Tuesday , October 17 2017

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New York’s Interactive Fantasy Sports Law Faces Constitutional Challenge

Just months ago, the New York legislature passed a much publicized law authorizing and regulating online fantasy sports in the state. That law has now come under attack. Four New York citizens – backed by an anti-gambling government reform group – filed suit last Wednesday against New York Governor Andrew Cuomo and the state gambling commission, alleging that New York’s new law violates the state’s constitutional prohibition on gambling expansion. The lawsuit, however, likely faces a lengthy, uphill climb.

Last November, New York became the epicenter of the highly publicized debate over the legality of fantasy sports, specifically “daily” fantasy sports (DFS), when New York Attorney General Eric Schneiderman issued cease-and-desist letters to the DFS industry’s two leading operators, DraftKings and FanDuel. According to Schneiderman, the companies’ DFS offerings constituted “illegal gambling” under New York law. As a result, he demanded that they stop accepting “wagers” from New York residents. The fight between the state’s attorney general and the DFS operators then took to the courts. There, the attorney general was able to obtain a preliminary injunction from a state judge ruling that there was a likelihood of proving DraftKings’ and FanDuel’s DFS contests ran afoul of New York’s constitutional and statutory prohibition of gambling. That order, however, was later stayed by the appeals court.

Schneiderman’s lawsuit was rendered moot – and most charges were eventually voluntarily dismissed by the attorney general[i] – when the New York legislature passed the “Interactive Fantasy Sports” law earlier this summer.[ii]  Under the law, an “interactive fantasy sports contest” is defined as:

a game of skill wherein one or more contestants compete against each other by using their knowledge and understanding of athletic events and athletes to select and manage rosters of simulated players whose performance directly corresponds with the actual performance of human competitors on sports teams and in sports events.

The law also adopts language similar to that used in the federal Unlawful Internet Gambling Enforcement Act, which exempts fantasy sports contests meeting certain criteria from its broad prohibitions against online gambling operations. Accordingly, New York’s Interactive Fantasy Sports law requires that contest operators ensure that:

  • The value of any prizes and awards offered to players is established and made known to such players in advance of the contest, and such value is not determined by the number of players or the amount of any entry fees paid by such players;
  • All winning outcomes reflect the relative knowledge and skill of the players and are determined predominantly by accumulated statistical results of the performance of individuals in sports events;
  • No winning outcome is based on the score, point spread, or performance of a single sports team, or any combination of such teams;
  • No winning outcome is based solely on any single performance of an individual athlete in a single sport or athletic event; and
  • No game or contest is based on any collegiate sport or athletic event, any high school sport or athletic event or any horse racing event.

Importantly, the recently enacted law provides that “[i]nteractive fantasy sports contests registered and conducted pursuant to the provisions of this chapter are hereby authorized.” The law further states that contests meeting the law’s definition of “interactive fantasy sports” (1) are not unlawful games of chance, but rather, contests based upon the skill and knowledge of the participants; and (2) are not illegal wagers on future contingent events, because the fantasy sports contestants have control over which players they choose and the outcomes of the contests depend on how a contestants’ fantasy roster choices compare to the performance of other contestants’ roster choices. It also provides for a litany of robust consumer protections, including minimum age requirements, parental control procedures, advertising restrictions, and registration and reporting conditions.

Nonetheless, the recent lawsuit, coordinated by nonprofit Stop Predatory Gambling group, seeks a declaratory judgment declaring that the New York law is “unconstitutional” because it impermissibly expands commercial gambling in New York in contravention of Article I, Section 9 of the New York State Constitution. Article I, Section 9 reads, in pertinent part:

except as hereinafter provided, no lottery or the sale of lottery tickets, pool-selling, book-making, or any other kind of gambling, except lotteries operated by the state[,] … except pari-mutuel betting on horse races … and except casino gambling at no more than seven facilities as authorized and prescribed by the legislature shall hereafter be authorized or allowed within this state …

According to the Stop Predatory Gambling plaintiffs, “interactive fantasy sports and, in particular, DFS, constitute gambling” that falls within this express prohibition of the constitution.[iii] As such, the complaint intimates that a constitutional amendment was necessary before the law could be passed[iv] and argues that its enactment was therefore improper.

New York courts have held that, if the legislature runs afoul of well ingrained precepts of a state constitution, court intervention—no matter how unpopular – is proper.[v]  With the complaint’s prayer for relief requesting that the court declare the Interactive Fantasy Sports law “null and void,” there’s very real concern that the law could be stricken from the books. That said, the plaintiffs likely face a long, uphill climb to accomplish that goal.

The hurdle to successfully attack the constitutionality of laws duly enacted by the elected representatives of the people is high. New York’s Court of Appeals, the state’s highest court, has ruled that, “legislative enactments are presumed valid and one who challenges a statute bears the burden of proving the legislation unconstitutional beyond a reasonable doubt.”[vi] In this case, the legislature enacted the Interactive Fantasy Sports law, which expressly declares that fantasy sports contests offered pursuant to the statute are not unlawful contests of chance, but rather games of skill, and are not dependent on future contingent events, because the contestants compete against one another and exercise their knowledge and judgment in assembling their fantasy teams. Although these labels may not necessarily be controlling – as the recent Third Circuit opinion in the New Jersey sports betting saga makes clear –the burden rests squarely on the Stop Predatory Gambling plaintiffs to prove beyond a reasonable doubt that fantasy sports contests constitute unlawful gambling. This is a difficult burden to overcome.

Furthermore, it seems unlikely that the litigation will reach a resolution anytime soon. Whether any fantasy sports contest, either traditional season-long or DFS, constitutes illegal gambling is predominately an issue for a trier of fact (e.g., a jury) to decide on a case-by-case basis. Consequently, such a factual ruling will almost certainly require a fact-intensive investigation of the contests that have been authorized by the law and will rely heavily on expert testimony. Reaching the merits on this matter, even at the trial level and notwithstanding any potential appellate action, could therefore take many months, if not years, and as a result be extremely costly.

Since January, eight states have passed laws clarifying the legal status of pay-to-play fantasy sports contests and implementing various consumer protection requirements on contest operators. This latest lawsuit, however, threatens to derail some of the momentum achieved by the fantasy sports industry in its state-by-state efforts to legalize fantasy sports games. It is also a threat to one of the industry’s largest player pools. According to research firm Eilers & Krejcik Gaming, New York residents were responsible for $268.3 million in entry fees in 2015, second behind only California. However, given the difficulty the plaintiffs will likely face in their attempt to overturn the law, as well as the significant time and money that will be required for them to litigate this case, it does not appear that New York’s Interactive Fantasy Sports law will be going away any time soon.

[i] Although the attorney general voluntarily dismissed the charges related to the operation of illegal gambling activities, Schneiderman has stated that it is his intent to continue to pursue the previously filed false advertising and consumer fraud claims against DraftKings and FanDuel.

[ii] NY RAC PARI-M § 1400, et seq. (eff. Aug. 3, 2016).

[iii] New York penal code prohibits “gambling,” which is defined as when a person “risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence.”  A “contest of chance” is further defined as “any contest, game, gaming scheme or gaming device in which the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein.”

[iv] Amending the New York Constitution takes a minimum of two years, because a proposed amendment must pass two successive sessions of the state legislature and then must be approved by a statewide voter referendum.

[v] See Samuels v. New York State Dept. of Health, 29 A.D.3d 9, 12 (3d Dept., 2006), aff’d 7 N.Y.3d 338 (2006).

[vi] Rochester Gas & Elec. Corp. v. Public Serv. Commn., 71 N.Y.2d 313, 319–320 (1988); see also Samuels v. New York State Dep’t of Health,  29 A.D.3d 9, 12 (2006).

The Minnesota Wild Could Potentially Alter the Legal Landscape of Daily Fantasy Sports

A garden-variety breach of contract suit quickly became a case with precedent setting potential for the Daily Fantasy Sports (“DFS”) industry when, in a weird twist, one of the leading providers of DFS games asked a federal court in Minnesota to declare its fantasy sports offerings illegal under state and federal law.[i]

MINNESOTA WILD VS. EMIL INTERACTIVE GAMES

In May 2016, the National Hockey League’s Minnesota Wild filed a three-count Complaint in Minnesota against Emil Interactive Games (“Interactive Games”) – the parent company of DFS operator Draft Ops – alleging claims of breach of contract, account stated, and unjust enrichment. Per the Complaint, the Wild allege that, on September 4, 2015, it entered into a sponsorship agreement with Interactive Games, whereby Interactive Games would pay the Wild for the right to advertise at the Wild’s home arena. The Wild now claim that Interactive Games has refused to make the payments due under the sponsorship agreement and that it currently owes the Wild over one million dollars.

In response, Interactive Games has moved to dismiss the Wild’s claims, but for an unusual reason. While Interactive Games admits that it entered into the sponsorship agreement with the Wild, in what has to be considered a first for the DFS industry, the DFS provider actually argues that its fantasy sports contests are illegal under Minnesota and federal law. Since its contests are “illegal,” Interactive Games asserts its sponsorship agreement with the Wild is therefore void and unenforceable.[ii]

To make its argument, Interactive Games points to a “Termination and Survivability” clause in the sponsorship agreement, which grants Interactive Games the right to terminate the agreement “in the event either the NHL and/or State of Minnesota rule that Sponsor’s primary business activities are illegal or prevented by Rule or law.” Accordingly, the DFS provider argues that:

[a]s a result of Minnesota’s failure to legalize online DFS … the subject Sponsorship Agreement is rendered void and unenforceable. Consequently, compelling the Parties to enforce the terms of the Agreement, would be a potential violation of the Unlawful Internet Gambling Enforcement Act, (UIGEA), and the Illegal Gambling Business Act of 1970 (IGBA)… subjecting all parties herein to criminal liability both on Federal and State levels. [iii]

In order to avoid paying the Wild the money allegedly owed under the sponsorship agreement, Interactive Games has, in essence, asked the federal district court to declare that its DFS games are illegal gambling activities in violation of Minnesota law, and therefore, federal law as well.

LACK OF JUDICIAL PRECEDENT

The federal court’s response to Interactive Games’ argument will be particularly important to the DFS industry, because it is largely a case of first impression. While recent cases have touched on the legality of fantasy sports, no federal court has ever expressly ruled on the legality of DFS. For example, in 2007 the U.S. District Court for the District of New Jersey held that the payment of a one-time, nonrefundable entry fee to participate in seasonal fantasy sports did not constitute an illegal wager or bet pursuant to a New Jersey Qui Tam statute.[iv] The court in Humphrey v. Viacom, Inc., however, only opined on the legal status of traditional, season long fantasy games – not DFS contests. Further, the Humphrey court also did not address the issue of whether fantasy sports leagues are “games of chance” in deciding the case.

Similarly, the Supreme Court of New York for New York County – New York’s trial-level state court – conducted hearings last year in the case of People v. FanDuel, Inc. There, the court held that “DFS involves illegal gambling,” as defined under New York law, but also specifically held that its decision to grant a preliminary injunction against the DFS companies was “not a final determination of the merits and the rights of the parties.” Further, FanDuel and DraftKings have since appealed the trial court’s ruling, leaving open the possibility that the New York court of appeals could overturn the decision if legislation legalizing DFS in the state is not passed in the coming months.

POTENTIAL IMPACT

Since the Supreme Court of New York’s ruling in December, lobbyists for the fantasy sports industry have embarked on an unprecedented state-by-state push for legislation clarifying the legal status of fantasy sports. Yet in many states – particularly in those where there legislation does not appear imminent – companies offering DFS contests continue to operate in a legal “gray” area, in large part due to the lack of judicial precedent directly analyzing the legality of DFS.

Furthermore, numerous state attorney generals have issued opinions stating that DFS constitutes illegal gambling under their respective state laws. These opinions, however, are typically only advisory in nature. Formal court opinions, on the other hand, carry significantly more precedential value than individual state attorney general opinions, and to date, no federal court has directly opined on the legality of DFS. Accordingly, a conclusive opinion issued by the Minnesota district court on Interactive Games’ motion could be highly influential in determining the current legal status of DFS – not just in Minnesota, but in those states with similar laws as well.

Even if the district court declines to directly rule on the legality of DFS under Minnesota law, this alone could have a substantial effect. Interactive Games must satisfy a high legal burden in order for the court to grant its motion. It is therefore possible that the court could simply “punt” the issue by, for example, opining that whether DFS constitutes illegal gambling is not a question of law for the court to decide at the pleading stage of the case, but rather a case-by-case, fact-intensive question for a jury. Given the circumspect application of law in some of the recent attorney general opinions – in which the state AGs broadly conclude that all DFS contests are “contests of chance” and therefore constitute illegal gambling – the hypothetical ruling above could in and of itself provide guidance, by advising operators, lawmakers, and courts that there is no hard and fast rule concerning the legality of DFS, and possibly even slow the tide of overly conclusive attorney general opinions. As such, no matter how the court rules, its opinion may have far-reaching implications on the legal landscape of DFS.

[i] This is a guest contribution by Michael Albert. Michael is an attorney with the Franklin Law Group, with a focus in sports law and litigation. Michael received his J.D. from the IIT Chicago-Kent College of Law in 2015, and his B.A. in political science from Indiana University in 2012.

[ii] A contract that requires a party to perform an illegal act is typically void and unenforceable as being against public policy.

