The Nature of Daily Fantasy Sports

The saga is just beginning: we've already reported that the California AG is set to release its opinion on DFS in the state, which may make it illegal - and now, we've just learned that Underdog has sued the Attorney General in order to stop the AG from releasing its opinion on Daily Fantasy Sports.

Daily fantasy sports operator Underdog has filed an emergency lawsuit to stop California Attorney General Rob Bonta from issuing a legal opinion that could significantly impact the fantasy sports market in the state.

Filed Monday in the Sacramento Superior Court, the lawsuit argues that the attorney general lacks the legal authority to issue such an opinion and warns that doing so could cause 'irreparable harm' to the company. The anticipated opinion is expected to declare daily fantasy sports illegal under California law - a move that Underdog says would not only destroy its own operations but also upend an industry that has operated in the state for decades.

Underdog warns of 'imminent irreparable harm'

In a memorandum supporting its request for a temporary restraining order or TRO, Underdog said it was blindsided by the impending release of Bonta's opinion. The company notes that approximately 10% of its overall business is tied to California customers.

"Without this Court's immediate intervention, this unlawful gambit may succeed," the memorandum states. "Underdog faces imminent irreparable harm - from fleeing customers, risk-averse banks and payment processors, and the loss of investment and goodwill - if the Attorney General issues the opinion as planned."

The company is seeking the TRO to preserve what it describes as the long-standing status quo for DFS in California, pending further court review.

Challenging the Attorney General's authority

At the heart of the lawsuit is Underdog's contention that the attorney general has no authority to weigh in on the legality of DFS through this type of opinion. The company asserts that such legal opinions are limited to questions of law directly tied to the responsibilities of the officials requesting them.

"Absent relief from this Court, Attorney General Rob Bonta will issue an opinion later this week that will decimate fantasy sports in California," the filing reads. "Attorney General Bonta should be enjoined from doing so, not because he is wrong in his views on the legality of fantasy sports - though he certainly is - but because...he lacks authority to issue the opinion."

Underdog contends that neither of the statutory requirements are satisfied in this case, and therefore the AG's office is overstepping its bounds.

Pressure campaign alleged

In a supporting declaration, Underdog attorney David Gringer of Wilmer Cutler Pickering Hale and Dorr LLP claimed that the AG's office is using the forthcoming opinion to apply pressure on DFS companies to exit the state voluntarily. According to Gringer, a representative of the AG's office indicated that the goal was to follow the playbook of Texas Attorney General Ken Paxton, whose 2016 opinion led one major DFS company to cease operations in that state.

"The representative stated that...the goal of the Attorney General's office would be to use the threat of an enforcement action... to pressure Underdog into agreeing to leave California entirely," Gringer's declaration reads.

Citing California's legal guidelines

Gringer also questioned the internal guidelines used by the AG's office in deciding when to issue opinions. According to state law (Section 12519), the attorney general may only issue formal legal opinions at the request of certain state officials - and only when the questions pertain to the duties of their respective offices.

When asked about these limits, the AG's office reportedly claimed that it was obligated to answer all questions posed by legislators, regardless of context. But Gringer pushed back, including a reference to the AG office's own published guidelines that contradict such an interpretation.

The attorney general's office has not publicly responded to the lawsuit, but a formal legal opinion is still expected by the end of the week. If issued, the opinion could lead to widespread disruption in California's thriving DFS sector.

California may soon make all fantasy sports illegal, as confirmed by several sources. In a statement, the Coalition of Fantasy Sports, which includes such platforms as PrizePicks, Betr, Splash Sports, Underdog Fantasy, and Dabble, have deemed the prospective change devastating to millions of DFS fans in California.

Rob Bonta, the Attorney General of California, is on the brink of issuing a legal opinion that could deem online fantasy sports illegal in the state, according to multiple sources. The decision, expected in the coming days, may fundamentally alter the future of fantasy sports in California and put at risk billions of dollars in business funds.

Bonta's office has remained silent on the matter, refusing to comment publicly as of Wednesday last week. However, sources familiar with the opinion say it will provide detailed reasoning and legal grounding for the anticipated conclusion that online fantasy contests constitute illegal gambling under current California law.

Fantasy sports industry reacts with alarm

The Coalition for Fantasy Sports - comprising platforms such as PrizePicks, Betr, Splash Sports, Underdog Fantasy, and Dabble - issued a statement calling the expected opinion 'devastating' for millions of Californians who have engaged in daily fantasy sports for over a decade.

"We hope the Attorney General's office will consider the views of sports fans across the state before making a decision," a coalition spokesperson said. "Californians have been playing daily fantasy sports games for more than a decade, and it is shocking to think that the state would suddenly take them away."

The platforms typically allow users to enter paid contests and compete for prizes based on the real-life performance of selected athletes - an activity that has long occupied a legal gray area in California.

Tribal leaders urge compliance with state law

Meanwhile, Bonta's pending opinion is being closely monitored by California's tribal gaming interests. On Monday, the Tribal Alliance of Sovereign Indian Nations and the California Nations of Indian Gaming Association urged lawmakers to withhold action on any proposed legislation regarding fantasy sports until the Attorney General's opinion is released.

