Illinois Sports Betting Bill Includes Bad Actor Clause for DFS Sites

Illinois Sports Betting Bill - H 3308

FanDuel and DraftKings would be banned from Illinois sports betting on allegations they were “bad actors” in the daily fantasy sports arena.

A proposed amendment to the Illinois sports betting bill could be a poison pill for daily fantasy sports operators like DraftKings and FanDuel. The bill now includes a “bad actor” clause which would ban the most prominent daily fantasy sports operators from operating sportsbooks.

Mike Zalewski, chairman of the House Revenue and Finance Committee, announced four amendments to have been attached to House Bill 3308 (H 3308). At the 11th hour, Representative Bob Rita added a fifth amendment, which turned out to be the bad actor clause.

In gaming laws, a “bad actor” is defined as an operator which accepted real money players at a time when a form of gaming was banned by a state. It is a punishment for anyone who collected untaxed revenues from Illinois residents in past years.

California is the state which made “bad actor” clauses famous in the United States gaming industry. Over a number of years, California online poker bills died in the legislature because of a bad actor clause that would ban PokerStars from California.

California Bad Actor Clause

In that case, California lawmakers wanted to ban PokerStars from the state because it accepted real money poker players at a time when the UIGEA made online card rooms illegal under federal law (2006-2011). PokerStars made millions of dollars flouting US federal laws, so it was to be banned in the legal and licensed gaming market.

One set of California tribal interests (Morongo Band) backed PokerStars and had a partnership deal with them, while a second group of tribes (Pechanga, Agua Caliente) supported the bad actor clause to eliminate PokerStars from the market. In the end, the two sides could not agree on a compromise and California never got legal online poker.

Illinois Bad Actor Clause

Bob Rita’s clause bans any company that operated in Illinois’ unregulated gaming market. Under those terms, DraftKings and FanDuel would be banned from the burgeoning Illinois sports betting market.

The two operators only got into the US sports betting market last year, when New Jersey launched its legal sportsbooks and allowed in-play sports betting apps in June 2018. DraftKings launched a sports betting app and signed a deal to operate Golden Nugget’s sportsbook.

FanDuel Banned from Illinois Sports Betting?

FanDuel, now owned by the UK-Irish bookmaker, Paddy Power-Betfair, also began accepting sports bets at Meadowlands Racetrack and launched its own sports betting app. FanDuel also provides gaming content for Betfair’s two television networks, TVG and TVG2.

If H 3308 goes through the legislation and its signed into law by Gov. J.B. Pritzker, though, neither FanDuel or DraftKings — which between them command 95% of the US daily fantasy sports market — will be able to accept Illinois sports bettors.

Lisa Madigan’s Ban on DFS

The bad actor clause in Illinois refers back to the DFS sites’ operations in 2015 to the present. In 2015, former Illinois Attorney General Lisa Madigan announced that daily fantasy sports was an illegal form of gambling and called on all DFS operators to stop accepting real money play from Illinois residents.

At the time, DraftKings and FanDuel were in the midst of a months-long controversy with New York Attorney General Eric Schneiderman over gaming operations there. New York state represented a full 10% of the DFS companies’ American revenue streams and they could ill-afford to cut off operations in another heavily-populated US state.

Thus, the two operators defied Lisa Madigan’s order and continued to accept Illinois players. The Illinois Department of Justice took no actions against DraftKings and FanDuel, but it was duly noted by their lawmakers.

Daily Fantasy Sports Sites’ Arguments

From the time FanDuel began operations in 2009 until the U.S. Supreme Court repealed the Professional and Amateur Sports Protection Act (PASPA) in 2018, daily fantasy sports sites like FanDuel and DraftKings argued they were not illegal gambling — but instead protected “gaming” sites. They accepted real money play from fantasy sports gamers — a 10% rake to organize games between individuals — but claimed those games were not betting.

Instead, they argued that daily fantasy sports is a game of skill instead of a game of chance. To back up that claim, they showed that grinders (professional players backed by stats and algorithms) won about 89% to 91% of all DFS prize money. If DFS wasn’t a game of skill, grinders could never dominate the prize pools against a horde of casual players (see: professional poker).

To further their claims, DFS executives like Nigel Eccles and Jason Robins pointed to the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA), which left a carveout for fantasy sports. That was true, but “daily” fantasy sports did not exist when the UIGEA was passed in 2006 — only traditional yearly fantasy sports leagues did. Critics of FanDuel and DraftKings pointed out they were citing a law that was never meant for them.

FanDuel and DraftKings: New Jersey Sportsbooks

The argument worked (for the most part) down until May 14, 2018, when the Supreme Court repealed the federal sports betting ban. Then it became convenient and more profitable for DraftKings and FanDuel to become sports betting operators, so the pretense that DFS gaming wasn’t sports betting went out the window. They applied for and received sports betting licenses in New Jersey, thus ending the pretense they were anything but anywhere else.

Now it appears the Illinois state legislature is going to challenge the daily fantasy sports companies on their claims. It should be interesting to see how their lawyers answer that challenge.