[iii] To trigger a violation of either the Unlawful Internet Gambling Enforcement Act or Illegal Gambling Business Act, an actor must commit a “predicate offense” at the federal or state level (e.g., violate a particular state’s anti-gambling laws).

[iv] Humphrey v. Viacom, 2007 WL 1797648 (D. N.J. 2007) (“[a]s a matter of law, the entry fees for Defendants’ fantasy sports leagues are not “bets” or “wagers” because (1) the entry fees are paid unconditionally; (2) the prizes offered to fantasy sports contestants are for amounts certain and are guaranteed to be awarded; and (3) defendants do not compete for the prizes.”).

Federal Action Unlikely After Congressional Hearing on Daily Fantasy Sports

As part of her opening statement, Illinois Representative Janice Schakowsky, the ranking member of the House Subcommittee on Commerce, Manufacturing, and Trade, quoted noted gaming expert Joe Namath for the proposition that popular “daily” fantasy sports (DFS) contests were just another form of sports betting – setting the tone for much of Wednesday’s congressional hearing, titled “Daily Fantasy Sports: Issues and Perspectives.”

Last fall, New Jersey Representative Frank Pallone, Jr. requested a hearing on DFS in the wake of a well-publicized advertising blitz by the DFS industry’s two largest companies, FanDuel and DraftKings. With a number of states considering, or having recently enacted, laws concerning fantasy sports contests and operators,[i] in granting Pallone’s request for a hearing, the subcommittee sought “to understand the current direction of the industry and consider whether there is a federal role to play.” According to the hearing notice by subcommittee chairman, Texas Representative Michael C. Burgess, Wednesday’s hearing would provide “a forum for all stakeholders to discuss the many aspects of this complicated issue.”

It quickly became apparent, however, that very few members of the subcommittee had even a basic understanding of the nascent industry. Much of the questioning and testimony at the hearing focused on the fundamentals, such as the differences between season-long fantasy sports contests and “daily” games. At one point, Oklahoma Representative Markwayne Mullin asked whether there was currently a regulatory body that oversees the fantasy sports industry. As one commentator put it:

Rather than a detailed discussion regarding the possible role of the federal government in regulating DFS, the hearing largely served as a vehicle for Rep. Pallone to “level the playing field between daily fantasy sports [and] traditional sports betting.” Pallone – whose home state of New Jersey is embroiled in a multi-year court battle with the four major professional sports leagues and the NCAA over the state’s attempts to legal sports betting within its borders – frequently highlighted the perceived hypocrisy in the relative treatment of DFS and sports wagering. “I must also mention the hypocrisy of those arguing that daily fantasy sports is readily distinguishable from traditional sports betting,” Pallone said. “While quietly applying for and receiving gambling licenses in the United Kingdom, DFS operators continue to argue to interested states in the U.S. that — unlike sports betting — DFS is not gambling. Their reliance on the arbitrary distinction of skill and chance is also unconvincing, especially since both the Department of Justice and the NFL have asserted that sports betting also is a game of skill.”[ii]

Nonetheless, many of the lawmakers in attendance appeared to be generally supportive of the industry and the concept of regulation. As Michigan Representative Fred Upton noted, “[w]e must keep in mind that a patchwork of differing and contradictory state laws has the potential to negatively impact consumers, and harm further growth and innovation in the process.”

Representatives of the two fantasy sports trade associations in attendance likewise expressed a willingness to continue working with both federal and state governments to ascertain legal clarity and enact appropriate consumer protections. According to Peter Schoenke, chairman of the Fantasy Sports Trade Association, “we [the FSTA] support common sense state regulation to ensure transparency and fairness and to maintain consumer confidence.” “We’ll work with just about anybody that wants to help us figure this out,” echoed Steve Brubaker, executive director of the Small Business of the Fantasy Sports Trade Association. “I don’t think you’ll hear any daily fantasy sports company or season long fantasy sports company balk at consumer protections as long as they’re done in a way that is financially viable [for those companies] to stay in business.”

Still, with very few questions directly addressing the nature or scope of federal involvement during the two-hour fact-finding mission, a solution at the federal level does not seem imminent. It was clear that legislators will still require a significant amount of education before any real federal action can be expected, and Congress remains far behind the states in the regulatory discussion. While the hearing was hopefully informative for the lawmakers in attendance, for at least the foreseeable future, the regulation and legalization of DFS will remain an issue to be considered on a state-by-state basis.

[i] As of this writing, five states – Virginia, Indiana, Tennessee, Mississippi, and Colorado – have passed legislation this year that expressly legalizes DFS within their borders. Another state, Massachusetts, enacted consumer protection measures through the state’s Office of the Attorney General. The states permitting the games have adopted different degrees of regulations, including prohibiting minors from playing, restricting the use of computer programs (“scripts”) that can generate large numbers of entries, acting to protect participants with compulsive gambling problems, and segregating participants’ money from company operating funds.

 

[ii] When asked to justify why the two largest DFS companies’ had obtained gambling licenses in the United Kingdom, while simultaneously maintaining that their contests were not gambling in the United States, Fantasy Sports Trade Association representative Peter Schoenke pointed out that the laws regarding gaming in the two countries were different. This is true. Merely because on jurisdiction requires a license for a particular activity, and another does not, arguably speaks less about the nature of the activity and more about the regulatory differences between the jurisdictions. For a more detailed overview of the history of fantasy sports in America and the state and federal laws potentially applying to those games, see our previous article on the topic, From Fantasy to Reality: The Evolution and Legality of Fantasy Sports.

Dennis Wideman’s Appeal Decision Could Be Worse for the NHL

Yesterday, independent arbitrator James Oldham reversed Commissioner Gary Bettman’s decision to uphold Dennis Wideman’s twenty-game suspension. Bettman’s original decision was a decent attempt at an unyielding stance against any contact with referees, but the commissioner could have reasonably foreseen that any appeal would scrutinize the player’s intent to injure. Wideman’s suspension was reduced to ten games, but only after he had already served 19 games of suspension. While any reversal of the league’s disciplinary decision is nominally a win for the NHLPA (and the player in question), in this case, the NHL could have come out much worse.

Dennis Wideman’s suspension for making contact (what looked like a vicious check in real time) with linesman Donald Henderson drew the immediate ire of the league, despite coming immediately after receiving a crushing hit himself. As Wideman did not immediately seek medical attention for a concussion, and because of his seeming composure returning to the bench, Bettman argued that Wideman was well within his faculties, and hit Henderson with intent to injure.[i] Intent to injure was a significant argument in the arbitrator’s ruling in favor of Wideman.

Oldham does not question the league’s ability to penalize physical contact with referees per Rule 40, but disagrees that Bettman’s standard of review was met with clear and convincing evidence. The arbitrator’s decision significantly hinges on Rule 40’s wording of “deliberate” contact with requisite intent.[ii] Oldham cites Stephen Walkom, the NHL’s Director of Officiating, in his observation that Wideman likely did not intend to hit or hurt Henderson, as well as Bettman’s concession that a lesser suspension was possible. In addition, the arbitrator made note of Dennis Wideman’s long career without incident to date. Overall, Oldham decided that the lesser ten-game penalty under Rule 40.3 sufficiently covered the incident between Wideman and Henderson.[iii]

Why This Decision Works for the NHL

Despite the suspension being reduced from 20 to 10 games, Wideman still ended up serving a 19-game suspension while awaiting the final disposition of his case. His financial penalty dropped from $564,516 to $282,258. This “precedent” set by Oldham will not necessarily help players or the NHLPA in future cases. This case came down to the arbitrator’s view of Wideman’s intent, which will always be a situation unique to each case. The arbitrator did not overrule the commissioner’s interpretation of the rule, only his view of Wideman’s specific facts. In essence, this “win” by the player and NHLPA ended up saving the player some money and one game.

This case will not help future players in a similar situation because deliberation and intent will always be distinct for any incident in question. The league’s initial suspension was all but served, and Wideman has no recourse to get those nine games back. The arbitration decision was just as much a judgment call as the initial suspension. While this case identifies issues with the timeliness of a full appeal process, it almost serves as a preventative measure, as a player that “wins” an appeal may still not be fully compensated for losses suffered (financial or otherwise). The NHL gets to stand by their hardline stance on referee contact in future actions, and best yet, the concussion issue was negligible in Oldham’s decision. I doubt conduct going head-to-head against concussions is something the NHL is excited to tackle.

One important takeaway would be the due process issues that players face. This incident occurred on January 27, and took just under a month and a half to complete. The arbitrator’s decision to reduce the suspension came too late to help the player, so nine games were missed for nothing. Similar to NFL suspensions for violations of the substance abuse policy, the NHLPA could (and should) attempt to push for a final disposition to a case before a player serves a suspension, so as to avoid needlessly missed games in any future cases.

Even though James Oldham ruled against the NHL, this decision could have been much less favorable in the NHL’s eyes. The decision could have slammed the NHL’s handling of a concussion situation, which would reflect terribly considering ongoing litigation on the same subject. Oldham did not deny the NHL’s ability to handle such a situation, just the specific circumstances in this one instance. Precedent may have been set to question deliberation and intent to injure, but again these factors will vary from case to case. The NHL can strenuously disagree with the decision, but in reality the league and Bettman should have known this would have come down to a judgment call in the first . The league still comes out on top, having essentially imposed the entire initial suspension, and having a decision reversed that would be hard to apply to future cases due to limited scope.

[i] NHL Rule 40.2 defines intent to injure as any physical force which a player knew or should have known could reasonably be expected to cause injury. http://www.nhl.com/nhl/en/v3/ext/rules/2015-2016-Interactive-rulebook.pdf

[ii] If you missed our discussion of the initial suspension, you can find a thorough explanation here, hitting the issues of deliberation and intent as they apply to Rule 40.

[iii] Rule 40.3: “Any player who deliberately applies physical force to an official in any manner (excluding actions as set out in Category I), which physical force is applied without intent to injure, or who spits on an official, shall be automatically suspended for not less than ten (10) games.”

Handicapping The Sports Betting Rehearing En Banc

Last week, some of the most distinguished lawyers of our generation gathered in a cramped Philadelphia federal courthouse for a hearing that could have a profound effect on the timeline to bring legal sports betting to the whole of the United States. While the results of the hearing remain to be determined, it appears – again – that most Americans will have to wait a bit longer to place a wager on their favorite club.

Background

In order to follow the complex and nuanced legal arguments raised by super lawyers Ted Olson and Paul Clement in front of 12 federal judges of the U.S. Third Circuit Court of Appeals, it’s critical to understand the procedural history regarding New Jersey’s recent attempts to legalize sports betting.

In 2012, New Jersey passed a law that permitted commercialized sports gambling at casinos and racetracks across the Garden State. The passage of the law was largely motivated by an effort to boost the state’s struggling economy through increased tax revenues and tourism.[i] New Jersey Governor Chris Christie’s efforts were stymied, however, by the NCAA and all four major U.S.-based professional sports leagues – the NFL, NBA, MLB, and NHL (the “Leagues”) – who, in August 2012, filed a lawsuit seeking to prevent the law from taking effect. According to the Leagues, New Jersey’s legislation violated a 1992 federal statute, the Professional and Amateur Sports Protection Act (“PASPA”), which restricted certain forms of state-sponsored sports gambling to a handful of states that were grandfathered in under the law.[ii] Christie, in turn, challenged that PASPA was unconstitutional, with arguments grounded in Tenth Amendment and Equal Sovereignty principles.

On February 28, 2013, the United States District Court for the District of New Jersey ruled against Christie, holding that PASPA was constitutional and preempted New Jersey’s sports betting law. On appeal, on September 17, 2013, the Third Circuit upheld the district court’s decision (“Christie I”). Despite its ruling, many interpreted the court’s majority opinion as having provided a “road map” for states to legalize sports betting without running afoul of PASPA. According to the court:

[PASPA] . . . leaves much room for states to make their own policy. Thus, under PASPA, a state may repeal its sports wagering ban, a move that will result in the expenditure of no resources or effort by any state official. On the other hand, a state may choose to keep a complete ban on sports gambling but it is left up to each state to decide how much of a law enforcement priority it wants to make of sports gambling, or what the exact contours of the prohibition will be.

Sensing an opportunity based on the language used by the court in its opinion, in 2014, New Jersey attempted an end-around. PASPA, among other things, expressly prohibits a governmental entity from promoting, licensing, or authorizing a betting scheme based on one or more competitive games in which amateur or professional athletes participate. Instead of approving legislation that would expressly authorize sports betting, New Jersey instead partially repealed its current state-law prohibitions against sports gambling, allowing it only in state-licensed and state-regulated casinos and racetracks. By partially repealing the state laws restricting sports betting, New Jersey argued that it was “deregulating” and essentially removing state control. Therefore, its partial repeal would not run afoul of PASPA’s prohibitions.

Unsurprisingly, the Leagues again challenged New Jersey’s newest law.  According to the Leagues, permitting sports betting in state-licensed casinos and racetracks, New Jersey was not just authorizing sports gambling, but essentially licensing it as well. Last August, the Third Circuit again found in favor of the Leagues, holding that Christie can’t use “clever drafting” to sidestep PASPA (“Christie II”). “We acknowledge New Jersey’s salutary purpose in attempting to revive its troubled casino and racetrack industries,” the court’s opinion said. “We now turn to the primary question before us: whether the 2014 law violates PASPA. We hold that it does.”

