The Supreme Court of Illinois has ruled that fantasy sports contests are not illegal sports wagering even though the fantasy sports contests involve picking the outcome of athletic contests. Dew-Becker v. Wu, No. 124472 (Supreme Court of Illinois, April 16, 2020). The court got many things right, but glossed over some important issues.
Most states have laws that exempt defined skill contests from gambling laws. Illinois law prohibits wagers on games of skill or chance, but has an exemption for the “actual contestants in any bona fide contests” of skill.[i]
There are three tests used by different states for evaluating whether a game is one of skill: (1) whether skill “predominates” over chance, that is, whether skill provides more than 50% of the reason for the game outcome; (2) whether chance is a “material element” in the outcome even if less than 50% of the reason for the outcome, and (3) if there is “any chance” involved.
In Dew-Becker, the loser of a FanDuel fantasy sports contest sued to recover his losses alleging that the contest was illegal gambling. The Illinois Supreme Court adopted the predominance test, writing: “The any chance test is essentially no test at all, as every contest involves some degree of chance. The material element test depends too greatly on a subjective determination of what constitutes ‘materiality.’ The predominate factor test, in contrast, provides a workable rule that allows for greater consistency and reliability in determining what constitutes a contest of skill.” Based upon studies of fantasy sports contests, the court held that skill predominates.
However, as Justice Karmeier’s dissent argued, a fantasy sports participant is not competing in the underlying athletic activity, but is instead wagering on its outcome. How do you classify a contest about a contest, since fantasy sports participants are wagering on the outcome of athletic events in which they do not directly participate? In a golf tournament where each golfer pays an entry fee and a prize goes to the winner, the contest exemption is applied because it is the skill of the participants that largely determines the outcome, and each person paying the entry fee is actually participating in the event. Ordinarily, this is the type of skill contest exempted from state gambling prohibitions. If other persons bet on who will win the golf tournament, state laws would usually classify that as gambling.
Justice Karmeier’s dissent argued that the predominance test should be understood in a qualitative sense rather than quantitative. Instead of asking whether skill played a majority role in determining the contest’s overall outcome, a court should examine each separate element or part of the contest to determine if chance could determine that part and that part could change the outcome of the contest. As explained by an earlier Missouri decision cited in the dissent:
… where a contest is multiple or serial, and requires the solution of a number of problems to win the prize, the fact that skill alone will bring contestants to a correct solution of a greater part of the problems does not make the contest any the less a lottery if chance enters into the solution of another lesser part of the problems and thereby proximately influences the final result. In other words, the rule that chance must be the dominant factor is to be taken in a qualitative or causative sense rather than in a quantitative sense.
State v. Globe-Democrat Publishing Co., 110 S.W.2d 705, 716-17 (Mo. 1937) (en banc).
However, in applying this notion the dissent confused contests with several independent steps and contests that are scored by aggregating different components. For example, there could be a contest where there is a distinct step to be completed before being eligible for the next step and ultimately winning a prize, and one of the steps consists of flipping a coin. In that case, the persons eligible to advance to the next step have been selected by chance and the contest would not be a skill game, even if all the other steps are skill based. A fantasy sports contest does not have an individual step of this type, where a single step based on chance determines the contestant’s eligibility or advancement.
One reason why skill may predominate in fantasy sports is that the contestants are picking many players for their team, the players are often participating in different games in different locations, and therefore the chance of an aberrational result for one player does not mean that the fantasy team’s performance will greatly deviate from the expected team performance. A court should not examine the role of chance with respect to each athlete’s performance separately. If there are ten athletes on the fantasy team, the odds of a single chance event affecting the team outcome is less and the deviation from the average performance of each individual athlete may level out across the team. Even if a chance event could impact an individual athlete, skill may still largely determine the outcome of the team contest. This is especially so for DFS contests because it is commonplace for contestants to enter more than one line-up in each contest.
