The legality of daily fantasy sports betting in the US

Published 15 July 2015 | Authored by: Andrew Visnovsky

Since 1919, when the then-heavily favored Chicago White Sox intentionally lost the World Series, sport gambling and sport betting have been at the forefront of the national sports conversation.1 The event ultimate led to the Professional and Amateur Sports Protection Act of 1992 (the “Bradley Act”),2 which effectively bans sports gambling in the United States.

However, using an exemption in the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA),3 numerous businesses have created a legal alternative for American sports gambling in the form of daily fantasy sports.

This article examines the background to the daily fantasy betting industry, and describes how the practice is categorized under US law.

 

History of Gambling Regulation in the United States

The United States has a long history of gambling regulation. Congress passed the Anti-Lottery Act in 1890 prohibiting the transport of lottery-related materials across state lines.4 In 1961 Congress passed the Wire Act, and the Travel Act, which prohibited individuals to send or receive bets or gambling information, either via phone (over wires), any form of travel, or mail.5 Congress passed the Bribery in Sporting Contests Act in 1964, which criminalized bribing or attempting to bribe someone to influencing the outcome of a sporting event.6 As well, Congress passed the Illegal Gambling Business Act (IGBA) in 1970.7 Under the IGBA, conducting a gambling business that is deemed “unlawful” by state law is subject to federal criminal prosecution.8

The Bradley Act

Congress passed the Bradley Act in 1992 with three goals in mind:

(1) stop the spread of state-sanctioned or state-run sports gambling, (2) maintain sport’s integrity, and (3) reduce the promotion of sports gambling among America’s youth.9

The Bradley act came after states began to consider legalized sports betting to increase tax revenue.10

The Bradley Act makes it illegal for:

"(1) a governmental entity to sponsor, operate, advertise, promote, license, or authorize by law or compact,

or

(2) a person to sponsor, operate, advertise, or promote, pursuant to the law or compact of a governmental entity, a lottery, sweepstakes, or other betting, gambling, or wagering scheme based, directly or indirectly (through the use of geographical references or otherwise), on one or more competitive games in which amateur or professional athletes participate, or are intended to participate, or on one or more performances of such athletes in such games."11

The Bradley Act makes sports gambling illegal in every US state except Oregon, Montana, Nevada, and Delaware.12 Likewise the Bradley Act empowers National Collegiate Athletic Association (“NCAA”), the National Basketball Association (“NBA”), the National Football League (“NFL”), the National Hockey League (“NHL”), and the Office of the Commissioner of Major League Baseball (“MLB”) (together hereinafter the “Sports Leagues”) to enforce the law along with the Department of Justice.13

It should be noted that despite the provisions within the Bradley Act, shortly after its passage Americans still spent between $80 billion and $380 billion worth of bets annually on illegal sports bets.14 For a more detailed review of the Bradley Act and discussion around whether it is still for purpose, see here.15

Online Gambling in the United States

With the age of the Internet, came online gambling. Congress Passed the Unlawful Internet Gambling Enforcement Act (UIGEA) in 2006 following the National Gambling Commission’s recommendations from a 1999 report.16 The UIGEA bars online gambling by controlling the flow of funds from Internet gambling websites.17 Legislative history shows that Congress passed the law to combat the problem of foreign Internet gambling operations (operating legally within their own jurisdiction) offering online gambling to American consumers.18 Specifically, the UIGEA “outlaws receipt of checks, credit card charges, electronic funds transfers, and the like” by online gambling businesses and “enlists the assistance of banks, credit card issuers, and other payment system participants to help stem the flow of funds to unlawful Internet gambling businesses.19

 

Fantasy Sports Exemption

For the purposes of the UIGEA, the following does not constitute a “bet” or “wager”:

"Participation in any fantasy or simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization (as those terms are defined in section 3701 of title 28) and that meets the following conditions:

(I) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.

(II) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.

(III) No winning outcome is based —

(aa) on the score, point-spread, or any performance or performances of any single real-world team or any combination of such teams; or

(bb) solely on any single performance of an individual athlete in any single real-world sporting or other event."20

 

What are “Fantasy Sports”?

