Steve Ruddock CA tribes DFS house banked game

Up to this point, the California daily fantasy sports bill introduced by Assemblyman Adam Gray has sailed through the legislature, encountering little opposition in the assembly (the bill, AB 1437, passed the assembly by a 68-1 margin on January 27). Nor have the state’s many and dichotomous gaming interests voiced much displeasure with the bill… until now.

On February 10, the Sacramento Bee reported that the Morongo Band of Mission Indians and the San Manuel Band of Mission Indians had sent letters on February 5 to Assemblyman Adam Gray, voicing “concerns” with AB 1437.

Among the questions the tribal leaders put forth in the near identical letters were:

  1. Has anyone reached out to the attorney general to see if DFS is currently illegal, and if so has anyone discussed sanctions against current operators?
  2. Will licensed DFS operators contribute to the Horse Racing Fund?
  3. Will DFS operators be responsible for covering the cost of licensing and registration?
  4. Can the state provide adequate oversight to the industry?
  5. Are the requisite consumer protections in place, including setting aside funds for problem gambling initiatives?

However, nestled in between these fiscal and regulatory concerns cited by Morongo Chairman Robert Martin and San Manuel Chairwoman Lynn Valbuena, was another issue – an altogether intriguing, and potentially mortal issue for DFS in California: Does daily fantasy sports constitute a house banked game?

Is DFS a house banked game?

[toc]In the letters sent to Assemblyman Gray, the tribal leaders asked:

“If DFS operators set the award amount regardless of the number of participants and amounts wagered, wouldn’t that constitute a “banked” game, which is a violation of the California Constitution and the California Penal Code?”

The letter went on to say:

“Pursuant to the California Constitution, “banked games” were granted exclusively to California’s Indian tribes through a voter approved amendment to the state constitution. If DFS violates the Constitution’s prohibition against gaming of the sort found in Nevada casinos, it can be authorized only through a constitutional amendment approved by the state’s voters.”

At issue is the DFS industry’s insistence that prize pools are determined in advance, and that the number of actual entries has no bearing on the prizes awarded.

As Chris Grove first noted, this claim that the prize pools and entry fees are detached from one another creates a paradox for DFS operators. If entry fees are not the basis of the prize pool, as UIGEA requires, and as most DFS operators claim, that seems to imply the house is banking the game.

“Simply removing the fiction that player entries do not constitute the prize pool could sidestep the problem,” Grove suggests. “But doing so might cause problems in other states where the disconnection between the player entries and the prize pool is part of the legal scaffolding supporting daily fantasy sports.”

And this is only one of legal challenges DFS will have to deal with in California.

Pool-selling prohibitions

California’s gambling laws also contain a prohibition on what it terms pool-selling.

Gaming attorney Vincent Oliver (who knows California gaming law as well as anyone) has made it clear that he believes DFS is unequivocally illegal in California because it falls squarely in the pool-selling category.

“In California, DFS activity squarely and unequivocally falls squarely under 337a, in my opinion,” Oliver wrote in a column at LegalSportsReport.com.

In his column Oliver wrote:

“In California, Penal Code Section 337(a) is pretty explicit about what is called “pool selling.” Pool selling is offering a parimutuel pool; there need be no consideration element present to sustain a conviction. It is part of California’s bookmaking statute because it is distinguished from bookmaking, which is taking action on a bet itself.”

In their letters to Assemblyman Gray, the two tribal leaders raised the same issue:

“As you know, many Attorneys General across the country have concluded that DFS is in fact gambling. While California Attorney General Kamala Harris has yet to opine on the issue, the question still remains as to whether or not DFS is illegal in California.

Specifically, does DFS violate Article IV, Section 19 of the California Constitution or Penal Code Section 337 (a), and thus is the Legislature both prohibited from authorizing it and mandated to prohibit it?”

More calls for an omnibus approach

Interestingly, the two powerful tribes, both of which are aligned with PokerStars in California’s ongoing fight for online poker, also noted how the concerns surrounding both DFS and online poker share many similarities, and as such, could be handled together and turned into a “single iGaming measure.”

This is a shrewd move, as despite a near-decade-long effort to legalize online poker, DFS regulation seems to have far more momentum – momentum online poker proponents could perhaps hitch their wagon to and ride across the finish line.

Steve Ruddock
Steve Ruddock - Steve is one of the most recognizable names in the online poker media space. He brings his deep knowledge and equally deep well of opinions to his coverage at CaliforniaOnlinePoker.com.