A federal judge rejected an dubious legal argument made by a former Las Vegas daily fantasy sports company, which argued that its business was illegal. The company, Emil Interactive Games LLC, made the argument in order to get out of a $1.1 million contract with a hocket team.
Emil Interactive Gamaes had a $1.1 million sponsorship and advertising contract with the NHL's Minnesota Wild franchise. The partnership deal, which was signed in September 2015, involved ads for the DraftOps fantasy sports game, which is owned by Emil Interactive.
The Minnesota Wild Sued Ronald Doumani
The Minnesota Wild filed their grievance in May 2016, claiming Emil Interactive never paid the Wild the money they owed. The Wild said they never saw a dime of the $1.1 million contract, despite advertising for DraftOps. The Wild called for Emil Interactive to pay $1.1 million, plus about $50 thousand in damages (calculated as 1.5% interest on the contract per month).
Las Vegas businessman Ronald Doumani and Full Boat LLC, the manager of Emil Interactive, were named in the lawsuit. In June 2016, Emil's lawyers file a motion which stated, "Engaging in online (daily fantasy sports) in the state of Minnesota is a crime, rendering any contracts for the promotion thereof void."
Judge Wilhelmina Wright Decides
The legal world had been watching the lawsuit, because of the rather novel approach Emil's legal team took to the dispute. U.S District Judge Wilhelmina Wright rejected Emil's arguments, saying the question of whether daily fantasy sports is legal or not in Minnesota is not pertinent to the contract signed.
Judge Wright's decision allowed her to dodge the need to rule on whether DFS gaming is legal in Minnesota. That would have left the decision in serious jeopardy of an overturn in appellate court, because the judge would have been determining the legality of Minnesota DFS gaming from a bench in Las Vegas.
What Is Daily Fantasy Sports?
Daily fantasy sports is an online version of traditional fantasy sports which is played for real money. Traditional fantasy sports allows a group of owners to build teams of individual players from a single sport, such as the NFL, NBA, or Major League Baseball. These players individual statistics are converted into fantasy points using a scoring system agreed-upon by the various members of the league (team owners).
Usually, fantasy sports is played for real money, but the wager takes place over the course of an entire league's season. Since the wagers are usually for small sums of money on a yearly basis, the American justice system tends to overlook the betting. Because 50 million Americans gamble on fantasy sports every year, even the 2006 UIGEA law created a carveout for fantasy sports.
DraftKings, FanDuel, and the UIGEA
Daily fantasy sports companies like DraftKings and FanDuel used that exemption to create their own industry. DFS companies hosted one-day fantasy competitions on their websites, allowing players from all over the country (or all over the world) to compete against one another. DraftKings and FanDuel were not involved in the competition, but took a 10% fee for organizing and officiating the games.
To be technically legal, the companies insisted that daily fantasy sports contests involved more than one single game and players on more than one team. For years, the DFS sites claimed those stipulations made their contests legal under the terms of the UIGEA law. That seemed to be the case, until October 2015, when a scandal rocked the industry. State attorney generals and gaming councils, as well as U.S. federal prosecutors, began to look more closely into the activity.
State Attorney Generals Banned DFS Gaming
Since then, attorney generals in New York, Illinois, Texas, Nevada, Michigan, and several other states said daily fantasy sports was illegal. Most of those states, besides New York, argued that traditional fantasy sports was legal. Meanwhile, state legislatures in Massachusetts, New Jersey, Tennessee, Indiana, and several other states legalized and regulated daily fantasy sports. (New York's legislature followed suit in August 2016.)
Sports Betting Laws in Minnesota
Minnesota is one of those states in which daily fantasy sports operates in a gray area. The state attorney general has not banned the activity, but the legislature has not legalized and regulated it. Thus, a court decision by Wilhelmina Wright ruling on its legality in Minnesota would have been the first official decision on the matter. Federal officials tend to let state officials decide such matters, unless the federal government has a set policy on the matter.
Contract Signed a Month before DFS Industry Collapse
The September 2015 time table for the deal between Emil Interactive and the Minnesota Wild is important. That would have been one month before the Ethan Haskell scandal rocked the daily fantasy sports world. At the time in September 2015, DFS appeared to be an industry on an inevitable climb to prominence. DraftKings and FanDuel had enough investors they had recently become billion-dollar companies, while second-tier businesses like DraftOps had money to invest in NHL sponsorship deals.
A month after the Emil/Wild contract was signed, the entire business model changed. DraftSharks and FanDuel became locked in a 50-state struggle for legality, with several lobbying efforts and legal battles draining their funds. DraftOps and other companies saw their signups start to collapse, as American sports enthusiasts were not as sure whether their gaming was legal.