Hearing En Banc

Seemingly left for dead, New Jersey was thrown a lifeline when the Third Circuit granted the state’s request for a hearing en banc – a rare review in which all or most of the sitting judges of the Third Circuit, not just the three judges that heard the initial case, weigh in. The hearing gave the full court the opportunity to resolve some of the apparent inconsistencies from the results of Christie I and Christie II.

At issue first was whether New Jersey’s 2014 partial repeal was sufficient to circumvent PASPA’s prohibitions on authorizing sports wagering. Olson, representing the state, ostensibly argued that the law that Christie signed in 2014 took the state out of the regulation business. He described New Jersey as “neutral” about whether Atlantic City casinos or state racetracks offer sports betting.

According to first-hand accounts, however, many judges seemed skeptical of this semantics-based argument. Judge Kent Jordan, for example, asked whether this was just a bait-and-switch tactic, since the law would only permit sports betting in casinos and racetracks, which were already under heavy state regulation. “It’s really just another way of authorizing,” Judge Jordan said. While the Leagues’ attorney, Clement, conceded that the state is free to completely repeal existing state gaming laws, by demarcating where and how sports wagering can take place, New Jersey’s law implicitly authorized a federally banned activity.[iii]

New Jersey seemingly gained more traction with the bench when Olson leaned more heavily on the constitutional issues in play.[iv] Under the Tenth Amendment, unless the U.S. Constitution delegates a legal power to the federal government, states reserve the right to exercise that power. As such, the Constitution’s “anti-commandeering principle” proscribes that, in the absence of conflicting federal regulation, states cannot be required to enforce policies dictated by the federal government that are at odds with state policies.[v]

According to New Jersey, PASPA does not forbid New Jersey from repealing its own state laws prohibiting sports betting. If, however, PASPA does not allow the state to repeal its state laws pertaining to sports betting, the federal government is requiring New Jersey to keep those laws on the books. As long as those state laws exist, New Jersey is required to enforce them. And if New Jersey is obligated to enforce its state laws, the federal government is forcing – “commandeering” – the state to use its resources to enforce a federal ban on sports betting that it clearly wants repealed. That, argued Olson, constitutes an explicit violation of the Tenth Amendment.

Outlook

It will likely be months until the Third Circuit issues its opinion, but like a slugger in baseball, Christie appears bound by one of three true outcomes in his most recent efforts to legalize sports betting in the state of New Jersey.

On one hand, the Third Circuit could conclude that New Jersey’s 2014 partial repeal did not amount to an implicit authorization of sports gambling and therefore did not violate PASPA. Of all the potential results, this would be a disastrous outcome from the Leagues’ perspective. The concept of legal sports betting has recently become more palatable for the Leagues, with forward-thinking NBA commissioner Adam Silver as repeatedly on record in support of working toward a comprehensive, federal overhaul to America’s sports gambling laws. What the Leagues do not want, however, is incremental, state-by-state legislation, particularly of the unregulated variety proposed by Christie. If New Jersey prevails, expect a number of states – including New Jersey’s Third Circuit brethren Delaware and Pennsylvania – to pass similar legislation. But, with the panel of judges expressing concern over sports gambling existing in an unregulated environment, as well as seeming dubious of New Jersey’s semantics-oriented argument, it seems unlikely that the current bench will green light New Jersey’s current partial repeal law.

Perhaps as a compromise of sorts, the court could also reverse the decision of Christie I by now holding that PASPA is indeed unconstitutional. Although New Jersey faces an uphill battle in prevailing on a constitutional challenge, its argument that PASPA violates the Tenth Amendment, by requiring the state to allocate its resources in a particular fashion and preventing the state from exercising its own powers, appeared to be better received by the panel of esteemed judges. The Leagues still would prefer to avoid piecemeal legislation, but if PASPA were to be overturned on constitutional grounds, states wishing to legalize sports gambling could then enact the regulatory framework necessary to mitigate the Leagues’ “integrity of the game” concerns. With proper regulations in place, the Leagues and state law enforcement could tightly monitor and control the American betting market, keeping an eye out for irregular betting activity that could indicate corruption.

Still, with New Jersey needing to persuade 7 of the 12 federal judges to rule in its favor on rehearing, another big swing-and-miss remains the most likely outcome for Christie. A federal solution remains the best course of action for all players involved, but another result in favor of the Leagues would allow Congress to once again kick the proverbial can down the road. The legalization of sports gambling may still be “inevitable,” as many scholars have posited, but another loss by New Jersey may once again push back the timeline for any substantial change.

As any attorney will tell you, predicting a court’s decision based on questioning at oral argument is often a fool’s errand. Any of the three true outcomes described above would not come as a surprise. Yet, it’s hard not to think that, to borrow a phrase form Yogi Berra, “it’s like déjà vu all over again.”

[i] The implementation of sports gambling was forecasted to generate millions of dollars in tax revenue for New Jersey, as well as resuscitate a stagnant tourism industry by reestablishing Atlantic City as the premier gambling destination on the East Coast.

[ii] Nevada, Delaware, Oregon and Montana were all permitted to continue the sports-related gambling operations that were already in place in their states, with Nevada being granted the widest scope and the others limited to certain sports-gambling “lottery” games. S. Rep. 102-248 (1991).

[iii] Judge Marjorie Rendell, in Christie II, also took issue with the “selective” nature of New Jersey’s partial repeal law, which allowed sports gambling to take place only at casinos and racetracks. In the majority opinion, Judge Rendell concluded that the state’s “selectiveness constitutes specific permission and empowerment,” which transforms the partial repeal law into an “authorization” for purposes of PASPA.

[iv] Facing a constitutional challenge, the Christie I court held that PASPA indeed passed constitutional muster. The constitutionality question therefore was not considered by the Christie II court. It came as a surprise to many when Judge Marjorie Rendell pointedly noted at the rehearing en banc that “Christie I is now in play” – meaning that because a dozen judges had taken up the matter on rehearing, the court wasn’t bound by the first Third Circuit ruling (Christie I). Judge Kent Jordan likewise referenced the decision in Christie I as being “on the table.”

[v] Put another way, the anti-commandeering principle forbids Congress from ordering states or their political subdivisions to take affirmative action to govern or regulate in a particular way. But it does not forbid Congress, in its regulation, to forbid states from regulating in a particular way (or perhaps in a particular field at all), so long as Congress is acting within its constitutionally enumerated powers. New York v. United States, 505 U.S. 144, 188 (1992); Printz v. United States, 521 U.S. 898 (1997)

The NHL’s Somewhat Principled But Flawed Suspension of Dennis Wideman

For anyone not living under a rock in the hockey world, Dennis Wideman was suspended for 20 games after what looked like a brutal hit on linesman Don Henderson.[i] It occurred immediately after receiving a resounding check into the boards himself, after which Wideman was visibly shaken up. The NHLPA is set to appeal on his behalf, having released a statement pointing to the medical evidence that Wideman was concussed, as well as having no prior conduct issues over his long career. The crux of this appeal is whether or not Wideman met the tenets of Rule 40.2 regarding physical abuse of officials.

Under Rule 40, a mandatory 20-game suspension is required in the event “[a]ny player who deliberately strikes an official and causes injury or who deliberately applies physical force in any manner against an official with intent to injure, or who in any manner attempts to injure an official.”[ii] The next level (40.3 – 10-game mandatory suspension) involves applying physical force to, or spitting on, an official without intent to injure. As part of 40.2, the NHL defines intent to injure as “any physical force which a player knew or should have known could reasonably be expected to cause injury.”

The NHL makes note of the fact that Wideman’s stick was brought up while approaching Henderson from behind before cross-checking, he did not appear to have any issues skating off the ice, and signaled the bench for a line change while skating. The league also notes that Wideman refused immediate medical attention, instead staying in the game.[iii] From any normal standpoint, all of these factors would seem to indicate Wideman was in his right mind, knew what he was doing, and had a relatively vicious lapse of judgment.  In this instance, no matter how squeaky clean Wideman has been throughout his career to date, it would not save him from the mandatory 20-game suspension. The problem that muddies the waters of Wideman’s suspension is the diagnosed concussion as a result of the hit from Miikka Salomaki.

The NHL doesn’t receive the same level of attention as the NFL’s concussion drama, but the issue has definitely gained steam in the past year. In addition to lawsuits being brought, stories have been arising regarding what the NHL has known about concussions and how closely (or not) concussion protocol is followed. The league is put in a difficult spot by Wideman’s suspension; if they recognize that a concussed Wideman was not fully cognizant of his actions, they will be taking an inadvertent stance that gets away from the protection of officials. Currently, especially in light of Wideman’s initial suspension, the league essentially takes a bright-line position on physical contact with officials. If a player hits a linesman, and reasonably understands that he could be injured by the action, then 20 games it is. Typically this stance would be admirable in that there should never be a reason to physically engage the officials in such a manner. The problem is the current wording of Rules 40.2 and 40.3, and how it applies to a concussed Wideman.

40.2 relates to “deliberate” hits with “intent to injure.” Wideman hits Henderson within 15 seconds of getting crushed by Salomaki. Regardless of his denial of immediate medical attention (show me any athlete who won’t attempt to stay in the game, Alvaro Pereira comes to mind) the fact is that Dennis Wideman was diagnosed with a concussion. One of the ever-present problems with concussions is the uncertainty regarding the level of damage done, from person to person or even from one concussion to another. While the NHL points out that Wideman seemed to possess his faculties once he started skating towards the bench, it is hard to ignore the slumped, head-down Wideman that comes off the boards. Yes he could skate to the bench, but how long has this guy been skating, 25 years? It isn’t out of the realm of possibility that while woozy some semblance of muscle memory allowed Wideman to perform tasks he has completed night after night for 10 years at the highest level alone. The video is plain, but there is no way to tell what is going on inside Wideman’s head, which makes this tricky for penalty purposes.

If the NHL wants to adopt the hard-line stance they are trying to take with this suspension, alter the language in Rule 40 to take out “deliberately” and “intent to injure.” This still protects the officials, puts all players on notice, and removes the need to analyze mental state and intention from the rule. Even if I’m concussed, if I go driving and speeding, I am still breaking the law. The league would no longer have to worry about ascribing deliberate actions to players that may or may not be able to do anything deliberately, and the wiggle room for appeals would decrease.

In the present case, I would hazard a guess that this is not the anti-concussion case that the NHL wants to attack head-on. The medical documentation, even though it was disregarded initially, should come into play as a legitimate mitigating factor in favor of Wideman. The concussion gives the league a chance to show publicly it is considering how serious the injury can be. If Commissioner Bettman still keeps the suspension at 6 or more games, Wideman will have a further appeal opportunity to a neutral arbitrator, so a reduction to five games would avoid dragging the matter out. I don’t think the suspension will be completely eliminated, but a reduction to 5-10 games would appear reasonable, balancing mitigating medical circumstances against maintaining the strict stance against any violent contact with officials.

[i] Wideman also stands to lose over $560k if the suspension is upheld.

[ii] http://www.nhl.com/nhl/en/v3/ext/rules/2015-2016-Interactive-rulebook.pdf.

[iii] https://www.nhl.com/news/dennis-wideman-suspended/c-278258934.

The Impact of Nevada on Daily Fantasy Sports

It’s been a tumultuous few weeks for the “daily fantasy sports” (DFS) industry. Among other things, there has been an investigation into the potential misuse of non-public data by a major DFS company employee;[i] an inquiry into DFS by the New York Attorney General; a “preliminary” probe by the FBI and U.S. Department of Justice into the business model of DFS; the filing of numerous class actions against major DFS operators; and reports that a federal grand jury was convened in Florida by the U.S. Attorney’s Office to consider potential violations of federal and state law.

One of the more interesting recent developments occurred late Thursday in Nevada, when the Nevada Attorney General and Nevada Gaming Control Board (NGCB) concluded that DFS constitutes “gambling” under state law. According to a statement by A.G. Burnett, Chairman of the NGCB,  “specifically, DFS meets the definition of a game or gambling game pursuant to Chapter 463 of the Nevada Revised Statutes.” Nevada’s conclusion, however, does not make DFS illegal. As Nevada is one of the few states in which it is permissible to gamble on sports, operators may still offer DFS in the state if they obtain a license to operate a sports pool issued by the NGCB.

I have previously written about the legality of DFS in depth. While sports betting or wagering is generally prohibited at the federal level by the Professional and Amateur Sports Prohibition Act of 1992 (PASPA), DFS’ legality is largely predicated on another federal law, the Uniform Internet Gambling Enforcement Act of 2006 (UIGEA). UIGEA made the processing of certain online gambling transactions illegal. Critically, however, UIGEA explicitly exempts from its definition of “bet or wager” participation in fantasy sports contests that meet a number of requirements. Where a DFS contest meets each of the statute’s express carve-out requirements, it likely does not run afoul of UIGEA’s prohibitions.[ii]

The analysis, however, does not stop at the federal level. Federal law can supplement state law, but, generally speaking, federal law does not make a form of gambling legal which would otherwise be illegal under state law. UIGEA’s “Rule of Construction” makes clear that the statute does not alter, limit, or extend any “State law … prohibiting, permitting, or regulating gambling within the United States.” States are therefore free to make their own determinations as to what constitutes illegal gambling activities and how they wish to regulate those activities within their borders.[iii] This presents unique challenges to fantasy sports businesses, because the laws, and standards used by courts to decipher these laws, can vary dramatically on a state-by-state basis.

