In 2018, the U.S. Supreme Court determined that the Professional and Amateur Sports Protection Act, which ultimately prohibited sports gambling in the United States, was unconstitutional. Murphy v. NCAA, 138 S. Ct. 146 (2018). SCOTUS held that PAPSA violated the anti-commandeering doctrine because PAPSA essentially dictated what state legislatures could and could not do. In the few years since Murphy, sports gambling has already been legalized by several states nationwide.
As suspected, in this short time frame new legal sports betting across the country has become a multibillion-dollar industry. Accordingly, states that have legalized sports gambling have enjoyed a significant increase in tax revenue. Legal wagers placed on Super Bowl LV within state lines alone made Illinois more than $1 million in tax revenue.
Rapidly growing industries are often subject to government regulation as a means to protect its citizens (i.e., consumers) from exploitation and predatory behavior. Accordingly, states that decided to legalize are solely responsible for regulating sports gambling that occurs in their states. This authority is first imposed when a state decides which sportsbooks it will allow to operate online or as brick-and-mortar within its borders.
In early March, an Illinois citizen filed a class action lawsuit against FanDuel Sportsbook, alleging that FanDuel is practicing unfair and deceptive trade practices. Melnick v. Betfair Interactive US, LLC, Docket No. 1:21-cv-01178 (N.D. Ill. March 2). These allegations, however, are not in reference to the traditional in-person pregame sports wagering system. Instead, the class-action derives from an allegation that FanDuel intentionally displays incorrect “live” game data with corresponding live lines and odds.
Live wagering is equally, if not more enticing, than traditional sports gambling for sportsbooks and betters. On the gambler’s side, some believe there are arbitrage opportunities to exploit, and others simply see it as another opportunity to win money. For the sportsbooks, live wagering simply means more opportunities for betting and with greater wagering volume comes more revenue. In the end, both sides are simply trying to gain an “edge.”
Nonetheless, similar to the infrastructure of the securities market, non-public information can undoubtedly be exploited for profit in sports gambling. However, getting a score update of a sporting event can be done by the average person in just seconds. These updates have become so refined and frequent that it almost feels like you are at the live event as you follow along on your device.
Sportsbooks like FanDuel were able to integrate this “live feeling” into their live betting feature. Specifically, FanDuel simplified the process by publishing and constantly updating live scores and times next to corresponding live lines and odds.
In the Melnick case, a FanDuel customer filed a complaint in the Northern District alleging that the company intentionally delays or inaccurately publishes live sporting event data. Accordingly, the complaint asserts that FanDuel has violated every relevant states’ consumer protection law.
Although every jurisdiction is unique, each state FanDuel conducts business in has a state statute prohibiting unfair or deceptive conduct in the course of business or trade. Although a specific number is not offered, the plaintiff alleges that FanDuel’s violations have caused hundreds of thousands of FanDuel members to lose millions of dollars throughout the country.
Generally speaking, to succeed on these various state law claims, the plaintiff must establish that FanDuel’s conduct was deceptive or unfair, and ultimately, that this conduct was the direct and proximate cause of the plaintiff’s alleged damages.
In support of his claims, the plaintiff included two screenshots deriving from a cellphone, which appear to portray different scores and times for a college basketball game; one of the screenshots demonstrates an increase in the total score as well as the time remaining. The total score and time remaining is critical for betting whether or not the final score (or score in a given period) will be more or less than a predetermined number set by the house (e.g. FanDuel), also known as betting the under or over. Although there appears to be a clear error in this single example offered as evidence by the plaintiff, it will likely be insufficient to establish a pattern of unfair and deceptive business practices, especially at the scale the plaintiff alleges.
There are a number of factors one can consider when determining which side of total score wager to place. Nonetheless, trends and statistics are nothing more than historical data that have no real effect on future outcomes.
Furthermore, the plaintiff here neglects to address the advantage FanDuel was simultaneously offering. For example, if the plaintiff was watching the live broadcast of the college basketball game while also accessing the FanDuel app, would he have quickly identified and exploited this discrepancy by instead placing an “over” wager on the total.
Although FanDuel may have a strong defense, it is likely in its best interest to settle the case, or at the very least, have its arbitration clause declared valid. This is because discovery for this case would be massive and could potentially lead to the unintended consequence of revealing trade secrets involving FanDuel’s live betting odds and lines algorithms.
This case demonstrates a real concern for sportsbooks that offer live odds as the house can essentially be put under a microscope for every bet placed, but with the amount of money wagered and commensurate profits for the sportsbooks, look for the house to continue fortifying and improving technology to avoid liability versus abandoning the marketplace.