For the uninitiated, fantasy sports are games where competitors pick individual players competing in one or more sports leagues to form a “fantasy team.21 The fantasy team’s players’ real-life stats for a particular match or game are then assigned point values and credited to the player.22 A fantasy team’s total score consists of the aggregated points from all of the players on the fantasy team.23 The object of the game, obviously, is to have a higher team score at the end of the competition period than the opposition (usually another fantasy team in the fantasy league).24 Generally, “tradition fantasy” leagues mirror professional sports seasons.25

Fantasy Sports’ popularity increased dramatically over the past two decades.26 Fantasy Sports are especially popular among young players, with one fantasy sports operator stating “our fastest growing demographic is under 18 [year-old] players; young adults and children are our fastest growing segment."27

 

Why an Exemption?

In the United States, the popular perception is that fantasy sports are gambling. The US federal trial court in Humphrey v. Viacom found that losses from fantasy sports were not “gambling losses” as 1) fantasy sports operators provided a service of “statistical analysis” in exchange for the entry fee; and (2) the winnings were disclosed before the commencement of the fantasy sports season and were not dependent on the amount paid for the entry fee.28 At the time of Humphrey, and the passage of the UIGEA, fantasy sport pools were often low-risk affairs resulting in (relatively) small winnings, and nominal in-kind rewards like tee shirts, and, on occasion, televisions.29

 

The Result of The Exemption: Daily Fantasy

Because of the fantasy sports exemption from the UIGEA, a new, more instantaneous version of Fantasy Sports appeared. Daily fantasy sports function similarly to traditional fantasy sports, except instead of picking a team and competing for the duration of a competitive season, you pick a team and compete for a day.30 Daily fantasy operations generally charge fees for participation in pools, with winners netting significant payouts.31 Various pools exist all with varying entry fees that result in varying potential winnings.32

Daily fantasy operators tailor their pools, and winning structures to comply with the UIGA fantasy sports exemption. All pools require participants to pick multiple players.33 Prizes are made known before the opening of the competition.34 All prizes are disclosed before the pool’s opening, and not reflective based on the number of participants.35 Likewise, daily fantasy proponents argue that daily fantasy are games of skill.36 Because daily fantasy is not “gambling” per the UIGEA, operators are generally not required to follow the strict rules set up for gambling operations.37 For example, daily fantasy operators are not required to verify participants’ ages, unless required by state law.38

Daily fantasy has quickly grown in popularity.39FanDuel, a daily fantasy company, has over one million members.40 Because of the recent exploding popularity, daily fantasy operations have been able to leverage large investments from major investors.41 For example, FanDuel raised $88 million from investors including Comcast, major private equity firms, and the National Basketball Association.42 This popularity has lead to a number of states moving to legalize and regulate the practice.43Various sports teams and leagues also have “official Daily Fantasy Operators.44

Currently, daily fantasy pools exist for professional sports including: PGA competitions, MLB games, NFL games, NBA games, NHL games, NASCAR races, and Mixed Martial Arts matches, Cricket matches, Premier League matches, MLS matches, and World Cup matches.45 Daily fantasy pools also exist for amateur sports, including NCAA Football, and NCAA Basketball.46 The focus on popular American sports is no coincidence. Daily Fantasy was created in light of American laws, for an American audience. However, pools for sports are only limited to operators imaginations, and market interest.

 

Comment: Daily Fantasy and Sport Integrity

Because of Daily Fantasy’s structure of aggregating a number of different players’ statistics from different games, with participants picking players in a short period before the actual event, influencing events in sport to allow for daily fantasy winnings is difficult.47 Some commentators have gone as far as saying “it seems infeasible to fix a fantasy game involving a group of real players who are on multiple teams.48

Because of the perception that daily fantasy’s format makes it difficult to fix results, and/or possibly the notion that it is a legal practice, neither daily fantasy sports operators, sports leagues, nor law enforcement have established any sort of integrity or monitoring scheme for daily fantasy pools and winnings to date. However, with daily fantasy operators offering pools named “millionaire maker” and “instant millionaire,” and total prizes since 2012 topping one billion dollars, the stakes may begin to rise to the level to pique the interest of those looking rig the game.49

 

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About the Author

Andrew Visnovsky

Andrew Visnovsky

Andrew is an associate at Landman Corsi, Ballaine & Ford P.C., where he works on a wide range of complex civil matters including employment disputes, commercial litigation, and professional liability claims. Andrew previously served as a Law Clerk to the Honorable F. Patrick McManimon, J.S.C., and a mediator in the Superior Court of New Jersey for the 2014/15 judicial term.

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