That’s where Nevada comes into play. The NGCB’s conclusion was based on a Memorandum issued by the Office of the Nevada Attorney General, in which it analyzed whether DFS constitute gambling games, sports pools, or lotteries under state law. According to Nevada Attorney General Adam Laxalt, DFS is a gambling game and sports pool under Nevada law, which requires a license to operate within the state. In the wake of the conclusions by the Nevada Attorney General and statement by the NGCB, most DFS operators have made the decision to cease operations in Nevada.[iv]

While the Nevada Attorney General’s opinion is not binding on courts and does not carry official force in other states, it could still have a significant impact in other states. Very few state attorneys general have considered the question of DFS legality under their own anti-gambling or anti-lottery laws. It’s therefore possible that the Memorandum issued by Mr. Laxalt could be used as persuasive authority in analyzing DFS in their own jurisdictions.

In examining Nevada law, the Nevada Attorney General further concluded that, “the determination of whether an activity constitutes a gambling game or a sports pool under Nevada law does not require analysis of the level of skill involved.”[v] In many other states, however, the question of whether skill or chance is involved in a game is often important in the context of addressing the legality of fantasy sports. In those states where there is no specific legislation authorizing fantasy sports contests played for money, their legality often depends on the state’s interpretation of the degree of “chance” vs. “relative knowledge” or “skill” involved in the contests at issue. For example, Massachusetts is one of a majority of states in which a contest for money likely does not contravene state anti-gambling or anti-lottery laws if the likelihood of winning is “predominantly” determined by an application of a contest participant’s skill.[vi]

Following a review of DFS, Massachusetts Attorney General Maura Healey recently concluded that, “there were no federal or state laws that prohibit daily fantasy sports sites from operating.” Like the Nevada Attorney General opinion, Ms. Healey’s statement carries no legal authority outside Massachusetts, but her forceful affirmation of the legality of fantasy sports may still resonate in other states, especially given Ms. Healey’s noted opposition to gambling expansion and her state’s use of the “predominant factor” test in analyzing games of skill vs. chance. It may also influence the actions of lawmakers, as was the case in Kansas, when the legislature enacted a law clarifying the legality of DFS following a formal opinion of the Kansas Attorney General in April 2015.[vii] According to the Kansas Attorney General Derek Schmidt, fantasy sports contests that meet criteria similar to that laid out in UIEGA are games of skill, and therefore do not constitute illegal lotteries in Kansas. The Attorney General’s determination was “bolstered by the fact that the UIGEA also specifically excludes fantasy sports leagues from the federal definition of betting.”

Given the mainstream media’s recent scrutiny of the industry, it is certain that other states, whether through attorneys general or state legislators, will continue speak to the issue of DFS legality. Nevada’s analysis will likely be taken into account, but so will those conclusions reached by the attorneys general in states such as Massachusetts and Kansas. What separates gambling from non-gambling activities in many states is a subjective determination and therefore it is often ultimately a matter of opinion. As such, as the laws and regulations that govern DFS contests continue to evolve, it is critical for fantasy sports companies to ensure they are employing best practices in their operations and to stay apprised of the developing legal landscape.

[i] A third-party review was commissioned, and its report concluded that the employee did not engage in any wrongdoing in connection with the inadvertent leak of sensitive data.

[ii] Certainly other federal laws, such as the Wire Act, Illegal Gambling Business Act, and Travel Act, can also significantly affect the distribution and operation of fantasy sports.

[iii] Some state laws, including ones recently passed in Maryland and Kansas, follow UIGEA’s lead in setting up the requisite criteria to determine legality.  Other states, such as in Florida, Louisiana, and most recently, Nevada, have issued specific attorney general opinions concluding that certain forms of fantasy sports contests played for money are illegal under those states’ laws.

[iv] Though many operators could apply for a license to legally operate a sports pool in Nevada, the decision represents something of a Catch-22. Nevada is free to regulate or authorize sports betting, but other states may be precluded from doing the same under PASPA. Accordingly, submitting to licensure in Nevada may be viewed as an implicit admission that the DFS contests offered are sports gambling, which, while permissible in Nevada, would make the DFS games illegal to operate in most jurisdictions.

[v] According to the Nevada Attorney General, a recent state law, Senate Bill (SB) 9, which was passed during the 2015 Nevada Legislative Session, distinguishes between “games of skill, games of chance, and hybrid games of both skill,” but recognizes that “all three are gambling games.”

[vi] See Com. v. Lake, 317 Mass. 264, 267 (Mass. 1944) (holding that “a game is … considered a lottery if the element of chance predominates and not a lottery if the element of skill predominates.); see also Com. v. Stewart-Johnson, 78 Mass.App.Ct. 592, 595-96 (2011) (same).

[vii] At the time of the Kansas Attorney General’s opinion, the language of the proposed amendment to its anti-lottery law had been agreed upon, but the law had not yet been formally enacted.

Don’t Bet On It: Third Circuit Strikes Down New Jersey’s Latest Attempt to Legalize Sports Betting

The timeline to bring legal sports betting to the United States was pushed back significantly after the Third Circuit Court of Appeals ruled, in a 2-to-1 decision, against Governor Chris Christie and the State of New Jersey earlier this week. The decision by the federal appeals court in Philadelphia upheld a lower-court ruling that had voided legislation enacted by New Jersey legalizing sports gambling.

Déjà Vu

If this sounds familiar, it’s because we’ve been here before. In 2012, New Jersey passed a law that permitted sports betting at casinos and racetracks across the Garden State. New Jersey’s push to legalize sports betting was largely motivated by an effort to boost its struggling economy. The implementation of sports gambling was forecasted to generate millions of dollars in tax revenue for the State, as well as provide a huge boost to a tourism industry largely buoyed by the East Coast’s gambling Mecca – Atlantic City.

Christie’s efforts were stymied, however, by the NCAA and all four major U.S.-based professional sports leagues – the NFL, NBA, MLB, and NHL (the “Leagues”) – who, in August 2012, filed a lawsuit seeking to prevent the implementation of Christie’s sports gambling law. The Leagues’ case was primarily based on the argument that New Jersey’s legislation violated a 1992 federal statute, the Professional and Amateur Sports Protection Act (“PASPA”), which restricted certain forms of state-sponsored sports gambling to a handful of states that were grandfathered in under the law.[i] Christie, in turn, challenged that PASPA was unconstitutional, with arguments grounded in Tenth Amendment and Equal Sovereignty principles.

On February 28, 2013, the United States District Court for the District of New Jersey ruled against Christie, holding that PASPA was constitutional and preempted New Jersey’s sports betting law.[ii] Following an appeal, on September 17, 2013 the U.S. Court of Appeals for the Third Circuit upheld the district court’s decision.[iii] Despite its ruling, many interpreted the court’s majority opinion as having provided a “pathway” for states to legalize sports betting without running afoul of PASPA – by allowing states to decriminalize sports betting. According to the court:

[PASPA] . . . leaves much room for states to make their own policy. Thus, under PASPA, a state may repeal its sports wagering ban, a move that will result in the expenditure of no resources or effort by any state official. On the other hand, a state may choose to keep a complete ban on sports gambling but it is left up to each state to decide how much of a law enforcement priority it wants to make of sports gambling, or what the exact contours of the prohibition will be.[iv]

Sensing an opportunity based on the language used by the court in its opinion, New Jersey attempted an end-around. Instead of approving legislation that would expressly authorize sports betting, New Jersey instead partially repealed its current state-law prohibitions against sports gambling, thereby allowing it only in state-licensed and state-regulated casinos and racetracks.[v] The thought was that by partially repealing the state laws restricting sports betting, New Jersey was “deregulating” and essentially removing state control. Therefore, its partial repeal would not be preempted by PASPA, which provides that government entities may not “sponsor, operate, advertise, promote, license, or authorize” sports betting.

It goes without saying that the Leagues again challenged New Jersey’s efforts.  According to the Leagues, by trying to only allow sports betting in state-licensed casinos and racetracks, New Jersey was not just authorizing sports gambling, but essentially licensing it as well. This August, the court once again found in favor of the Leagues, saying that Christie can’t use “clever drafting” to get around the federal law. “We acknowledge New Jersey’s salutary purpose in attempting to revive its troubled casino and racetrack industries,” the court’s opinion said. “We now turn to the primary question before us: whether the 2014 law violates PASPA. We hold that it does.”

The Impact

The court’s decision was undoubtedly a significant blow for advocates of sports betting and for Christie, who spent millions of dollars in litigation. Had Christie been successful, it would have provided a roadmap for individual states to legalize revenue-injecting sports betting laws. According to Daniel Wallach, a partner at Becker & Poliakoff, P.A., and a leading expert on gaming law, “a victory by New Jersey would have had an immediate and dramatic impact on the sports betting industry — namely, there would be unregulated sports betting in New Jersey and other states would pass similar legislation to mimic New Jersey’s approach.” Other states or Indian tribes could still pass sports betting laws and press a PASPA challenge in another federal circuit – the Third Circuit’s holding is only binding precedent on the three states within its jurisdiction, New Jersey, Pennsylvania and Delaware – but winning such a challenge might be a long shot after a federal court has now ruled twice on, and affirmed each time, the legality of PASPA.

A victory by New Jersey may also have forced Congress to act swiftly to amend or repeal PASPA. For example, NBA commissioner Adam Silver is on record that he believes the expanded legalization of sports gambling is “inevitable,” and that, in fact, his league stands to benefit from it. What Silver does not want, however, is incremental, state-by-state legalization – particularly of the “unregulated” variety proposed by Christie. Rather, he wants a comprehensive, federal overhaul to America’s gambling law. By repealing or amending PASPA, people across the country would be able to bet on sports, and more importantly, the Leagues and law enforcement could tightly monitor and control the American betting market, keeping an eye out for irregular betting activity that could indicate corruption.

The court’s decision, however, allows Congress and the Leagues to kick the can down the road, as there’s no longer an urgency to make any sweeping changes to the law prohibiting sports gambling that is currently on the books. The legalization of sports gambling may still be “inevitable” – following the recent ruling NBA spokesman Mike Bass stated that the league continues to support a federal legislative solution – but the timeline for any substantial changes has likely been pushed back by at least a few years (read: whenever the Leagues and Congress are ready).

The biggest winner from the Third Circuit’s decision is probably the fantasy sports industry – especially those offering “daily fantasy sports.”[vi] While PASPA prohibits state-sponsored sports betting, another federal statute, the Unlawful Internet Gambling and Enforcement Act of 2006 (“UIGEA”), created a safe haven for payment processors and operators of fantasy sports games that meet certain criteria. A logical reading of UIGEA presumes that most of these fantasy sports games also lie outside of the purview of PASPA, as long as they are deemed games of skill in all relevant states in which they operate.[vii]

fantasy-sports-participants-in-us-players_chartbuilder57 million people in the United States and Canada participated in fantasy sports in 2015, according to research conducted by Ipsos — a market research company — for the Fantasy Sports Trade Association. Further, the two biggest daily fantasy sports operators, FanDuel and DraftKings, each have been valued at more than $1 billion. Yet, those numbers are dwarfed by the potential for sports gambling, where it is estimated that that anywhere between $80 billion and $380 billion is illegally wagered annually. With the Third Circuit’s decision likely putting sports betting on the backburner for now, the fantasy sports industry, already with the Leagues’ support, remains free from direct competition in the U.S. from most forms of traditional sports gambling, setting the stage for fantasy sports’ continued growth. [viii]

Last Chance

The ruling by the three-judge panel does not necessarily mean the New Jersey sports betting litigation is over. Christie could ask for a re-hearing “en banc,” which would mean asking all 23 judges in the Third Circuit, not just the three that heard the case, to weigh in. New Jersey is expected to ask for the review. En banc reviews, however, rarely happen and are typically only granted in exceptional circumstances. Given the strong language used in the dissent, some legal scholars think New Jersey’s chances of getting such a review are good in this case.

If that request is denied, there’s always the possibility of appeal to the Supreme Court, which would require the state filing a writ of certiorari. Yet, only about 1% of petitions are accepted by the Supreme Court – and it has already declined to hear New Jersey’s appeal the first time around. As it appears to have been from the start, the ultimate odds of success are once again stacked against New Jersey.

[i] Nevada, Delaware, Oregon and Montana were all permitted to continue the sports-related gambling operations that were already in place in their states, with Nevada being granted the widest scope and the others limited to certain sports-gambling “lottery” games. S. Rep. 102-248 (1991).

[ii] Judge Michael Shipp ruled that some of the questions raised in the case were novel, but he suggested the best way to change PASPA was to get Congress to repeal or amend it. NCAA v. Christie, 926 F.Supp.2d 551, 555 (D.N.J. 2013).

[iii] While the Court stated that it was “cognizant that certain questions related to this case — whether gambling on sporting events is harmful to the games’ integrity and whether states should be permitted to license and profit from the activity — engender strong views,” it declined to “judge the wisdom of PASPA or of New Jersey’s law, or of the desirability of the activities they seek to regulate” and held that “New Jersey’s sports wagering law conflicts with PASPA and, under our Constitution, must yield.” NCAA v. Governor of New Jersey, 730 F.3d 208 (3d Cir. 2013).

[iv] Id. at 233.

[v] New Jersey lawmakers didn’t want to completely get rid of their state prohibitions on sports betting, though, which would send gamblers to newly emboldened neighborhood bookies.

