The change follows a July legal opinion issued by California Attorney General (AG) Rob Bonta, which deemed DFS illegal in the state. Although the opinion does not change the law, it signals increased scrutiny and potential enforcement risks for DFS operators.

The switch by Underdog is not surprising. Rival PrizePicks made a similar transition in anticipation of Bonta’s decision. The two companies, along with other DFS operators, have made changes to the formats in various states under regulatory scrutiny regarding player-vs-house DFS.

How’s “Champions” Different Than Pick ‘Em?

The most significant difference between the two formats is the user’s opponent.

In Pick ‘Em, players compete against the house by predicting over/under outcomes on individual player stats. For example, whether Patrick Mahomes will throw over or under 300 yards.

The house determines Pick ‘Em contest odds. Winnings are based on fixed multipliers, which depend on the number of correct picks. For example, two correct picks award a 3x multiplier, while eight correct picks result in the player winning 120 times their stake.

There are also additional options, such as Flex picks (which offer lower payouts but allow for missing a pick) and “Rivals,” where users select which of two athletes will outperform the other.

In contrast, in the “Champions” format, users compete against each other in a pool. The entire funding comes from entry fees. Participants create a roster of 2-8 athletes and predict whether each athlete will perform higher or lower than a benchmark statistic.

Correct stat predictions earn Champions Points, and the entry with the most points wins. The amount each participant wins depends on their performance compared to their peers.

As the Champions format removes the house as a participant, it could offer a stronger legal defense in states like California, where playing against the house is classified as illegal gambling.

It’s the same legal rationale behind the cardrooms in the state employing third-party dealers, known as Third-Party Proposition Player Services, something Bonta wants to change.

DFS’ Uncertain Status in California

The Attorney General’s opinion does not change the law in California. It serves as an advisory interpretation of the law, intended to guide lawmakers and enforcement agencies.

For DFS to be classified as illegal, lawmakers must pass a new law or the courts must intervene. Still, some observers note that California courts traditionally side with the Attorney General’s legal opinions.

Until a regulatory or legislative change occurs, DFS platforms will likely continue operating in California.

Bonta is not the first AG to grapple with the legality of DFS. In 2016, attorneys general in Hawaii, Alabama, and Texas declared DFS illegal under their respective state laws. However, the response varied.

Hawaii has remained off-limits for anything gambling-related, including daily fantasy. In Alabama, PrizePicks continues to offer Pick ‘Em, while Underdog has switched to the Champions format. Meanwhile, multiple platforms, including Underdog and PrizePicks, offer Pick ‘Em in Texas.

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At the same time, rival PrizePicks has already pivoted to a peer-to-peer model in anticipation of this shift.

California Attorney General (AG) Rob Bonta is expected to issue a long-awaited legal opinion on DFS legality as soon as today. The opinion, although technically advisory, is likely to have a significant ripple effect on operators and potentially reshape the state’s multibillion-dollar DFS market.

Underdog Challenged Bonta’s Upcoming Decision

Underdog Fantasy, one of the biggest DFS operators in the country, filed a lawsuit on June 30. It asked the courts to block Bonta from issuing the opinion.

The operator argued that DFS contests are games of skill, not chance (which constitutes gambling).

The company also questioned Bonta’s authority to issue such an opinion. It pointed out that the opinion would be a response to a request made by Sen. Scott Wilk, who is no longer in office.

Furthermore, Underdog claimed that a potential DFS ban would only serve to benefit native tribes. The tribes, which have exclusivity over legal gambling in California, have long argued that unregulated sectors, such as fantasy sports, are illegal gambling.

Court Denies Underdog’s Lawsuit

On July 2, Sacramento County Superior Court Judge Jennifer Rockwell denied Underdog’s motion for a temporary restraining order.

One of the reasons Judge Rockwell refused to block Bonta’s upcoming opinion was that Underdog did not demonstrate that the opinion would cause them immediate, irreparable harm.

Additionally, the judge noted that since Sen. Wilk made the request in October 2023. That means Underdog had over a year and a half to challenge it. The delay weakened the operator’s argument for emergency relief.

Rockwell also emphasized that the AG’s opinion does not change the laws:

“Further, the Attorney General’s issuance of an opinion of pursuant to Government Code section 12519 does not effect any change in the law,” citing case law stating that “the opinions of the California Attorney General are advisory only and do not carry the weight of law.”

As a result, Rockwell concluded:

“Accordingly, Petitioners have not established that they will suffer any harm as a result of the issuance of Opinion No. 23-1001. The Ex Parte Application is denied. No hearing will be held.”

It remains unclear whether Underdog will appeal the decision.

PrizePicks Changes Offerings in California

Underdog’s rival, PrizePicks, took a different approach in anticipation of Bonta’s anticipated opinion.

The company changed its product format in California, discontinuing the popular against-the-house Pick ‘Em games on June 30. It now offers only its peer-to-peer “Arena” contests in the state.

In both formats, users select performance projections for two to six players. For example, if a quarterback will throw over a certain number of yards. The difference is that in the now-discontinued format, users play against the house, which determines the odds and payouts.

Meanwhile, in the “Arena” peer-to-peer, the odds and payouts are determined by each user’s performance relative to the other players in the pool, similar to traditional fantasy contest leaderboards. The prize pool is distributed among the top finishers.

PrizePicks’ pivot is not unprecedented. The company introduced peer-to-peer contests as a response to regulatory scrutiny in several states over the past few years.

As a similar scenario is unfolding in California, PrizePicks is likely aiming to position itself on firmer legal ground. California is the largest DFS market in the US, making the stakes particularly high.

In its lawsuit, Underdog Fantasy stated that the state accounts for approximately 10% of its revenue. That suggests that PrizePicks may face a similar level of exposure.