James Siva, CNIGA Chairman, praised the anticipated move. "Illegal and unregulated gaming has been a problem in California for decades," Siva said in a statement. "These illegal practices deny consumers real protections and safeguards against illicit practices such as fraud and underage gambling. We are glad to see Attorney General Bonta address the issue and look forward to lawbreakers being held to account."

Years in the making: legal opinion rooted in longstanding concerns

The legal question of whether fantasy sports constitute a 'game of skill' or a 'game of chance' - the latter being generally illegal in the state without proper licensing - has simmered for years. In 2023, then-State Senator Scott Wilk requested clarity from the Department of Justice, stating that participants have no control over how athletes perform, which may render fantasy sports gambling under California law.

"Daily fantasy sports appears to be a game of chance not otherwise permitted by the laws of California," wrote Wilk in his request. After Wilk's term ended, Assemblyman Tom Lackey took up the cause, pushing for a legal opinion to clarify the issue.

Lackey said that while he hasn't seen the final opinion, he's been in contact with the DOJ to ensure public sentiment was acknowledged. "I was very interested in making sure that the people and their opinion was at least acknowledged," he said. "I think it's credible. I think it's important that (Bonta) is responding."

Legal showdown on the horizon

As California waits for Bonta's final determination, legal experts anticipate the issue may ultimately be settled in court. Chris Micheli, adjunct professor at McGeorge School of Law and lobbyist, said, "If there are any alleged activities that violate the law, we would expect a lawsuit to be filed by the attorney general. Ultimately, a court will decide if the AG's opinion is the right one, but courts in California give a fair amount of deference to the Attorney General."

Meanwhile, the potential crackdown is raising eyebrows among members of the public and media personalities alike. Carmichael Dave, a Sacramento-based radio host, questioned the logic of banning fantasy sports while allowing other forms of financial risk-taking. "Why can I bet on the latest crypto scheme or my life savings on stock apps," he asked, "but I can't bet on whether the Giants or the Niners or the Kings are going to win a ball game?"

The California DOJ is expected to release Bonta's legal opinion by July 3.

Underdog Fantasy is back in the Big Apple. Two months after the DFS games provider pulled out its daily fantasy sports games in New York, it has once again launched its draft-style games, and the DFS games are now included in the new terms of the company's license in the state.

Underdog Fantasy has officially relaunched its draft-style daily fantasy sports (DFS) games in New York, just two months after a regulatory dispute forced the company to pull out of the state. The company announced the return of its draft contests, confirming that these games are now operating under the terms of its temporary DFS license.

While the return is a significant development for New York fantasy sports enthusiasts, it comes with limitations. Notably, Underdog's popular pick'em contests - both the peer-to-peer (P2P) and against-the-house formats - remain unavailable in the state for now.

Regulatory setback and exit

Underdog Fantasy's brief exit from New York in mid-March was prompted by a ruling from the NYSGC, or New York State Gaming Commission. The commission determined that the DFS products Underdog had been offering were not explicitly covered under its temporary license, which the company had inherited from Synkt Games following its acquisition of the business in 2022.

In response to the NYSGC's decision, Underdog withdrew all DFS contests from the state and agreed to a settlement that included an $18 million payment. The NYSGC maintained that the contests offered by Underdog significantly differed from those Synkt had originally applied to operate under its 2016 licensure agreement.

Push for a permanent license

New York has long relied on temporary DFS licenses, but the state is finally moving toward establishing a permanent licensing framework for fantasy sports operators. Underdog has confirmed that it has applied for a permanent DFS license, signaling its intent to solidify its long-term presence in one of the country's largest markets.

Underdog Fantasy's return to New York coincides with a major financial milestone for the company. The operator recently closed the first round of its Series C funding, raising $70 million and bringing its pre-money valuation to over $1.2 billion. The funding round, led by Spark Capital, is expected to eventually surpass $100 million.

The substantial increase in valuation marks a nearly threefold rise from the company's Series B valuation of $485 million in 2022. Jeremy Levine, Chief Executive Officer and founder, described the investment as “a real accelerator” for the company's product development and expansion plans.

This funding will help us continue building the best sports gaming products for fans in the US, Levine said. It also gives us the ability to bring top-tier talent into our team to support that mission, he added.

Expansion and strategic moves

Begun in 2020, Underdog Fantasy has grown rapidly, boasting nearly four million users across the US. The company claims to be the fourth most downloaded sports gaming app nationwide, operating at the intersection of fantasy sports and sports betting.

Following its exit from New York in March, Underdog launched its Champions Pick'em peer-to-peer product in neighboring Delaware and New Jersey. The company also offers sports betting in select markets and is eyeing further expansion. Notably, Levine has expressed interest in entering Missouri when its sports betting market launches on December 1.

The return of Underdog's draft games in New York marks a key step in the company's efforts to reestablish itself in a critical DFS market. As the regulatory environment evolves and the state works toward a permanent licensing system, Underdog is positioning itself to be a long-term player in New York and beyond. For now, New York sports fans can once again engage with Underdog's unique draft-style contests, while the company continues to push for broader access and regulatory approval for its full suite of fantasy products.