Olson May Offer Professional Sports Leagues a Shield Against Sports Betting Lawsuits

Sep 23, 2022

By Holt Hackney

When the United States Court of Appeals for the Second Circuit rendered its decision in Olson et al. v. Major League Baseball et al last spring, it provided some legal insights as to what the courts expect of professional sports leagues when it comes to ensuring integrity on the playing field.

The answer? Not much.

The panel of judges affirmed the lower court’s ruling dismissing the claim of a group of aggrieved plaintiffs (fantasy sport participants), who had alleged that MLB, and other defendants, had failed to properly address the infamous sign-stealing controversy as it occurred. This created “a dishonest” outcome, which the plaintiffs believed negatively impacted their paid participation in daily fantasy sports contests operated by non-party DraftKings, Inc.

Specifically, the plaintiffs claimed they thought they were engaging in “games of skill” based upon “a fair gauge of player performance.” Furthermore, the plaintiffs contended that the defendants “fraudulently concealed” that player statistics were “unreliable because of rule violations in the form of electronic sign-stealing by certain MLB teams during the 2017–2019 baseball seasons.”

The panel tipped its hand early on in the opinion, noting that “this action is nothing more than claims brought by disgruntled fantasy sports participants, unhappy with the effect that cheating in MLB games may have had on their level of success in fantasy sports contests.”

In sum, the panel stated that alleged misrepresentations or omissions by organizers and participants in major league sports about the competition itself—such as statements about performance, team strategy, or rules violations—do not give rise to plausible claims sounding in fraud or related legal theories brought by consumers of a fantasy sports competition who are utilizing a league’s player statistics.

The big flaw in the plaintiffs’ argument, according to the opinion, was that it failed to allege “actual or reasonable reliance upon the alleged fraudulent and negligent misrepresentations about player performance and electronic sign-stealing. Specifically, apart from actual reliance, no consumer of fantasy baseball competitions could plausibly allege that, in paying to participate in the competition, they reasonably relied upon these statements in believing that the sport of major league baseball was free from intentional violations of league rules by teams and/or individual players. Instead, any reasonable spectator or consumer of sports competitions—including participants in fantasy sports contests based upon such sporting events—is undoubtedly aware that cheating is, unfortunately, part of sports and is one of many unknown variables that can affect player performance and statistics on any given day, and over time.”

Peeking Under the Covers

One of the plaintiffs’ allegations was that MLB Commissioner, Rob Manfred, issued a statement in October 2015 that he was “quite convinced” that MLB DFS contests were a game of skill. The plaintiffs alleged, however, that the defendants’ “misrepresentations” about “electronic sign-stealing deprived fantasy baseball contestants of the ability to exercise their skill in selecting players,” according to the panel. Instead, it “converted the contests to being based on random chance.”

The panel disagreed with the plaintiffs and went on to suggest that MLB DFS players (and perhaps sports bettors by extension) must consider off the field issues (such as cheating or rules violations) as much as on the field performance, and that it all goes into the mix when they make a “skillful” decision.

“The skill in participating in an MLB DFS contest lies not in any assurances of on-field performance, but rather in choosing a lineup based on considerations of the innumerable, widely-known variables that could impact player performance, such as weather, injuries, umpiring, cheating, and many more,” wrote the panel. “Indeed, one could even argue that factoring in potential cheating or rules violations that could occur during the game itself could implicate a degree of additional skill by MLB DFS contest participants. Thus, any statements that can fairly be attributed to defendants about the fantasy baseball contests being ‘games of skill’ or ‘contests of skill’ are not rendered plausibly false due to the existence of rules violations, including electronic sign-stealing.”

The appeals court went on to cite “numerous other courts around the nation that have found that fraud and related claims brought by disappointed sports fans—whether about poor performance or rule violations—cannot survive a motion to dismiss.”