If California were to ban DFS, it would result in severe financial consequences for PrizePicks, Underdog, and other operators, such as DraftKings and FanDuel.

AG’s Opinion Could Come Today

Bonta’s office has not confirmed when he will release his opinion. Still, Sacramento news outlet KCRA 3, which first broke the news, claims multiple sources have indicated the AG would deliver it by today.

When Underdog filed its lawsuit, some speculated that it might delay Bonta’s decision. However, with Judge Rockwell denying the lawsuit, it now appears to remain on schedule.

Still, if Underdog files an appeal, it could mean additional delays.

It’s important to note that, as the judge emphasized, Bonta’s legal opinion does not change the law.

Still, McGeorge School of Law adjunct professor Chris Micheli notes that California courts traditionally grant “a fair amount of deference” to the Attorney General’s legal opinions. That means they can strongly influence future enforcement and policy decisions.

The post California AG DFS Ban Opinion Expected Today as Court Blocks Underdog’s Challenge; PrizePicks Quickly Adapts appeared first on CasinoBeats.

The company argues that DFS contests are games of skill; therefore, they are legal in California. It also claims Bonta is overreaching his legal authority by attempting to issue a statewide ban.

Underdog also claims that prohibition would not protect consumers. Instead, it would serve the interests of California native tribes, who seek to eliminate competition.

The operator warns that banning DFS would result in severe financial consequences for the company and the state. Meanwhile, it would deprive millions of California players of a game that has been around for decades.

While unconfirmed, multiple sources expect that Bonta will deliver his opinion by July 3.

Underdog Argues DFS Are Games of Skill

The operator emphasizes that DFS contests rely on skill, not chance. According to the lawsuit, participants’ skills influence their success in DFS. They include their ability to analyze player statistics, matchups, and other factors.

Underdog claims that participants who utilize those factors and build the most competitive roster are similar to a general manager in traditional sports.

The company further claims that DFS participants do not wager on the outcome of a single event. Instead, they create lineups of athletes from different teams, with points awarded based on the combined performance of these athletes over time, rather than in a single game.

The plaintiff supports its position by citing an Illinois Supreme Court case (Dew-Becker v. Wu), in which it ruled that DFS contests are predominantly determined by skill. The court rejected the state’s Attorney General’s opinion that DFS is illegal gambling.

Moreover, Underdog cites studies by statistical and economic experts. The studies concluded that DFS outcomes depend on the contestant’s skill in assembling the best fantasy roster.

AG Lacks Authority, Says Underdog

One of the central arguments of the DFS operator lawsuit is that Bonta lacks the legal authority to issue an opinion on a DFS ban.

Underdog asserts that the AG’s role does not involve making determinations that lead to new regulatory decisions. Instead, it only provides legal interpretations to current state officials on “any question of law relating to their respective offices.”

The plaintiff points out that the original request for Bonta’s opinion was by former Senator Scott Wilk, who is no longer in office. That, the company says, further invalidates Bonta’s authority to act.

Underdog emphasizes that determining whether DFS violates California law requires extensive fact-finding. That includes analyzing whether skill outweighs chance in contest outcomes, which goes beyond a straightforward legal interpretation:

“Ultimately, the Attorney General cannot determine whether DFS contests are prohibited under California law without some consideration and ascertainment of the relevant facts. In other words, at the core of the requested opinion, the Attorney General is being asked ‘whether the facts satisfy the [relevant legal] standard,’ which is not a purely legal question.”

Moreover, the lawsuit highlights that several previous attorney generals, including former Vice President Kamala Harris, declined to issue opinions on the legality of DFS, acknowledging the need for legislative or judicial resolution.

Underdog Claims a Ban Would Only Benefit Tribes

Underdog claims the ban would primarily benefit California’s tribal gaming industry rather than protecting consumers:

“The opinion, which Bonta’s predecessors declined to issue, will satisfy only one constituency, a small handful of the powerful tribes that maintain a monopoly on gaming in the State. On information and belief, the tribes have met numerous times with Attorney General Bonta and his representatives and lobbied for the opinion to be issued.”

Underdog further emphasizes that former Senator Scott Wilk made the original request prompting this opinion. The company claims Wilk “has notably been a supporter of tribal gaming-backed initiatives in the past.”

California’s tribal groups have historically sought regulatory interventions to eliminate competition from DFS operators and cardrooms, arguing that these entities infringe on the tribes’ exclusivity under their gaming compacts.

Moreover, Bonta is also facing backlash due to his recent proposals targeting California’s cardroom industry. The AG argues the changes aim to redefine operational rules for cardrooms. However, opponents claim they will have a detrimental effect on municipal budgets. They say that the changes will also result in the loss of thousands of jobs.

Critics of these changes echo Underdog’s argument that Bonta’s actions are a regulatory overreach.

In contrast, organizations representing California tribes, such as the California Nations Indian Gaming Association (CNIGA) and the Tribal Alliance of Sovereign Indian Nations (TASIN), have publicly supported the Attorney General’s move to ban DFS.

Tribal representatives maintain that the opinion is crucial to addressing what they call “illegal and unregulated gaming.”

Economic Consequences and Broader Impact

Underdog warns that a DFS ban in California would result in severe economic consequences for the company and the state’s broader gaming market. The company claims that 10% of its revenue comes from California. A potential ban would cause immediate and lasting financial harm.

“Specifically, the issuance of the opinion would severely and irreparably impair Underdog’s relationships with service providers, business partners, and investors, both in California and nationally. It would also cause many of Underdog’s customers in California to withdraw money from their accounts and irreparably damage the Company’s reputation and goodwill among its customers in the State. None of these harms would be compensable through monetary damages.”

Underdog also warns that a ban could trigger widespread job losses and shutter legitimate businesses, further harming California’s economy.

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