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Second Circuit Rules on Fantasy Sports 'Game of Skill' Controversy
Sports fans have enjoyed playing competitive games of fantasy sports for many years. In 2012, DraftKings was founded to serve these fans by operating daily and weekly fantasy sports contests on its website and mobile apps. One of its popular competitions is fantasy baseball, where baseball fans enter daily sports competitions with their own roster of major league players. To participate in these games the fans pay an initial fee to DraftKings. The participants accumulate fantasy points based on the performance of their lineup of players in real world games during a particular game or week. At the end of the contest, the fantasy player with the most accumulated points wins a cash prize. These fantasy competitions are defined as "games of skill" to avoid federal prohibitions against Internet gambling, Unlawful Internet Gambling Enforcement Act, 31 U.S.C. §5361 et seq. (https://bit.ly/36vsfTu).
Within a year of DraftKings' founding, Major League Baseball (MLB) acquired an equity stake in DraftKings. In 2015, MLB added to its investment and created a business partnership to promote the MLB teams. This partnership included a license so that DraftKings could offer co-branding, in-ballpark experiences, and use of MLB team logos. Under its licensing agreement with DraftKings, MLB became "directly and substantially involved in every aspect of the commercial venture." In return for the licensing rights MLB received a share of DraftKings' revenues.
During the 2017 to 2019 baseball seasons, allegations were made that individual baseball clubs were engaged in electronic "sign stealing." As baseball fans know, the pitcher and catcher communicate using a series of hand signals to communicate the type of pitch the catcher wants to be thrown. However, if a batter knows which pitch will be thrown in advance, the batter is more likely to successfully hit the ball. While teams' efforts to decipher the hand signals given by catcher are as old as the game, the use of electronic means to aid in this form of cheating is banned by MLB rules.
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