Sports Betting: Will AG’s Opinion Shut Down DFS in California?
By David B. Hoppe, Managing Partner, Gamma Law, San Francisco, United States of America
Introduction
California Attorney General (AG), Rob Bonta, took a swing at Daily Fantasy Sports, issuing a formal Opinion in early July declaring that Daily Fantasy Sports (DFS) contests involving real-money prizes violate California law under Penal Code § 337a, which prohibits wagering on sporting events. The Opinion clarifies that even DFS operators based outside California cannot legally offer paid contests to players physically located within the state.
California is the largest US market for DFS, with platforms like DraftKings and FanDuel generating millions of US dollars in revenue from the state. But whilst Bonta’s Opinion introduces significant regulatory uncertainty, it does not automatically make these activities against the law.
California is one of 11 states where sports betting is considered not to be legal, and it may be difficult to argue that Daily Fantasy Draft and Pick’em Games do not involve betting on sporting events.
Whilst the Opinion has not KO’ed Daily Fantasy companies operating in the state—Attorney General Opinions are not fiats; they are advisory legal interpretations—the tremors are being felt across the real-money gaming industry. Bonta’s broadside may carry persuasive authority to influence court decisions, but it lacks the binding force of legislation or judicial rulings. Governor Gavin Newsom’s public statement disagreeing with Bonta’s stance also takes some of the teeth away from the Opinion.
For now, DFS operators continue to offer their games to California residents. DraftKings, which has operated in California for over 13 years, cites “the overwhelming body of law from 24 states and Congress confirm[ing] that fantasy sports contests are games of skill” and therefore distinct from gambling.
Underdog Fantasy, whose attempt to block the Opinion’s release through litigation was thrown out, and FanDuel remain up and running in California. Other operators have adopted a more cautious approach by making strategic adjustments but not shutting down. PrizePicks has reportedly removed “against-the-house” games in California to focus on peer-to-peer contests.
The California Nations Indian Gaming Association, whose members’ casinos face competition from DFS, applauds Bonta’s declaration and has called for it to be enforced. The status quo remains intact, but the conversation surrounding the legal status of DFS carries implications far beyond just DraftKings and FanDuel to include critical questions about the state’s stance on skill-based gaming, sports betting, and online gambling as a whole, both in California and potentially across other jurisdictions.
Legal Underpinnings: Skill vs. Wagering
For years, DFS operators have successfully marketed their contests as games of skill, distinguishing them from traditional sports betting. DFS lobbyists have been successful at having that position written into law in many states, whilst in other states, a DFS exemption has not been codified but has become generally accepted.
Bonta’s core argument is rooted in Penal Code § 337a, which broadly prohibits wagering on the outcome of any “trial…or contest…of skill, speed, or power of…or between persons, animals, or mechanical apparatus, or upon the result, or purported result, of any lot, chance, casualty, unknown or contingent event….” The applicability of the law to DFS seems clear:
● Players risk money (entry fees) on the performance of real-world athletes in actual sporting events. This direct financial stake in an uncertain future event is central to the definition of wagering.
● California's statute applies even when skill is a significant factor. The AG cited common concerns about addiction and financial harm, emphasizing that even highly skilled bettors can incur substantial losses.
● The Code does not exempt out-of-state platforms. Instead, it focuses on the player's physical location within California. This extraterritorial enforcement mirrors past crackdowns on offshore poker sites.
What Next for Real-Money Gaming Businesses?
Whilst the AG's Opinion has not triggered immediate shutdowns, it provides a strong legal basis for local District Attorneys to pursue prosecutions. The California Department of Justice expects operators to comply, even if no immediate timeline for enforcement has been given. This raises the specter of civil and criminal liability, which has historically been rare for DFS operators in California.
Banks and fintech firms, wary of legal exposure, may become hesitant to process transactions related to California DFS operations. This could severely disrupt operators' ability to accept deposits and distribute payouts.
The AG's emphasis on player location determining illegality aligns with California's history of targeting offshore gambling operations. Operators based outside the US offering real-money gaming to California residents could face domain seizures (as seen during the "Black Friday" poker crackdown in 2011) and pressure on advertisers and sponsors to disassociate from non-compliant platforms.
Whilst California does not seem intent on acting on the AG’s opinion, real-money gaming companies, operating in California and other jurisdictions where their legal status is in limbo, should take steps to mitigate their risks and gird for potential developments:
● Assess the Risk: Review current offerings, including analyzing game mechanics, prize structures, and marketing language.
● Prepare for the Worst: Develop the means to implement geolocation blocking to prevent ineligible people from accessing real-money contests.
● Offer Alternatives: Allow blocked players to access free-to-play models. This may help to generate interest and buzz that could carry over to states where the games are legal.
A seasoned attorney in this field can provide invaluable assistance to companies facing the challenges that California AG’s Opinion and similar regulatory shifts pose. A real-money gaming attorney can provide a reasoned legal opinion and interpretation of complex gambling statutes and case law, assess the specific risks associated with a company’s current and proposed offerings, and advise on necessary adjustments to ensure compliance.
A gaming attorney can also help to develop robust compliance strategies, including advising on geolocation technologies, payment processing solutions, and the restructuring of game formats to align with legal requirements:
● Litigation: In the event of legal challenges or enforcement actions, a gaming attorney can represent the company in court, build a strong defense, and negotiate with regulatory bodies.
● Government Affairs: Attorneys with experience in gaming law often have deep connections within legislative and regulatory bodies and can effectively lobby for favorable laws and rules.
● Product Development: As the industry innovates, a gaming attorney can provide active guidance on the legality of new product offerings, helping companies to design games that minimize legal risk, whilst maximizing market potential.
● Jurisdictional Guidance: For companies operating across multiple states, a gaming attorney can provide comprehensive advice on the varying regulatory landscapes, ensuring compliance in each jurisdiction and identifying potential areas of conflict or opportunity.
Conclusion
Bonta’s Opinion on DFS in California is a significant development that underscores the ongoing legal and political uncertainty surrounding real-money and skill-based gaming. Whilst DFS operators have not been compelled to shut down immediately, they face a period of heightened scrutiny, potential enforcement, and the imperative to adapt. The fight for the future of DFS, and indeed other forms of online gaming, in California will likely unfold in courtrooms, legislative chambers, and through intense lobbying efforts. Proactive legal counsel is essential to navigate this complex terrain, ensure compliance, and strategically position real-money gaming companies for success in an ever-changing regulatory environment.
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