[vi] Unlike traditional fantasy sports leagues, in which the final standings typically aren’t determined until an entire professional or amateur season runs its course, most daily fantasy sports (“DFS”) contests last only a day or a week. A detailed analysis of the evolution and legality of fantasy sports, including DFS, can be found here.

[vii] Fantasy sports involve skill rather than chance, and skill-based games generally fall outside gambling prohibitions. Of course, those who are skilled at sports betting would argue that their success has much more to do with skill than chance, but federal law nonetheless treats sports betting and fantasy sports as separate creatures.

[viii] The Third Circuit’s opinion in the New Jersey case also contained some interesting dicta pertaining to daily fantasy sports. (See Page 21 of the Opinion). In its briefs, New Jersey contended that the Leagues should not be entitled to a favorable decision because they had “unclean hands.” Essentially, New Jersey argued that the Leagues were “hypocrites” because they encouraged and profited from sports betting, noting that the NFL has been scheduling games in London where sports gambling is legal; that the NCAA holds events in Las Vegas where sports gambling is legal; and that the Leagues sanction and encourage “fantasy sports betting.” In ruling against New Jersey, the court held that the Leagues did not have unclean hands because it was “not ‘unconscionable’ for the Leagues to support fantasy sports and hold events in Las Vegas or London.” It can therefore be inferred that the court did not view fantasy sports for money and sports betting as one and the same, or it may have come out differently on this particular issue. With daily fantasy sports expected to face legal challenges in the near future, don’t be surprised if fantasy sports organizations favorably cite to the Third Circuit’s opinion.

From Fantasy to Reality: The Evolution and Legality of Fantasy Sports

More than 40 million people played fantasy sports in North America last year, the equivalent of 30 percent of U.S. adult males.Bloomberg Business

In addition to my day job as an attorney, I’ve been writing for one of the forerunners in the fantasy-sports industry, Rotowire, since 2009.[i] As such, I’ve had a front-row seat in witnessing the popularity of fantasy sports not only sweep the nation, but also watching the industry evolve before our eyes. In this article, I will take a brief look at the history of fantasy sports; the laws governing the industry; and the recent popularity of “daily fantasy sports” and their potential legality.

A Brief History

While its popularity has lagged in recent years, no sport has impacted American culture quite like baseball, and it should come as no surprise that modern-day fantasy sports germinated fromAmerica’s Pastime. The recognized founding father of fantasy sports is Bill Gamson, a former psychology professor at Harvard University and the University of Michigan.[ii] Gamson liked baseball and wanted to find a way to interact with the game beyond his interest as a mere fan. In the early 1960s, Gamson and friends constructed a game, which he dubbed “The Baseball Seminar,” and each paid ten dollars to enter the game. Each participant was given an imaginary budget, with which they could bid on Major League Baseball players and “draft” their team, so long as they stayed within their budgetary restraints. The winner of the game was the person who selected players that earned the most points in a pre-determined set of statistical categories.

Bill Gamson, the founding father of fantasy baseball.
Bill Gamson, the founding father of fantasy baseball.

One of The Baseball Seminar’s first participants was Robert Skylar, an assistant professor at the University of Michigan. When a college freshman by the name of Daniel Okrent learned of his professor’s passion for baseball, Skylar explained to him the basic tenets of the simulated game. Thereafter Okrent began to create his own version of The Baseball Seminar, and by 1980, he had constructed his own version of a baseball statistics game, which he called “Rotisserie Baseball.”[iii]

Okrent’s Rotisserie Leagues spread across the country, and it remains the prominent format in which gamers play fantasy baseball. A participant’s score in the original Rotisserie Baseball League was based on eight statistical categories: four for offense and four for pitchers. At the start of the season, a draft would take place, and each team would have an imaginary budget, which was used to purchase players from a pool of MLB players. Each team would then earn points based on his selected players’ real-life performances. At the end of the season, the Rotisserie Baseball League participant whose team earned the most points would win the league.

The founders of Rotisserie League Baseball (left to right, bottom row): Valerie Salembier, Lee Eisenberg, Robert Sklar, Peter Gethers & Glen Waggoner. (Top row): Daniel Okrent, Cork Smith, Rob Fleder, Tom Guinzburg and Michael Pollett.
The founders of Rotisserie League Baseball (left to right, bottom row): Valerie Salembier, Lee Eisenberg, Robert Sklar, Peter Gethers & Glen Waggoner. (Top row): Daniel Okrent, Cork Smith, Rob Fleder, Tom Guinzburg and Michael Pollett.

While Rotisserie Baseball had a significant following, it was not until the Internet became commonplace in the mid-1990s that the popularity of fantasy sports really exploded. Instead of using pen-and-paper to calculate scores dug out of a newspaper, information and tabulated statistics were only a computer click away. Further, with the Internet allowing people to communicate and organize from across the globe, fantasy sports became an easy way for participants to keep in touch. Capitalizing on the growing popularity, a number of traditional sports and entertainment companies began to provide fantasy sports games on the web, including ESPN, which launched its first entirely Internet-based fantasy baseball game in 1995.[iv]

Now, fantasy games are available for almost any sport or activity. The most common games are fantasy football, baseball, and basketball, but other fantasy games include golf, hockey, auto racing, and, yes, bass fishing (if that’s your thing). There are also a multitude of different formats by which players are allocated, real-life performances are scored, and participants organized. Entry fees for some contests cost thousands of dollars; there is an entire market devoted to analysis and “expert” advice; and gamers can even purchase insurance policies protecting against injury to their star fantasy players. Needless to say, the fantasy sports industry is blossoming.[v]

Federal and State Laws

UIGEA

Around the same time that fantasy sports leagues began popping up in every corner of the World Wide Web, the Internet was facilitating another, less-socially-accepted craze: gambling. By 1999, some offshore sportsbooks had begun to accept online bets from U.S. residents.[vi] Online poker had grown into a multi-billion dollar industry, with about two-thirds of the nearly 9,000 people participating in the $10,000 buy-in Main Event at the 2006 World Series of Poker having qualified through online satellites.

After many futile attempts to pass anti-gambling legislation, on the last day before Congress adjourned for the 2006 elections, the Unlawful Internet Gambling Enforcement Act (UIGEA) was hastily tacked onto the end of unrelated legislation, the SAFE Port Act, a lock for passage. The bill was passed unanimously by the Senate, and on October 13, 2006, President George W. Bush signed it into law. The UIGEA makes it illegal for those “engaged in the business of betting or wagering” to “knowingly accept” funds “in connection with the participation of another person in unlawful Internet gambling.” To put it another way, the UIGEA, for the first time, made the processing of online gambling transactions illegal. Thus, if a person located in a state where gambling is illegal places a bet over the Internet, any business that knowingly accepts a financial interest in connection with that bet, irrespective of the gambling business’ location, would violate the act. This ultimately made it extremely difficult for host sites, such as sportsbooks and poker rooms, to collect user fees and conduct business.[vii]

To be certain, other federal laws can significantly affect the distribution and operation of fantasy sports.[viii] What makes the UIGEA so exceptional is that, while it has the effect of broadly prohibiting online businesses from facilitating “unlawful Internet gambling,”[ix] it makes a special exception for fantasy sports games. Nestled within the UIGEA is a long section of what is excluded from the law’s restrictions, including an explicit carve-out for “fantasy sports games” that meet the following criteria:[x]

  • The outcome of the fantasy sports game is not based on the score, point-spread, or performance of any real-world team or combination of teams;
  • The outcome of the fantasy sports game is not based solely on a single performance of an individual athlete in any single real-world sporting event or contest;
  • The outcome of the fantasy sports game is determined predominantly by the accumulated statistical results of the performance of athletes in multiple real-world sporting events or contests;
  • All prizes and awards offered are established and made known to the participants in advance of the game or contest;
  • The value of any prizes or awards is not determined by the number of participants or the amount of any fees paid by those participants; and
  • The outcome of the fantasy sports game reflects the relative knowledge and skill of the participants.

Most of these restrictions are straightforward. For example, the first three criteria listed above distinguish traditional fantasy sports, where the outcome of a league or contest is determined by the statistics accumulated by a collection of individual athletes, from sports betting, in which a bettor’s outcome is typically determined by the score of a single game or combination of games (i.e. parlay). The restrictions on awards and prizes can sometimes cause an issue for fantasy sports businesses called “overlay,” [xi]  but are generally easy to follow. Thus, while fantasy sports now come in many different shapes and sizes, the most prominent model – one in which the final outcome of a league is not determined until the professional season on which the game is based comes to a close – does in fact comply with federal law, even when played for money.[xii]

State Laws

Congress clearly intended that the traditional, full-season version of fantasy sports games not be subject to the UIGEA’s restrictions, making it safe for many fantasy sports businesses to operate across state lines. Yet, fantasy sports operators are not only required to comply with federal regulations, but, where applicable, state gambling laws as well. In fact, UIGEA’s “Rule of Construction” makes clear that the statute does not alter, limit, or extend any “State law … prohibiting, permitting, or regulating gambling within the United States.” States are therefore free to make their own determinations as to what constitutes illegal gambling activities and how they wish to regulate those activities within their borders.

Fantasy football is king but it's far from the only option. Credit: Kyle Clapham/MEDILL
Fantasy football is king but it’s far from the only option. Credit: Kyle Clapham/MEDILL

Under most state anti-gambling or anti-lottery laws, fantasy sports contests would likely be considered illegal if they involve three elements: consideration (i.e. entry fee), reward (i.e. a prize), and chance. In those states where there is no specific legislation authorizing fantasy sports contests played for money, their legality often depends on the state’s interpretation of the degree of “chance” vs. “relative knowledge” or “skill” involved in the contests at issue.[xiii]  In fantasy sports, generally, much of the “skill” involved is attributable to the participants’ prognosticating abilities, which is mainly manifested through gamers’ selections of real-world athletes. The element of “chance,” however, may come in the form of a startling bounce of the ball, unexpected injury or suspension, or even unpredictable weather. The legality of playing or operating a fantasy sports game for prize money in a particular state therefore often comes down to whether the game is defined as one of skill (legal) or chance (illegal).

Most states adopt what’s called the “predominant purpose test” in determining whether an activity legally qualifies as gambling.[xiv]  Under this test, play-for-cash contests are only illegal if they involve more chance than skill. To put it another way, most states deem an activity to be one of chance, and therefore illegal, if greater than 50 percent of the result is derived from chance. Under this test, traditional, full-season leagues are almost certainly games of “skill,” as the success of a full-season fantasy sports team depends on the participants’ skill in selecting players for his or her team; trading players over the course of the season; adding and dropping players during the course of the season; and deciding who among his or her players will start and which players will be placed on the bench.[xv]

Yet, a minority of states take a stricter view. For example, Arizona, Arkansas, Tennessee, and Louisiana have all adopted the “Any Chance Test.” According to Professor Marc Edelman, these states “have interpreted contests to be illegal games of chance if they involve any chance at all: even a modicum of chance.”[xvi] It would be hard to argue that there’s not at least some level of random chance involved in fantasy sports – such as the bouncing of a football or an untimely injury – and therefore pay-for-cash fantasy sports games would likely be illegal in these states.

Arizona is one of a handful of states that adopts the "Any Chance Test" to determine whether a contest is a prohibited form of gambling
Arizona is one of a handful of states that adopts the “Any Chance Test” to determine whether a contest is a prohibited form of gambling

 

While some state laws – including one recently passed in Maryland – are modeled after UIGEA, other state statutes, such as in Montana, appear on their face to prohibit or heavily disfavor fantasy sports. Further still, various advisory opinions issued in FloridaLouisiana, and until recently removed, Kansas, call into doubt the legality of fantasy sports contests, even in states using the predominant purpose test. While there’s been a definitive trend in state legislatures seeking to overturn fantasy sports prohibitions, as of now, even the traditional fantasy sports model is illegal in many states.[xvii]

Daily Fantasy Sports

While the season-long versions of fantasy sports leagues have been around since at least the 1960s, evolution was inevitable in the present Era of Attention Deficit Disorder. Enter, daily fantasy sports (“DFS”). Unlike traditional leagues, in which the final standings typically aren’t determined until an entire professional or amateur season runs its course, most DFS contests last only a day.  Rather than waiting months for a winner to be declared, gamers know the final outcome of the DFS contest as soon as time runs out in the last sporting event of the day. During a time where interest in fantasy sports is at a record-high, but participants’ attention spans run short, DFS has exploded in popularity.

While 41 million Americans played traditional, season-long fantasy sports contests last year, only about 800,000 played daily fantasy sports. Still, the industry leader, FanDuel, has raised $88 million from investors, including Comcast; private equity firms Shamrock Capital Advisors and KKR; and the National Basketball Association, whose commissioner, Adam Silver, has come out in support of legalizing sports gambling. The next-biggest site, DraftKings, has attracted $76 million in venture capital. According to a Bloomsberg Business source, FanDuel was valued at more than $1 billion during its last investment round. Further, Eilers Research, which studies the gaming industry, reports that in 2015 the DFS industry will collect more entry fees than all the sports books at Vegas combined.

While there are various types of DFS games – all of varying potential legality – this article will focus on the most common format, which is primarily used by FanDuel and DraftKings – two competitors who make up 95 percent of the total DFS market. Under FanDuel and DraftKings’ typical DFS model, a participant chooses a contest, in which he or she will compete against other participants, and pays an entry fee to play. The participant then, subject to a designated budget constraint, selects a team of real-world players, each of whom is assigned a “salary” by the host site. Once the games start, players accumulate points based on how they perform. As previously noted, unlike typical fantasy sports games, which are based on a sport’s entire season, DFS games are based on only one day’s worth of performances. Once the last game of the day is complete, participant(s) with high scores in their contests win cash or other prizes, which are established in advance. Participants can enter into as many contests in a day as they choose, provided they pay each contest’s entry fee.

