Is the “Fantasy” of “Daily Fantasy Leagues” its Legality?
Daily Fantasy Football has taken over the air waives, spending massive amounts of money to get people to gamble as much as possible on their favorite athletes. The question is- is it legal? We think so- at least in most states and at least for now.
Evolution of Fantasy Sports
The internet revolutionized fantasy sports. Sports magazines used to have lists of players and prices and you could join a league and mail in or phone in your picks. It looked fun, but way too time consuming. Here is a Sports Illustrated article from 1984 if you want a history lesson. They were called rotisserie leagues back then. It was popular- or so I am told. I never did it. Fast forward thirty-one years.
The internet is now king. We are saving paper and ruining our eyesight, but everything is a few inches a way. Fantasy football is a multi-billion dollar business. Every sport has a league you can join. Many fantasy football players put “side money” into fantasy pools with their friends, usually varying between $10 to $500 per entrant. Like the pools which come every March with the NCAA tournament, the money usually stays between friends- no wire transfers, credit cards or major banking required.
The same used to be the same for sports betting. Someone you knew “had a guy” who took bets. It is hard to find a guy who actually is employed as a bookie any longer. Occasional trips to Las Vegas would satiate others. Again, it was mostly a cash business and if an enterprise got too big, the law would come shut it down.
Eventually, the offshore sportsbook became the bettors’ prime option. Sure, you were trusting your credit card information to a stranger, but the Patriots -3 was well worth it. It was rampant and still is to some extent. You don’t have to hop on a plane or find a guy anymore.
Let’s jump to 2015. I have never seen an ad campaign like what FanDuel and DraftKings did out of seemingly nowhere. I can’t get away from them. I have not and will not enter the “heroin meets the Florida lottery” world of daily fantasy sports, but it is everywhere.
Are Daily Fantasy Sports Leagues Legal?
The U.S. Congressman who drafted the 2006 legislation used by DraftKings and FanDuel as proof of their legitimacy says is it “sheer chutzpah” for the daily fantasy sites to use the UIGEA to justify their actions. That’s not a good thing, but just because one has a bold sense of bravery does not mean they are acting illegal.
Let’s look at the primary law involved:
The Unlawful Internet Gambling and Enforcement Act of 2006 (UIGEA) focuses on the root of the issue- the banking transaction. The Act prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any U.S. federal or state law. It prohibits transfers of money by (i) automated clearing house (ACH) systems, (ii) card systems, (iii) check collection systems, (iv) money transmitting businesses, and (v) wire transfer systems. The UIGEA was passed in September of 2006 after Congress tried to use 3 other Federal laws to regulate Internet gambling rather unsuccessfully. The passing of the UIGEA dealt a serious blow to the Internet gambling industry, as some industry leaders pulled out of the U.S. market.
However, offshore casinos have evolved and are sneaky though and not only process your transactions through sheltered companies, but also require all sorts of information from you now to make sure you have sufficiently guaranteed not to use this law in your favor later. These enterprises attempt to both stay ahead of the law and also stay away from those who can catch them.
Indeed, the UIGEA carves out a a complicated safe haven for fantasy or simulation sports games. It states (in part):
“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.”
But, the UIGEA does not exempt fantasy sports companies from any other obligation to any other law. It’s not the only show in town. Arizona, Iowa, Louisiana, Maryland, Montana and Vermont have tight state laws, so FanDuel’s lawyers excluded those states from operation. Some federal laws have some tangential value, but not really.
Is Fantasy Sports… Sports?
Under the Professional and Amateur Sports Protection Act, 28 U.S.C. §§ 3701–04, a “government entity,” or any state, territory, or tribe may not “sponsor, operate, advertise, promote, license, or authorize by law or compact” any wagering scheme based on the outcome of professional or amateur sports. The “scheme” is defined as, “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.”
It keeps sports betting highly regulated. And although it may apply to fantasy sports, it does not regulate private entities such as FanDuel.
The Wire Act – Blame Obama?
The Wire Act, 18 U.S.C. § 1084 (also called the Interstate Wire Act and the Wire Wager Act) was the government’s primary direct regulation on gambling since the 1890’s lottery legislation and still is one of the most cited. Enacted in 1961, the Wire Act was part of Attorney General Robert F. Kennedy’s war on organized crime and go after bookies. It focused on the “wire,” how money got from point A to point B. It has been a principle form of regulation.
But… But… Blame Obama? Two days before Christmas in 2011, President Obama gave an unexpected gift to the states. The first sentence of a Department of Justice Memo reversed years of DOJ posturing:
Interstate transmissions of wire communications that do not relate to a “sporting event or contest” fall outside the reach of the Wire Act.
In thirteen pages,the Obama Administration reversed an aggressive, decades-old Department of Justice position and opened the door for states to legalize many forms of Internet gambling without interference from federal laws. Through the DOJ Office of Legal Counsel (“OLC”), the Obama Administration announced that one of the three major federal anti-gambling statute, the Wire Act, now applied only to bets on sports events and races.
“Events.” Again- loophole? At best, we have some real murky water.
Gambling is generally recognized as a state concern within the states’ police powers under the Tenth Amendment of the United States Constitution. Every state and the District of Columbia have issued some form of gambling regulations. They are toothless to some extent when it comes to internet gambling and the other issue is how does a state even begin to regulate it?
As for the gambler, gambling, per se, is illegal in almost every state, but it is an unpunished crime. The odds of being prosecuted are non-existent. We found one documented case- poor Jeffrey Trauman, a car salesman and online sports bettor, who pleaded guilty to “placing a wager over $500,” a misdemeanor in North Dakota, and was fined $500 and given a one-year deferred sentence (Rose, 2003); North Dakota Century Code).
With the latest allegation of employees of one daily fantasy sports enterprise using insider information from its own database to place bets, and win, on an opponent’s system, offices of the attorney general all over the country are scrambling. It appears the daily fantasy sports companies have carved out a nest out of the discarded remnants of rotisseries leagues and online year-long fantasy leagues. We expect that lobbyist groups, federal and state law enforcement and legislatures will soon be reacting.