'Strong' court challenges likely if IL blocks FanDuel, DraftKings from legal sports betting market: Report

By Jonathan Bilyk | May 17, 2019

Mark Hardie [CC BY 2.0 (https://creativecommons.org/licenses/by/2.0)]

The state of Illinois could face a swift constitutional legal challenge should it enact legislation to legalize sports betting that includes a provision designed to block online fantasy sports giants FanDuel and Draft Kings from the market, to benefit the state’s existing casinos, according to attorneys hired by one of the fantasy sports companies.

“…As the amendment’s proponents have made abundantly clear in their committee testimony, the purpose of the amendment is not to seriously assess the suitability of potential operators, but instead to exclude two specific competitors who are leading the market in other states,” the attorneys for the fantasy sports sites wrote. “We believe FanDuel and DraftKings could make a strong claim that this selective targeting of winners and losers is not permitted by the Illinois or U.S. Constitutions.”

The report, issued May 14, was authored by attorneys from the firm of Jenner & Block, of Chicago. The authors included Anton R. Valukas, a former U.S. Attorney for the Northern District of Illinois and former chairman of Jenner & Block; Ian H. Gershengorn, who served as Principal Deputy Solicitor General and Acting Solicitor General, under former President Barack Obama; Thomas J. Perrelli, who served as Associate U.S. Attorney General under Obama and now serves as chair of Jenner & Block’s Government Controversies and Public Policy Litigation Practice Group; and Clifford W. Berlow, a former Illinois Assistant Attorney General and is now a partner in Jenner & Block’s Appellate and Supreme Court Practice Group.

The attorneys said they had been hired by FanDuel “assess the constitutionality” of an amendment recently proposed by Illinois state lawmakers and strongly supported by the owner of Des Plaines’ Rivers Casino, which would essentially block FanDuel and Draft Kings from participating in Illinois’ sports betting market for three years.

Neil Bluhm   Rush Street Gaming

Beset by ever rising spending demands for state worker pensions, wages and health care, infrastructure, education and other costs, state lawmakers have this spring considered a host of new bills and proposals they say will raise revenue for the state. In addition to a proposal for placing before voters an amendment to Illinois’ constitution allowing the General Assembly to restructure the state’s income tax rates, lawmakers are also considering a proposal to legalize sports gambling in the state.

The U.S. Supreme Court opened the door to legalizing sports wagering in a 2018 decision striking down a federal law prohibiting sports betting outside of the state of Nevada.

Gov. JB Pritzker has estimated such legalized wagering could raise more than $200 million for state coffers.

Illinois state lawmakers are considering various proposals for legalization.

In that mix is a proposal, heavily backed by casinos, to reserve the field largely for those existing gambling interests through a so-called “bad actor” provision. The provision, offered as an amendment to House Bill 1260, on its face, states it would bar organizations which the Illinois Attorney General has previously identified as “having engaged in the crime of illegal gambling” from securing a state license to offer sports wagering for three years after sports gambling is legalized in Illinois.

However, FanDuel and Draft Kings say the legislation is a thinly veiled attempt to illegally block them from the market to give a head start to existing casinos in securing the local sports betting marketplace.

The legal question centers on an “advisory opinion” authored in 2015 by former Illinois Attorney General Lisa Madigan. In that opinion, written in response to an inquiry from Democratic former State Rep. Scott Drury, Madigan said she believed FanDuel and Draft Kings and other online fantasy sports like them, which allow fantasy sports players to win money on a daily or weekly basis, were gambling interests operating illegally in Illinois.

In response to that opinion, the fantasy sites filed suit, asking the courts to declare they were not illegal gambling operations. After years of litigation, the state and fantasy sports sites settled the matter without a ruling, allowing the sites the right to again sue the state should any authority use the Attorney General’s opinion to seek to prosecute them for illegal gambling.

In their report, the Jenner & Block attorneys noted no such prosecution has ever taken place in Illinois. Further, during the litigation, they noted Madigan’s office itself asserted the opinion was non-binding and “entirely without legal effect,” and thus “not reviewable” by a judge.