In re Pacquiao-Mayweather BoxingMatch Pay-Per-View Litig. (“Pacquiao”), 942 F.3d 1160, 1171–72 (9th Cir. 2019)(collecting cases); Mayer v. Belichick, 605 F.3d 223 , 230 (3d Cir. 2010); Bowers v.Fédération Internationale de l’Automobile, 489 F.3d 316 , 322, 325 (7th Cir. 2007); Oliverv. Houston Astros, LLC, No. 220-cv-00283, 2020 WL 1430382 , at *3 (D. Nev. Mar. 23,2020), aff’d, 2020 WL 2128656 (D. Nev. May 5, 2020); Le Mon v. Nat’l Football League,277 So. 3d 1166 , 1168 (La. 2019); Castillo v. Tyson, 701 N.Y.S.2d 423 , 423 (N.Y. App.Div. 2000).

In one particular case, the Pacquiao matter, the Court stated, “Although many of these cases addressed the limits of the contractual rights of ticketholders, several of these decisions dismissed fraud-related claims. They also more broadly rejected the ability of disappointed ticketholders to bring such claims based on alleged cheating or some other alleged deficiency in the competition itself, because any alleged reliance would be unreasonable as a matter of law.” See, e.g., Pacquiao, 942 F.3d at 1170 n.7; Mayer, 605 F.3d at 234–36; Bowers, 489 F.3d at 324; Castillo, 701 N.Y.S.2d at 423.

The panel continued: “We recognize that plaintiffs are not suing as ticketholders or pay-per-view fans, but rather as participants in a fantasy sports contest that uses real-game statistics. However, the analysis of these cases, especially as it relates to reasonable expectations regarding the competition itself, applies with equal—if not greater—force here because, as acknowledged at oral argument, plaintiffs are an additional step removed from the baseball game itself when compared to paying ticketholders or viewers. See also Oliver, 2020 WL 1430382 , at *3–4.

“In other words, just as a ticketholder should have no reasonable expectation that he or she will see a game that is free of poor performance or rule violations, a fantasy sports participant similarly should have no such expectation in utilizing the statistics from that game. See also id. at *2.”

Rejecting a Broad Duty to Disclose

The panel also agreed with the lower court, which rejected the plaintiffs’ misrepresentation by omission theory, or the idea that the plaintiffs would not have entered into the MLB DFS contests if the defendants had not concealed the sign-stealing schemes and the corruption of the statistics on which the MLB DFS contests were based.

“The plaintiffs seek to create a broad and all-encompassing duty that, in essence, would require defendants to disclose as a ‘basic fact’ anything that could affect the integrity of MLB players’ performance statistics. Such an expansive interpretation of the duty to disclose in this context, which is unsupported by any case authority, would open the courthouse doors to a wide range of claims that would require courts to draw unmanageable lines between types of undisclosed facts. Disappointed ticketholders, sports bettors, and others financially impacted (directly or indirectly) by the outcome of sporting events could sue over every type of undisclosed fact about teams and players, which plaintiffs could argue would have altered their decision to pay money in connection with the event.

“In Mayer, the Third Circuit noted the endless litigation that could result from requiring a duty to disclose in these situations and rejected such a requirement:

‘[T]here appear to be no real standards or criteria that a legal decision-maker may use to determine when a particular rule violation gives rise to an actionable claim or should instead be accepted as a usual and expected part of the game. At the very least, a ruling in favor of [plaintiff] could lead to other disappointed fans filing lawsuits because of “a blown call” that apparently caused their team to lose, or any number of allegedly improper acts committed by teams, coaches, players, referees and umpires, and others. This Court refuses to countenance a course of action that would only further burden already limited judicial resources and force professional sports organizations and related individuals to expend money, time, and resources to defend against such litigation.’ 605 F.3d at 237”

Olson et al. v. Major League Baseball et al.; Second Circuit; March 21, 2022; Nos. 20-1831-cv; 20-1841-cv.