What Is The Legality Of Fantasy Sports In The US?

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Thursday, April 23rd, 2015 | Written by Charles Washington

While the US Justice Department targeted and shut down the country’s major unregulated iPoker operators in 2011, fantasy sports websites have managed to avoid the strict scrutiny of law enforcement and has since grown to become a multi-billion dollar industry. Nevertheless, while fantasy sports players place real money wagers and receive cash payouts if their imaginary football, basketball, or baseball teams win, the sites themselves do not to use such words as “gambling” or “betting”, and go to great lengths to distance their enterprises from the legal definitions associated with internet gambling. Nonetheless, the nascent industry is still wary of any regulatory or legislative moves which could potentially curb their thriving business model.

Fantasy Sports and The UIGEA

When the Unlawful Internet Gambling Enforcement Act (UIGEA) was introduced in 2011, it included a special carveout allowing individual states to decide whether to permit fantasy sports. Although the UIGEA has since been reinterpreted to permit online poker, at the time fantasy sports was treated as separate to other games of chance, and as DraftKings VP of communications, Femi Wasserman, explains:

“The law included a carve out that clarified the legality of all fantasy sports. The real difference is that fantasy sports are a game of skill.”

That said, three conditions have to be satisfied in order for fantasy sports to be permitted, namely all prizes must be known in advance and not be determined by the number of people entering each draft; it must be a game of skill dependent on each individual’s athletes performance; and the outcome must not be tied to a real team’s result or point spread.

How It Works

Daily fantasy sports players put together a team from a roster of players, which then compete in a fantasy league, with the result determined over a single day’s games for a quick payout. Fantasy sports customers can wager anything upwards from $1 on almost any sport they like, and are able to scoop sometimes huge prizes, an example of which involved Boston resident Robert Gomes, who together with his brother bet $1,000 on a DraftKings competition, before winning a huge $1 million prize. As Gomes said of his life changing win:

“It’s definitely different than gambling. A lot of homework goes into it. When the market prices come out on DraftKings, I know all their values by Monday night. You’re constructing a team like a GM. It’s not like I’m just throwing money on the Patriots and hoping they win.”

Popularity Continues To Surge

In 2013, an incredible $160 billion was spent by US gamblers on illegal sports betting, with this group of people obviously presenting an enticing target for fantasy sports platforms. Over the past two years, U.S. professional sports leagues have subsequently changed their attitude from viewing fantasy sports as a coin flip, to promoting real money daily fantasy sports wagering, and dishing out advice during shows. As DraftKings’ Femi Wasserma explained a few months back, many teams from the NFL (football), MLB (baseball), NBA (basketball), and NHL (hockey) have recognized the popularity of fantasy sports amongst their fans and so have subsequently partnered with DraftKings to provide the most up-to-date and relevant information.

Is It Legal?

Major leagues partnering with daily fantasy sites, including DraftKings and FanDuel, has created an overall impression that fantasy sports betting is legal. However, being UIGEA exempt does not make the practice automatically lawful, and it must still comply with individual federal and state laws. As New York University Professor Marc Edelman wrote in his paper concerning the legal risks of daily fantasy sports:

“Indeed, there is no blanket immunity under federal or state law for “daily fantasy sports.” Rather, in all likelihood, the legal status of “daily fantasy sports” varies based on the nature of any specific contest’s game rules and where that particular contest operates.”

Five US states, for instance, have banned real money fantasy sports betting, including Arizona, Iowa, Louisiana, Montana and Washington, while the Fantasy Sports Trade Association has thus far unsuccessfully lobbied to have those state laws changed. As well as the legality of online gambling, these states have also expressed concerns over the potential for players to develop gambling problems. Finally, Rep. Jason Chaffetz (R-Utah) recently introduced the Restoration of America’s Wire Act (RAWA) to Congress hoping to restore the UIGEA to its earlier interpretation and ban all online gambling practices, but with fantasy sports enjoying such strong support from sports leagues, it seems highly unlikely that the thriving industry will be targeted anytime soon.