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Daily Sports Fantasy Web Sites, Are They Legal?

Published Monday, November 2, 2015

If you’ve watched any sporting events on TV this fall or listened to them on the radio, you’ve heard the commercials for daily sports fantasy games. Fantasy sports leagues have been around a long time with nearly 60 million people taking part in them.

The new game on the block is daily fantasy sports websites that allow you to pick a team, pay and play in one-day or one-week contests with the chance for a big payout. This has raised the question of whether daily fantasy sports websites, such as FanDuel and DraftKings, are actually gambling.

Stewart Melvin & Frost attorney Rustin Smith joins us to talk about a topic that has been in the news a lot lately.

Question: Rustin, for those not familiar, can you explain what fantasy sports are in general? And is playing fantasy sports considered gambling?

Rustin: Fantasy sports leagues have been around for more than 30 years. A fantasy sport is a game where participants draft teams of real players of a professional sport. Teams can trade or add and drop players throughout the season like they are in control of an actual team.

‘Fantasy teams’ compete based on the statistical performances of their players in actual games. This performance is converted into points that are compiled and totaled. The competition normally plays out over an entire sport season and the team with the most points at the end of the season is the winner.

Because players have control over their team for a season, these fantasy sports leagues are considered a game of skill. The most popular sports for fantasy sports leagues are football and baseball.

The Daily Fantasy Sports website competition is different. These games are played in one day or over one week whenever teams in that particular sport are playing. For example, FanDuel and DraftKings would have held competitions for NFL games this week through tonight’s Monday Night Football game. You pick a team for one day or one week, not a whole season.

Under the 2006 Unlawful Internet Gaming Enforcement Act, fantasy sports leagues are legal.

Question: If the 2006 law says fantasy sports leagues are legal, what is the concern now for federal and state governments as far as the daily fantasy sports websites?

Rustin: Under the Unlawful Internet Gaming Enforcement Act, fantasy sports are exempt from the federal ban on Internet gambling as long as:

• The prize for winning is determined in advance and not determined by the amount of fees paid or number of participants.

• The winner is determined by accumulated statistical results of the baseball, football or basketball players.

• Winning is not based on a game score or point spread, and also not based on any single performance by an individual athlete in a game.

The fantasy sports leagues where 10 or 12 people get together and draft teams and compete over a whole season are not at issue. The law definitely considers these to be a game of skill.

It’s the recent development and growth of daily sports fantasy websites that are drawing the attention of the government now. These websites offer big payouts for one-day or one-week contests. For example, some daily payouts for winning can be as much as $50,000.

Question: What is the central legal issue that has to be decided with daily fantasy sports websites?

Rustin: The issue to be decided is: Are daily fantasy sports websites a form of gambling?

Daily fantasy operators have been persistent about it being a game of skill and not chance.

It will be up to the Department of Justice or states governments to make the final determination.

Question: There has been a lot of talk of late about investigations of daily fantasy sports websites. What’s the latest?

Rustin: The Wall Street Journal recently reported that the U.S. Department of Justice and FBI are in the preliminary stage of investigating daily fantasy sports operators to determine if these websites are a form of gambling.

Two members of Congress have asked the Federal Trade Commission to investigate the websites and several states have started their own inquiries.

The issue has been brought up in Georgia, but like the other states there is a question of jurisdiction. Can the states regulate Internet gambling or is it a federal issue?

It is a very complicated issue, and it will be interesting to follow and see whether the government moves to regulate this growing online industry.

 

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