Yet now, the Jenner attorneys said, supporters of the “bad actors” amendment are attempting to use the 2015 non-binding Attorney General’s opinion to give the opinion the force of law, aimed squarely at two primary targets.

“In essence, (the amendment) would give legal effect to the Attorney General’s disputed advisory opinion after the fact and without judicial review, all to the benefit of and at the behest of particular in-state casinos,” the Jenner lawyers wrote.

The returns thus far from legalized sports betting in New Jersey show the local casinos could have cause for concern, should they be forced to compete squarely with FanDuel and DraftKings.

There, the fantasy sports sites have generated 82 percent of the $2 billion in sports gambling tax money raked in by the state of New Jersey in the first nine months after sports betting was legalized there. In response, Rush Street Interactive, the online gambling platform operated by billionaire casino operator Neil Bluhm, has rolled out its own sports betting app, hoping to gain traction there.

Observers expect Bluhm’s company to do the same thing in Illinois, should sports wagering be legalized here. Lobbyists hired by Bluhm’s companies in Illinois have been among the strongest and most vocal supporters of the “bad actors” amendment. Among those lobbyists is Paul Gaynor, an attorney who formerly served as chief of the public interest division in the Illinois Attorney General’s Office under Lisa Madigan.

The Jenner lawyers said the “bad actors” provision would make the sports betting legalization bill an “obviously discriminatory and unjust special-interest legislation … vulnerable to a range of constitutional challenges” under both the Illinois state and U.S. constitutions.

Specifically, the lawyers said the “bad actors” amendment would run afoul of:

  • The Illinois state constitution’s Special Legislation Clause, which prohibits state lawmakers from writing a law specifically designed to benefit one group, while excluding rivals engaged in the same activity. “Here the amendment would exclude FanDuel and DraftKings from obtaining a license that is available to their competitors, ostensibly because of a legally inconsequential Advisory Opinion,” they wrote.
  • The  constitutions’ Equal Protection Clauses. “The proposed amendment specifically and narrowly excludes two identifiable entities – FanDuel and DraftKings – from a right it grants to a larger class, purportedly based on the fact that they were the subject of the Advisory Opinion declaring their past conduct to be illegal,” the attorneys wrote. “… There is ample evidence that the true purposed of the statute is to protect local competitors, including Illinois casinos, against competition from FanDuel and DraftKings in the sports wagering market.”
  • Constitutional protections against punishment for criminal activity without a trial. “The proposed amendment categorically excludes FanDuel and DraftKings from the market based on an extra-judicial finding of guilt of the crime of gambling,” they wrote.
  • Constitutional rules requiring states to treat in-state and out-of-state businesses “on equal footing.” And,
  • The constitutions’ Due Process Clauses. “There is a strong argument that proposed amendment turns the constitutional requirement of due process on its head by requiring FanDuel and DraftKings to prove their innocence of criminal allegations if they wish to be licensed in Illinois,” the attorneys wrote. “Nothing strikes at basic notions of due process more than requiring the accused to prove their innocence.”
The lawyers noted supporters said they believe the amendment is constitutional under the state’s “police power.” Essentially, they said, supporters have said, because the state has the power to regulate gambling, it has broad power under the constitution to regulate regulated markets as it sees fit, and exclude entities it believes should be excluded.

But the attorneys said the question is not that simple.

“Constitutional constraints do not disappear because the State has taken action in a theater where its police powers are robust,” the Jenner attorneys wrote. “Were it otherwise, Illinois could ban only Capricorns from buying lottery tickets or require only Democrats to comply with traffic laws or prohibit only African-Americans from buying cigarettes or ban only Canadian nationals from owning pit bulls.

“Each of these rules, though ostensibly tethered to the State’s police power, would be stricken by any court as unconstitutional.”

The lawyers predicted the sports betting legislation would face similar stiff challenges in court, should the final bill include the amendment aimed at FanDuel and DraftKings.

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Organizations in this Story

Anton R. Valukas DraftKings Inc FanDuel Inc Illinois Attorney General Illinois General Assembly Jenner & Block LLP Thomas J. Perrelli

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