The dissent also concluded that as a matter of law whenever the contest involves a prediction, it is predominately based on chance because a prediction is inherently a guess. But while its true that predictions are not certain, that does not mean all predictions are pure guesses. The extent to which skill is involved in making a particular type of prediction depends on the nature or structure of the contest or prediction, and can be shown empirically by outcomes. As the majority opinion noted there are studies showing that the predictions of skilled fantasy sports participants are much better than guesswork and highly correlate to the outcome.
Finally, the dissent argued that if the fantasy sports contestant is not actually participating in the athletic event that introduces an element of chance. But that distinction is questionable. The chance of bad golfing weather or a golf ball sitting in a divot in the fairway is the same whether I am the golfer or I am watching, except a casual observer like me is more likely than a professional to miss the fairway altogether.
The dissent’s use of the qualitative test illustrates the very problem with trying to place a “qualitative” gloss on the predominance test: under the predominance test a court is supposed to examine the features of the specific contest being litigated to determine the relative roles of skill and chance, where the dissent would instead establish a categorical rule that all prediction contests fail even if in a specific contest structure the role of chance were diminished or mitigated. The dissent framed the predominance test in a way that reads terribly like the “material element” or “any chance” tests, writing “… no amount of research or judgment can assure a certain result will occur.” The predominant factor test does not require certainty. Rather than characterize the test in a subjective way, a court should instead look closely at each contest type and structure, for example, distinguishing between contests with several independent steps and contests that are scored by aggregating different elements.
A court should only categorically exclude prediction contests from skill games if the state’s gambling laws treat predictions differently than other forms of contests, or state laws limit the skill games exception to participants in the principal contest. For example, Illinois Section 28-1(b)(2) exempts “the actual contestants in the bona fide contest for the determination of skill, speed, strength or endurance.” Why did the Legislature add the word “actual” to modify “contestants?” Was this meant to refer only to the participants in the primary contest, or include any contest about a contest, or even conceivably a contest about a contest about a contest for anyone staking money on the winner of the fantasy sports contests? The majority opinion stated that there was “no question” that the fantasy sports participants were “actual contestants” without undertaking a fuller examination of the statutory scheme.
The other apparent difference between the majority and dissent is whether a court should evaluate the role of skill or chance for a type of contest over a single contest or many. This is a different than asking how to determine the role of skill and chance in a single contest with multiple steps or elements. In citing evidence that skill predominates in fantasy sports contests, the majority embraced the idea that whether a type of contest is skill based depends on what happens in repeated trials of that same type of contest, that is, the role that skill plays were the same contestants to enter 100 fantasy contests. In contrast, the dissent’s approach seemingly embraced the idea that each single contest has to be evaluated separately. For example, poker is chance dependent on any hand, but skill predominates over many hands. Neither the majority nor dissent directly addressed the question of which temporal approach a court should use, or whether it depends on the type of contest.
In fact, the dissent argued that the majority test would legalize games such as poker, a game in which the persons staking money are directly participating. The dissent is correct: applying the predominance test and evaluating poker over repeated trials, courts should find that poker is a game of skill. No one goes to a poker room to play just one hand, and even if they lose a big hand they can and do buy more chips. Those courts who have held that poker is a game of chance have mistakenly considered the potential outcome of each hand separately rather than consider what happens during one or many sessions of poker play.
Nonetheless, even if fantasy sports contests and poker are predominately determined by skill they share some characteristics with other forms of gambling, and for similar policy reasons a state may well want to regulate their existence rather than leave their legal status to the chance of judicial interpretations.
[i] Section 28-1(a)(1) provides that a person commits the offense of gambling if he or she “knowingly plays a game of chance or skill for money or other thing of value, unless excepted in subsection (b) of this Section.” 720 ILCS 5/28-1(a)(1) (2014). Subsection (b)(2), provides an exception for “prizes, award[s] or compensation to the actual contestants in any bona fide contest for the determination of skill, speed, strength or endurance or to the owners of animals or vehicles entered in such contest.” Id. § 28-1(b)(2).