DFS-leader FanDuel announced a partnership with the NBA in November 2014, the same month that NBA commissioner Adam Silver published a New York Times op-ed advocating for regulated sports gambling.
DFS-leader FanDuel announced a partnership with the NBA in November 2014, the same month that NBA commissioner Adam Silver published a New York Times op-ed advocating for regulated sports gambling.

It’s apparent that typical DFS games are similar in structure to many traditional forms of fantasy sports, so presumably they would be legal under UIGEA and most state laws. Yet, DFS face some unique legal challenges. For example, it’s uncertain whether offering daily contests in which participants choose tennis players in a single tennis tournament complies with UIGEA’s requirements that the outcome of the fantasy sports game be based on the statistical results of the performance of athletes in multiple real-world sporting events. Further, the skill-to chance ratio may be swayed by the shortened (read, “daily”) length of each contest, as the impact of a single activity of chance (i.e. a funny bounce of the ball) may have a heightened impact on the overall result of a DFS contest compared to traditional, season-long fantasy leagues. [xviii]

“Indeed, there is no blanket immunity under federal or state law for ‘daily fantasy sports,’” Professor Edelman writes, adding that the legality of the DFS contest depends on the game’s particular rules. “[UIGEA’s fantasy sports] carve-out,” Edelman continues, “does not seem to protect fantasy sports contests where the ratio of skill-to-chance does not meet a minimum threshold.” Whether this threshold is met is difficult to predict, because the determination of whether a contest is one of skill or chance often comes down to a battle of expert witnesses. The format in which the DFS contest is conducted likely has a huge impact on the game’s legality. Using prudence in operations can help minimize exposure and ensure DFS providers comply with federal and state laws.

DFS have only been around for a short amount of time,[xix] and there has been precious little precedent set regarding the legality of DFS. At least one federal court decision, however, seems to support the argument that “daily fantasy sports” entails at least some degree of skill and do not constitute illegal gambling. In Humphrey v. Viacom, the U.S. District Court for the District of New Jersey opined that “[t]he success of a [full-season] fantasy sports team depends on the participants’ skill in selecting players for his or her team, trading players over the course of the season, adding and dropping players for his or her team, and deciding who among his or her players will start and which players will be placed on the bench.” 2007 WL 1797648 (D. N.J. 2007). The court also concluded that the entry fees paid to operators for providing fantasy sports leagues were not bets or wagers because “(1) the entry fees are paid unconditionally; (2) the prizes offered to fantasy sports contestants are for amounts certain and are guaranteed to be awarded; and (3) defendants do not compete for the prizes.”

The opinion that daily fantasy sports are contests of skill is further supported by empirical evidence. In April 2015, Star Fantasy Leagues (“Star”), an online “daily fantasy sports” company, announced the results of an independent skill simulation study of its “daily” fantasy football contests. The study was conducted during the 2014-15 NFL season. The study showed that, through empirical evidence, the results of Star’s fantasy football contests are predominated by skill, not chance.

To date, no DFS operator has ever been prosecuted by the federal government. As the DFS industry continues to grow, widespread prosecution becomes even unlikelier. “Money is pouring into the fantasy sports industry and into the daily fantasy sports sector of late,” writes Darren Heitner.  “Large and respected institutions like NBC Sports Ventures and Disney have delivered money to [DFS] platforms, because they realize the immense potential for further growth in fantasy sports and believe that daily fantasy games are simply the next iteration of an industry that has a track record of proven success.” With partnerships with the NBA, MLB, and the NHL – as well with many of the individual teams in those leagues and the NFL – the DFS industry has garnered added legitimacy with the backing from America’s major professional sports leagues. So long as these companies conduct their operations in compliance with applicable law – such as only offering contests based on multiple real-world games or formatting contests so that they are based on the results of player performances, as opposed to the scores or outcomes of real-world games – they will likely minimize legal scrutiny and curry favor with the leagues.

Conclusion

Unquestionably, the popularity of fantasy sports is at an all-time high. Season-long leagues, which have been around for decades, continue to thrive, and with the approval of the major pro leagues, the growth of the DFS industry is likewise showing no signs of slowing down. Yet, despite this incredible wave of prosperity, there remain outstanding legal issues. Most traditional, full-season operations may have be granted safe harbor by UIGEA’s carve-out language, but both participants and fantasy sports providers must still perform legal due diligence to ensure they do not fun afoul of the ever-evolving interpretations of federal and state laws, including some of the stricter statutes and regulations found in individual states. Further, the legality of DFS remains decidedly unsettled. The format of the DFS contest has a big impact on potential legality, but so too does the potential effect that the shortened length of contests has on the ratio of skill to chance. Using legally prudent practices in complying with various state and federal laws can certainly help minimize potential liability. Notwithstanding, with rising their popularity and the pro sports leagues’ benediction, DFS are likely here to stay.

This post was last edited on January 5, 2016.

[i] Shameless self-promotion: I pen a monthly column titled “Fielkow’s Law,” in which I analyze how certain legal issues affect fantasy teams and players, at Rotowire.com.

[ii] See Geoffrey T. Hancock, Upstaging U.S. Gaming Law: The Potential Fantasy Sports Quagmire and the Reality of U.S. Gambling Law, 31 T. Jefferson L. Rev. 317, 323-24 (2008) (detailing the origins of fantasy baseball).

[iii] Okrent pitched his idea to his friends and the first-ever Rotisserie League baseball player auction was conducted at a now-defunct French bistro in New York City, La Rotisserie Francaise.

[iv] Edelman, Marc, A Short Treatise on Fantasy Sports and the Law: How America Regulates its New National Pastime, 3 HARVARD JOURNAL OF SPORTS & ENTERTAINMENT LAW 1, 10-11 (2012) (describing the effect of the “Internet boom” on the facilitation of fantasy sports).

[v] It would be remiss to fail to mention C.B.C Distribution & Marketing, Inc. v. Major League Baseball Advanced Media, L.P., a seminal case in the advancement of the popularity of fantasy sports. 443 F.Supp.2d 1077 (E.D. Mo. 2006). CDM had a licensing agreement with the MLB players’ association, in which it was authorized to use the names and playing records of MLB players in its online fantasy baseball game. Out of fear that it would be precluded from using players’ statistics when its license expired in 2004, CDM brought suit, seeking declaratory relief. In a huge victory for fantasy sports providers, the Court found that players do not have a right of publicity in their names and playing records. The Court further ruled that that even if the players’ did have such a right of publicity, the First Amendment applied to fantasy sports games, and the simple use of the players’ names and publically-known statistics was permissible. As such, the Court ordered the players’ association and league not to interfere with the CDM’s fantasy baseball games, a ruling which clarified murky intellectual property rights issues and bolstered the fantasy sports industry.

[vi] Edelman, Marc, Navigating the Legal Risks of Daily Fantasy Sports: A Detailed Primer in Federal and State Gambling Law, U. of Ill. L. R. (accepted for publication, Jan. 2016 edition), pp. 7-8, downloadable at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2587362 (discussing the federal crackdown on sportsbooks and online poker).

[vii] On April 15, 2011, a day dubbed as “Black Friday” by the poker community, the federal authorities unsealed an indictment against online poker’s big three – PokerStars, Full Tilt Poker, and Absolute Poker – and a handful of payment processors. The charges were based on UIGEA and the Illegal Gambling Act of 1955. As part of the indictment, restraining orders were issued on 75 bank accounts used by the online poker companies and their payment processors, as well as five Internet domain names. The chain of events that followed crippled the online poker industry.

[viii] See, e.g., Interstate Wire Act of 1961, 18 U.S.C. § 1084 (prohibiting engaging in the business of betting or wagering through the knowing use of wire communications); Illegal Gambling Business Act, 18 U.S.C. § 1955 (criminalizes conducting, financing, managing, supervising, directing, or owning an “illegal gambling business” of “major proportions”); and Professional and Amateur Sports Protection Act, 28 U.S.C. § 3701 (making it illegal to operate a wagering scheme based on “competitive games in which amateur or professional athletes participate,” with the exception of certain forms, such as sports betting in Nevada, that fall under the statute’s “grandfather” clause).

[ix] The UIGEA defined “unlawful Internet gambling” as “knowingly transmitting a bet or wager”, by means of the Internet, where the bet or wager is illegal under the laws of the place where the wager is “initiated, received, or otherwise made.” Unlawful Internet Gambling Enforcement Act, 31 U.S.C. §5362(10) (2006).

[x] 31 U.S.C. §5362(1)(E)(ix)(I)-(III).

[xi] The overlay problem is one that more typically affects daily fantasy game providers. Under UIGEA, fantasy sports operators must publish a prize amount before a contest and reward that prize, regardless of how many entrants participate. When contests don’t fill to capacity, the league operator has to pay the prize originally promised, regardless of whether they take a profit or loss. This inevitably means operating a typical daily fantasy sports site, such as FanDuel or DraftKings, without significant capital backing is a risky endeavor, as operators promising outsized payouts could be on the hook for a large loss if they can’t drum up enough participants.

[xii] See, e.g., Humphrey v. Viacom, Inc., 2007 WL 1797648, at *11 (D.N.J. 2007) (holding that “[UIGEA] confirms that fantasy sports leagues such as those operated by [ESPN and other defendants]” – in which participants paid an entry fee, drafted and managed teams, and were awarded prizes at the end of the season – “do not constitute gambling as a matter of law.”).

[xiii] Games that are completely free, even where prizes may be awarded, are typically legal in most states, because there is no “consideration.” Similarly, fantasy sports games that do not provide prizes to winners are not likely to violate state gambling laws because they fail to meet the element of “reward.”

[xiv] Edelman, Marc, A Short Treatise on Fantasy Sports and the Law: How America Regulates its New National Pastime, 3 HARVARD JOURNAL OF SPORTS & ENTERTAINMENT LAW 1, 28-30 (2012).

[xv] See Humphrey v. Viacom, Inc., 2007 WL 1797648, at *2 (D.N.J. 2007) (opining, as dicta, on the “skill” involved in participating in a traditional full-season, fantasy sports league).

[xvi] Edelman, Marc, Navigating the Legal Risks of Daily Fantasy Sports: A Detailed Primer in Federal and State Gambling Law, U. of Ill. L. R. (accepted for publication, Jan. 2016 edition), pp. 24, downloadable at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2587362.

[xvii] It’s worth briefly noting that most fantasy sports leagues operated by individual citizens – such as popular “home leagues” among friends – where money is exchanged, even in season-long formats, likely violate both state and federal gaming laws. Much of this has to do with the fact that prizes in such leagues are often determined by the number of participants or the amount of any fees paid by those participants, which runs afoul of the carve out language of UIGEA. Given the relatively small amounts that change hands in these leagues, state and federal prosecutors have proven disinterested in pursuing charges in most instances.

[xviii] Additionally, participants in the most common DFS formats are typically not afforded much opportunity to offset “chance.” For example, if you draft a player in a full-season league, you can take steps to mitigate random chance results, such as injury, by deploying various strategies – i.e. trades or free agency. In DFS, if an injury strikes a particular player on a day in which a participant select him, that participant is often left without recourse.

[xix] The term “daily fantasy sports” was coined in 2007, when Fantasy Day Sports Corp. – one of, if not the first, provider of DFS – was launched. The two largest competitors in the market, FanDuel and DraftKings, were not started until 2009 and 2012, respectively.

New Rules for 2014-2015 Season: A Sign the NHL Still Looking To Boost Scoring


During the offseason, the NHL announced a number of rule changes that will take effect for the 2014-15 season. While these changes are mainly minor tweaks to current rules, they will have some effect on the play this season and will inevitably cause some unlucky team’s fans frustration after a late loss. With the NHL season starting this week, let’s take a moment to quickly review the most important changes.[i]

Changes to the Ice

The first thing you may notice as you tune into your favorite team’s season opener is that some of the markings on the ice seem a bit different than last year. The NHL has changed Rule 1.8 to expand the trapezoid behind each net by two feet on each side of the net. This effect of this rule change on scoring is unclear. Goaltenders who are good puck handlers will have slightly more room to stop dump-ins and start the breakout for their defenseman, theoretically relieving some of the pressure from opposing fore-checkers. On the other hand, the extra room behind the net could lead to more opportunities for butterfingered goalies to fumble the puck in dangerous areas behind and in front of their nets, leading to easy goals for opposing forwards.

The second change to the ice surface is that the hash marks on the end zone face-off circles have been separated by over 2 ½ feet. While this seems like a minor detail (and it most likely is), this change should provide a bit of extra room for forwards to maneuver after the face-off, increasing the possibility of quick set plays that could lead to additional goals.

More Tripping, Same Number of Penalty Shots?

The NHL has also amended the tripping rule to now prohibit one of the more exciting defensive plays in the game in an attempt to increase scoring. In previous years, where a defensive player stymied an offensive breakaway by contacting an offensive player at the same time as the puck, no penalty would be called – a potentially momentum-turning defensive play. In the case where the defensive player was unsuccessful in accomplishing such a maneuver – contacting the offensive player, before touching the puck, causing him to fall during a breakaway situation – only then would the defensive player would be called for a “trip” and, in cases where his body positioning warranted it, a penalty shot could be awarded.

