer. E-mail: bschrotenb@usatoday.com