The new rule now provides that when an attacking player is on a breakaway, a defending player who dives and touches the puck while also contacting and tripping the attacking player will now be called for a 2 minute minor penalty.  Previously, this type of play had not been a penalty. While this now punishes a defenses for a previously-legal play, to mitigate the added pressure on the defense, a penalty shot will not be awarded in these types of situations.[ii] As such, officials are instructed to call more penalties for tripping, but the rule change allows them to do so without the paralyzing fear of having to award a game-changing penalty shot.

Though the diving defensive stop that brought fans of defensive hockey to their feet is now a penalty, the rule change could, in theory, have a positive impact on scoring by increasing the odds of an unobstructed breakaway, as well as the number of power plays, while keeping the number of penalty shots constant.

From the Face-off Circle to the Penalty Box

The final rule change of note is the new rule governing face-offs occurring immediately after icing is called. Since the icing rule was amended prior to the 2005-2006 season to prohibit line changes by the defending team during the ensuing stoppage after an icing, teams have countered by having their centers intentionally get tossed from the face-off circle by failing to lineup correctly. Usually, two face-off violations by a center will lead to the center getting tossed from the circle and a winger taking his spot. The extra 30-60 seconds of rest for the defenders while the center stalls at the face-off dot can help tired skaters recover enough to clear the puck and make it to the bench for a line change. This year, the NHL has decided to cut down on these stalling tactics by calling a 2-minute bench minor penalty after a defending player taking the face-off commits a second face-off violation.[iii] Since a two-minute penalty isn’t worth the additional few seconds of rest, teams are likely to abandon this stalling tactic, and a few more tired defenders are going to watch a goal go in right after a face-off following an icing.

Conclusion

The rules discussed above should provide a slight boost to scoring, as well as the requisite anguish of losing fans that learn about a new rule only once it costs their favorite team a vital two points. With a better understanding of the rule changes, sit back and enjoy the start of the new season with all the highlight-reel goals, bone-crushing hits, and mystifying saves that will keep us enthralled for the next eight months.


[i] All of the rule changes for the 2014-15 season can be found here: http://www.nhl.com/ice/news.htm?id=730165. In addition to the rules changes discussed herein, there are also some changes to the overtime rules, the punishments governing diving, and how certain game misconducts will be counted towards a possible one-game suspension.

[ii] A penalty shot may still be awarded, where the body positioning of the players warrants it, in the situation where the defensive player knocks down the offensive player before touching the puck – as was the case under the previous rule.

[iii] Only a warning is issued after the first face-off violation. The second violation actually results in the penalty.

Two More Concussion Lawsuits for the NHL – What’s Next?


Last month, two more lawsuits were filed by former NHL players against the NHL alleging that the NHL failed to take adequate steps to protect players from the dangers of concussions and actively encouraged violence in the game in order to increase league revenues. In the over 100-page complaint, the La Couture plaintiffs make many of the same arguments against the NHL that were made in the first concussion lawsuit, Leeman v. NHL. However, the La Couture v. NHL complaint made a number of questionable arguments that have been dissected elsewhere on the Internet.

With multiple class action lawsuits now filed against the NHL, the obvious comparison for most sports fans will be to the concussion litigation that the NFL faced beginning in 2011. The primary concussion litigation against the NFL came to a proposed settlement in 2013 (though that settlement is now in question after it was rejected by the presiding judge). Assuming that the NFL and its former players do come to a settlement, the question will be whether or not the NHL litigation will follow a similar pattern. So far, many of the arguments made by the former NHL players are similar to the arguments made by former NFL players. However, there are a number of differences between the two sports and leagues and how they have each addressed the concussion issue over the past decade. In the complaints filed against the NHL, it is apparent that some of the differences between the NHL and NFL could lead to very different results for the NHL litigation.

Comparisons to Other Professional Hockey Leagues

Though not widely covered in the US, there are a number of European countries, most prominently Russia and Sweden, which have strong professional hockey leagues. The La Couture complaint makes a new argument against the NHL by comparing the NHL’s concussion protocols to the protocols used internationally by other professional leagues. Currently, the NHL puts each player through a number of tests during training camp to ascertain each player’s mental and neurological baseline. During the season, if a player suffers a concussion, the player must be able to meet the baselines set during training camp in order to be cleared to play. Rather than using baseline testing, many European leagues instead require a player who suffers a concussion to sit out for 3 weeks. La Couture argues that the NHL should be using the concussion protocols of the European leagues rather than the current baseline testing.

Unfortunately, the La Couture complaint does not compare and contrast the two types of protocols and instead just assumes that the European protocol is superior simply because it is different than the NHL’s current program. If this argument is going to be persuasive in showing the NHL’s failure to protect its players, the plaintiffs are going to have to allege that there are some flaws in the NHL system.

For example, can the current testing regime be gamed by a player who hopes to set a low baseline score for himself, knowing that doing so will allow the player to return to the ice sooner. On the other hand, does the baseline test itself accurately gauge a players’ neurological and mental health, or can a player pass the test by guessing an answer correctly. While this point was not pressed in the La Couture complaint, plaintiffs should consider developing the argument that there are real problems with baseline testing and that a mandatory period of rest would best protect players.

While there are a few professional football leagues outside of the United States, the NFL did not face the type of international comparison that the NHL will likely need to counteract. Eventhough the NHL has supported the international growth of hockey through the World Cup and allowing its players to participate in the Olympics every four years, the different approach to concussion treatment taken by the European leagues could prove to be a problem for the NHL as it fights these lawsuits.

NHL Concussion Study vs. NFL Concussion Studies

While today the scientific understanding of the connection between concussions and long term health problems is sound, it was only a decade ago that there were still many questions about the potential link. In response to a growing concern over whether concussions could have a long-term effect on player health, both the NFL and NHL decided to fund research to investigate the issue. While both of these studies have been cited by the plaintiffs suing the respective leagues, the studies commissioned by the NHL and NFL were in fact quite different, and the differences in the studies could be key in whether the NHL litigation follows the same pattern as the NFL concussion litigation.

The NFL studies were scientific and medical studies where the purported goal was to actually find whether there was a link between concussions and long-term health problems for football players. Many of the studies commissioned by the NFL were lambasted by the medical community for not following commonly accepted protocols. It has been alleged by the NFL plaintiffs that these studies were actually attempts to muddy the scientific waters as to concussions long-term effects, rather than a good faith effort to understand the medical consequences of head injuries. If the NFL’s studies were actually a sham attempt to distract the scientific community, and the NFL players relying on these studies to understand the risks to their long-term health, then evidence of the sham nature of these studies would have been very persuasive evidence for plaintiffs had the NFL concussion litigation made it through the discovery phase of the trial. However, shortly after the trial judge decided that discovery should commence, the NFL and plaintiffs came to a settlement agreement, ending any chance that plaintiffs in the NHL litigation would have of looking at the NFL’s concussions studies records and emails.

On the other hand, the NHL’s study was just a compilation of the number of concussions suffered by NHL players over the course of almost a decade. Plaintiffs in the NHL litigation have claimed that the limited nature of this study was actually a dereliction of the NHL’s duty to investigate the link between concussions and long-term health problems. In addition, the NHL plaintiffs have also claimed that the players relied on the NHL’s study to investigate the link between concussions and long-term health problems, and that the limited nature of the NHL’s study did not provide the information that the plaintiffs were relying on receiving from the study. Both of these claims may have merit, but the limited nature of the NHL study makes it unlikely that there could be a “smoking gun” email or memo where an NHL employee or executive acknowledges the link between concussions and long-term health problems. The decreased likelihood of such a document means that going to discovery, and possibly trial, may not be as daunting a possibility for the NHL as it could have been for the NFL.

The Next Steps

The NHL is now facing three lawsuits from former players in the United States, with more rumored to be in the works. In the immediate future, the NHL should probably expect to face more lawsuits filed in various jurisdictions across the United States and possibly in Canada. The US-filed cases will most likely be consolidated into a single lawsuit, as all of the lawsuits will be making similar claims of both law and fact against the NHL. After all the cases are consolidated, plaintiffs will have to win the fight over class certification and overcome the argument from the NHL that the claims by the former players are barred because of the Collective Bargaining Agreement (CBA) between the NHLPA and NHL before the case can move to discovery and trial. As the case progresses over the coming months, the differences between the NHL and NFL noted above could have a large effect on whether the NHL ultimately settles the case or if there is a trial where the arguments against the NHL are put to the test.

 

Betting the House: New Jersey’s Governor Goes All-In Against PASPA

If New Jersey Governor Chris Christie has his way, the next time New Jersey hosts a Super Bowl, fans may be able to walk down the street and drop a wager on their favorite NFL team before the big game. Christie’s dream, however, has faced numerous speed bumps, and with his options dwindling, Christie made one final effort, pushing all his chips in the middle of the table.

In 2012, New Jersey enacted legislation that would legalize sports betting at casinos and racetracks across the Garden State, though specifically exempting wagering on New Jersey-based colleges such as Princeton or Rutgers. Though this is not the first time a push has been made to permit sports gambling in the State,[i] Christie’s law represents the first time New Jersey has actually enacted such legislation. New Jersey’s push to legalize sports betting is largely motivated by an effort to boost its struggling economy.  For example, the implementation of sports gambling is forecasted to generate millions of dollars in tax revenue for the State,[ii] as well as provide a huge boost to a tourism industry largely buoyed by the East Coast’s gambling Mecca – Atlantic City.

Atlantic City, New Jersey
Atlantic City, New Jersey

The problem for Christie, as in any casino, the “House” always has the advantage, and in this case, the House (i.e. the United States Government)has one significant advantage over Christie: the Professional and Amateur Sports Protection Act (“PASPA”).[iii] In 1992, with 13 states considering State-sponsored sports betting schemes, Congress passed PASPA, which restricted certain forms of State-sponsored sports gambling to a handful of States that were grandfathered in under the law.[iv]  Congress was primarily concerned that State-sponsored sports gambling would damage the integrity of sports and have negative effects on the Nation’s youth.[v] Additionally, Congress rejected the idea that State-sponsored sports betting is a viable solution to budget problems.[vi]

On August 7, 2012, the NCAA and all four major U.S.-based professional sports leagues – the NFL, NBA, MLB and NHL – (the “Leagues”) filed a lawsuit seeking to prevent the implementation of Christie’s sports gambling law.[vii] It should come as no surprise that the Leagues clearly favor PASPA and the preservation of the status quo. In addition to their concerns about maintaining the “integrity of the game,” the current system under PASPA has proven to be a lucrative one for the Leagues. The value of teams, licensing fees and broadcasting rights has steadily risen for decades, and the expanded sports wagering could potentially upset that profitable status quo. Additionally, a victory in the current lawsuit would only further strengthen the leagues’ intellectual property rights when it comes to ownership of data.

Christie’s law was therefore a direct challenge not only to PASPA but also to the current revenue models in the sports industry. Both California and Minnesota introduced pro-sports betting legislation in 2012, but both states said they would only proceed if New Jersey’s law is upheld.

Don’t Tread on Me, The Legal Theory Christie Hopes Will Win the Day

According to Christie, it should be up to the individual states, not the federal government, to regulate sports gambling. As such, New Jersey has argued that PASPA is a violation of the Constitution’s anti-commandeering principle.[viii] New Jersey further posits that PASPA violates the Constitution’s equal sovereignty clause because it discriminates between states on sports gambling grounds by singling out some, such as Nevada, for preferential treatment.[ix] Said Christie spokesman Colin Reed, “[t]wo years ago, the people of New Jersey voted overwhelmingly to bring sports betting to New Jersey, and the governor agrees with his constituents. There’s no reason it should be limited to only a handful of states. It’s a fundamental issue of fairness.”

New Jersey Gov. Chris Christie wants to allow sports betting in his state (Mel Evans/AP)
New Jersey Gov. Chris Christie wants to allow sports betting in his state (Mel Evans/AP)

Thus far, however, Christie’s roll of the dice has come up snake eyes. On February 28, 2013, the United States District Court for the District of New Jersey ruled against Christie, holding that PASPA was constitutional.[x] Judge Michael Shipp ruled that some of the questions raised in the case were novel, but he suggested the best way to change the U.S. law was to get Congress to repeal or amend PASPA.[xi]

Following an appeal, the U.S. Court of Appeals for the Third Circuit again ruled against New Jersey on September 17, 2013 in a split, 2-1 decision.[xii] While the Court stated that it was “cognizant that certain questions related to this case — whether gambling on sporting events is harmful to the games’ integrity and whether states should be permitted to license and profit from the activity — engender strong views,” it declined to “judge the wisdom of PASPA or of New Jersey’s law, or of the desirability of the activities they seek to regulate” and held that “New Jersey’s sports wagering law conflicts with PASPA and, under our Constitution, must yield.”

Following the governor’s string of courtroom losses and after racking up a multi-million dollar taxpayers’ bill, New Jersey took one final chance, filing a petition for a writ of certiorari on February 12, 2014 formally asking the U.S. Supreme Court to review the case.

“In [Judge Thomas Vanaskie’s Third Circuit] dissent, the judge agrees with New Jersey’s central argument — that the law is unconstitutional since it prevents sports betting in New Jersey against the wishes of its own elected officials and citizens,” Christie spokesman Colin Reed said. “This makes the issue all the more appropriate to be decided by the U.S. Supreme Court. ”

It will certainly be interesting to see what happens from here. To start, it is likely a long shot that the Supreme Court will even consider New Jersey’s case. The Supreme Court’s Rules state plainly that “[r]eview on a writ of certiorari is not a matter of right, but of judicial discretion.”[xiii]

Putting an even finer point on it, the Rules explain that “a petition for writ of certiorari will be granted only for compelling reasons.” Only about 1% of petitions are accepted by the Court. The fact that the Third Circuit’s ruling was a split decision gives hope that the Court will hear the case,[xiv] but even if it does, there’s ample reasoning why the Supreme Court would also reject Christie’s arguments as the courts before it have already done.

In poker terms, with the odds firmly stacked against him, Christie’s going to need a miracle on the river if he hopes to turn Atlantic City into the second coming of Sin City.

                                                                                                                        

[i] For example, in 1993 the twelve licensed gambling casinos in Atlantic City brought suit seeking a declaration that the Casino Control Act, which created the casinos, also authorized the casinos to host sports betting. Petition of Casino Licensees for approval of a new game, rulemaking and authorization of a test, 633 A.2d 1050 (N.J. 1993). Additionally, in 2004 a bill was introduced in the New Jersey State Assembly that would permit in-person wagering on sporting events at casinos in Atlantic City, New Jersey. 13 Sports Law J. 143, 149-51 (2006). Neither attempt was successful.

[ii] In 2009, $2.57 billion was legally wagered in Nevada’s sports books. Those sports books, which are heavily taxed by the State, realized a total net revenue of $136.4 million. The American Gaming Association

[iii] “It shall be unlawful for–(1) a governmental entity to sponsor, operate, advertise, promote, license, or authorize by law or compact, or (2) a person to sponsor, operate, advertise, or promote, pursuant to the law or compact of a governmental entity–

a lottery, sweepstakes, or other betting, gambling, or wagering scheme based, directly or indirectly (through the use of geographical references or otherwise), on one or more competitive games in which amateur or professional athletes participate, or are intended to participate, or on one or more performances of such athletes in such games.” 28 U.S.C. 3702

[iv] Nevada, Delaware, Oregon and Montana were all permitted to continue the sports-related gambling operations that were already in place in their States, with Nevada granted the widest scope and the others limited to certain sports-gambling “lottery” games. S. Rep. 102-248 (1991).

[v] “[S]ports gambling threatens to change the nature of sporting events from wholesome entertainment for all ages to devices for gambling. It undermines the public confidence in the character of professional and amateur sports. Furthermore, state-sanctioned sports gambling will promote gambling among our Nation’s young people” Id. But See, S. Rep. 102-248 (1991)(minority views of Senator Grassley)(“If the professional sports leagues are truly concerned with American youth, as they claim, they should concentrate their efforts on policing their own drug policies, and eliminate alcoholic beverage advertising from their broadcasts and stadiums, rather than worrying about a few sports pool lottery tickets which pose no threat to the integrity of the leagues or the youth of America”).

[vi] “[T]he risk to the reputation of one of our Nation’s most popular pastimes, professional and amateur sporting events, is not worth it.” S. Rep. 102-248 (1991).

[vii] NCAA v. Christie, No. 12-cv-4947 (D.N.J.).

[viii] The anti-commandeering principle forbids Congress from ordering states or their political subdivisions to take affirmative action to govern or regulate in a particular way. But it does not forbid Congress, in its regulation, to forbid states from regulating in a particular way (or perhaps in a particular field at all), so long as Congress is acting within its constitutionally enumerated powers. New York v. United States, 505 U.S. 144, 188 (1992); Printz v. United States, 521 U.S. 898 (1997)

[ix] Congress may not enact irrational discriminatory limitations on the sovereign powers of the States. Rather, “all the States enjoy ‘equal sovereignty’ ” absent a “showing that a statute’s disparate geographic coverage is sufficiently related to the problem that it targets.” Nw. Austin Mun. Util. Dist. No. One v. Holder, 557 U.S. 193, 203 (2009).

[x] NCAA v. Christie, 926 F.Supp.2d 551 (D.N.J. 2013).

[xi] Id. at 555.

[xii] NCAA v. Governor of New Jersey, 730 F.3d 208 (3d. Cir. 2013).

[xiii] Sup. Ct. R. 10.

[xiv] Supreme Court Rule 10 identifies the three primary scenarios under which certiorari could be granted, including where a court of appeal has decided an important federal question “in a way that conflicts with relevant decisions of this Court.”

Force Majeure? Is that a 5-Minute Penalty or Game Misconduct? How a Common Contract Clause Could Allow the NHL to Keep Its Players From Competing in Sochi.




On January 27, 2013, the Associated Press reported that it had received an email from NHL Deputy Commissioner Bill Daly which stated that the NHL expects to send its players to the upcoming Sochi Olympics, but that the league may change its mind if there is “an unreasonably dangerous situation” in Sochi. The NHL, IOC, and IIHF came to an agreement earlier in 2013 where the NHL agreed to halt its season so its players could play in the Olympic hockey tournament, in exchange for certain media rights, player treatment assurances and insurance coverage. In the past few weeks, there have been multiple news stories about security concerns at the Sochi Games. Such news stories may have prompted Daly to express concern that “an unreasonably dangerous situation” could occur in Sochi. While it is impossible to know the actual answer without seeing the contract, Deputy Commissioner Daly’s comment suggests that the NHL could rely on a force majeure clause in their contract with the IOC if they were to keep NHL players from participating in the Sochi Games.russia usa hockey

A force majeure clause is a contract clause that is often added to commercial contracts to allow the contracting parties to deem the contract null and void if an event occurs that both frustrates the purpose of the contract and is outside the control of the contracting parties. Force majeure clauses are sometimes referred to as “Act of God” clauses, because extreme weather events, like hurricanes, tornadoes, drought, floods, volcano eruptions and earthquakes are all examples of events that could frustrate the purpose of the contract and would be out of the control of both parties (unless of course the contracting party was Mother Nature). However, force majeure clauses often include events that are caused by humans, but are not caused by the parties to the contract itself, such as war or rebellion, labor strikes or lockouts, and the unexpected government seizure of property. In addition, since the September 11th terrorist attacks, many force majeure clauses now include terrorism as an event that could trigger a force majeure clause. It is important to note that a force majeure type event simply occurring is not sufficient to trigger a force majeure clause. Rather, the event must actively affect a party or both parties to the contract in such a serious way that one or both of the parties are unable to perform their part of the contract.

The inclusion of terrorism in the force majeure clause in its contract with the IOC could allow the NHL to keep its players from playing in the Sochi games. If a terrorist attack were to occur between now and the start of the Sochi games, such an attack could frustrate the purpose of the contract (NHL players competing in the Olympic games in safe and secure conditions), and such an attack would not be caused by either the NHL or IOC.  If the NHL did actually invoke the force majeure clause to keep its players from the Olympics, any resulting litigation would likely center on whether the purpose of the contract was actually frustrated by the security incident or situation. The NHL could have difficulty if they argue that the threat of possible attack triggers the force majeurre clause, because it is unlikely that the threat of terrorism would actually frustrate the purpose of the agreement between the NHL and IOC. However, if an attack occurred that directly affected the treatment and experience NHL players were supposed to have during the Olympics, then the NHL would have a much stronger case.

Depending on the exact language in the NHL/IOC contract, the force majeure clause could have been what Deputy Commissioner Daly had in mind when he suggested the NHL would keep its players away from the Sochi Games. However, let’s all hope for everyone’s health and safety that the NHL will not have to consider invoking a force majeure clause and that the 2014 Olympic Games occur without incident.

Leeman v. NHL and the Future of Fighting in Hockey

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On November 25, 2013, the first lawsuit alleging that the NHL failed to adequately protect former players against the dangers and effects of concussions was filed. The lawsuit, filed in the U. S. District Court for the District of Columbia, counts 10 former NHL players, most notably former All-Star Gary Leeman, as its plaintiffs. The complaint argues the NHL is willfully committing a fraud on its players by not providing them with the scientific evidence showing a connection between contact sports and long-term brain ailments, failing to provide adequate medical personnel during games, and making rules changes that the NHL knew would increase the risk of concussions. Notably, the plaintiffs point out that the NHL condones a “culture of violence” through the marketing of big hits and fights in almost all its advertising and multimedia content. With the debate over fighting already a hotly contested issue in the hockey world, one must wonder whether the Leeman suit will one day be seen as a turning point in this debate.

Unique among the four major professional sports leagues in North America, the NHL does not penalize fighting during a game with an immediate ejection. Rather, fighting is seen as part of the game of hockey, and instead both participants in a fight receive major penalties resulting in five-minutes in the penalty box. In recent years, the NHL has tried to limit the number of fights and their potential for injury by adopting additional rules, including an automatic ejection for the third player into a fight, and most recently by prohibiting players from removing their helmets during a fight. While the NHL has taken these steps to decrease the bad publicity that arises from some fights, it still seems unlikely that the league is ready to ban fighting altogether. Fighting is a big draw for many casual fans, and the NHL has had no problem with its multimedia partners advertising and glorifying the fights and enforcers in the NHL. For example, one of the most popular features in each edition of EA Sports NHL series of video games is the fighting simulation. Each year, EA Sports seems to add a new twist to make the fighting in the game more fun, from adding additional boxing moves to allowing players to fight with the games’ virtual goalies.

While the NHL has not shied away from promoting the entertainment value of fighting, the argument for allowing fighting in the game has been based on more than dollars and cents. Proponents of keeping fighting in hockey have long argued that fighting reduces the number of cheap shots that will occur during the course of a game. In a sport whose participants fly around an enclosed area on razor sharp pieces of metal wielding graphite sticks, a player can quickly cause career and even life threatening injuries to an opponent with a well placed high stick, slash or shove. Fighting has always been seen as a deterrent to cheap shots, as players know that they will have to square off in a fight either immediately after a cheap shot, during their next shift, or the next game against that particular opponent. In addition to its role as a deterrent against cheap shots, fighting has also been seen as a way to quell the escalation of bad blood between two teams. Instead of players responding to a malicious slash or late hit with a cheap shot of their own, teams can instead square off in a fight, hash out the bad blood, and get back to playing hockey.

The basic assumption behind these arguments is that fighting is less dangerous than the increase in cheap shots that are likely to occur without the threat of a fight.  The thinking has long been that a fight will lead to a black eye or some missing teeth, but cheap shots with a stick could lead to broken wrists, arms or facial bones and dirty hits lead to blown out knees, broken collarbones and possible neck injuries. This assumption, that fighting is safer than the cheap shots it prevents, is a major justification for fighting’s continued existence in the NHL. If this assumption is put into question, then the argument for allowing fighting in the NHL falls apart.

The Leeman complaint explicitly attacks that assumption, arguing that the concussions and sub-concussive blows that players receive while participating in hockey fights lead to long-term mental and neurological issues, including chronic traumatic encephalopathy (CTE). When viewed in light of the growing body of scientific evidence, cited by the Leeman complaint, showing the long-term dangers of concussions and sub-concussive blows to the mental health of players, fighting may no longer be seen as a way to protect hockey players from dangerous injuries. Instead, the calculus could shift and fighting may be seen as putting NHL players at a greater risk of long-term health problems than any high-stick or slash on the wrist could ever inflict.

If such a shift in opinion occurred, the NHL would be hard pressed not to remove fighting from the game. First, by allowing fighting with the knowledge that it puts players at a greater risk of long-term health problems, the NHL is asking for additional litigation from former players experiencing such health problems. Second, by allowing fighting even in the face of such evidence, the NHL could face an existential problem as middle class parents decide that hockey is no longer a sport that is safe enough for their children to play. A drop in youth participation not only poses a threat to the long-term quality of play, but may also decrease the fan base of the league as those youth players who would have gone on to be life-long hockey fans instead become baseball or basketball fans after spending their youth on a diamond or basketball court rather than the local ice rink.

With the increased understanding of brain injuries in sports, along with the high profile suicides of enforcers Wade Belak, Rick Rypien and Derek Boogaard, it is likely that a shift in the underlying assumption that justifies fighting in hockey, along with the general public’s attitude towards it, may occur. While the current debate over fighting has mostly seen the NHL occasionally tinker with the rules in an attempt to placate both sides of the debate, such an approach may no longer be enough to protect the NHL. The Leeman suit, along with any additional lawsuits the NHL faces for its treatment of the concussion issue, may lay bare the dangers of fighting and conclusively show that fighting’s continued acceptance as part of the game poses a threat to the long-term health of NHL players. Such a definitive finding, either in a court of law or the court of public opinion, would likely act as the tipping point that forces the NHL to ban fighting from the game once and for all.

Helpful Links:

Leeman complaint: http://melowens.com/wp-content/uploads/2013/11/NHL-Concussion-Litigation-Complaint-filed.pdf

Michael McCann: Analyzing Leeman v. NHL, the newest sports concussion lawsuit 10/25/2013 http://sportsillustrated.cnn.com/nhl/news/20131125/leeman-v-nhl-concussion-lawsuit-analysis/

Sean Mcindoe: Everything You Need to Know About the NHL Concussion Lawsuit 10/27/2013: http://grantland.com/features/the-nhl-concussion-lawsuit/

Eric Macramalla: Legal Look: The Concussion Lawsuit Against the NHL 11/26/2013:

http://www.tsn.ca/nhl/story/?id=437555