By Adam Ainslie
The biggest challenge that faces the pay-for-play fantasy sports industry is whether they are games of chance or games of skill. Games of chance constitute “unlawful internet gambling.” Daily fantasy sports leagues are subject to more scrutiny due to the competitions’ short one-day duration. The short duration structure of daily leagues does not incorporate the strategic gamesmanship of managing a team after the player selection process. In daily leagues participants select athletes that will be playing that day, compete with them against other participants, and that is the entire duration of the competition, hence the term “daily” league.
There is debate regarding whether daily leagues compared to the traditional “season long” leagues are legal under the most recent federal Internet gaming law. However, this shorter game duration by itself should not determine whether daily leagues are games of chance or skill.
Although most illegal gambling charges are brought under individual state laws, Congress in 2006 passed the Uniform Internet Gambling Enforcement Act (“UIGEA”). UIEGEA states, “no person engaged in the business of betting or wagering may knowingly accept” funds “in connection with the participation of another person in unlawful Internet gambling.” UIGEA set forth an exception to permit fantasy sports that meet the following conditions: (1) the value of the prizes is not determined by the number of participants or the amount of fees paid and the prize is made known to participants before the contest begins; (2) all winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individual athletes in multiple real-world sporting or other events; and (3) the fantasy game’s result is not based on the final scores or point-spread of any real-world games and not solely on any single athletes’ performance in a single event.
The Prize Is Not Conditioned on the Number of Participants
According to the code, the winning prize must be “made known to the participants in advance of the game,” and the prize is “not determined by the number of participants or the amount of any fees paid.” This is relatively the easiest to comply with. A daily league is likely to satisfy the first prong of the test by simply employing the fixed prize that is made known to participants. For instance, a contest may read “$25 entry fee to win a prize of $5000.” Here the prize is made known ahead of time and it does not matter if 5 people are playing or if 25 are, the value of the prize remains constant.
Chance is Out Weighted by the Specific Skill of Player Choice
This dichotomy of chance versus skill is the basis of the second prong. In order for daily fantasy sports to pass this prong, all winning outcomes must “reflect the relative knowledge and skill of the participants.” These outcomes are “determined predominantly by accumulated statistically results…in multiple real-world sporting…events” (emphasis added). The UIGEA uses a “predominant purpose” test. Several states including California define “predominant” as, “greater than 50 percent.” For all fantasy sports, regardless of traditional or daily, the “skill” aspect of determining what players to select and play must be greater than fifty percent of the ability to win.
There exists an element of chance that is inherent in both traditional and daily leagues with regards to player selection. Not just the chance of picking a player who underperforms or gets injured, but also your position in line to select players in the draft is left to chance. It is a random shot of luck whether you end up with the top pick, the last pick or any in between, which can greatly affect your ability to win. Even though there is considerable skill involved with player selection (for example: assessing players based on statistical analysis, park-factors, age, opponents, biases & team preferences, etc.), there is still an aspect of chance in that the pick is unsuccessful. Daily leagues that employ these traditional random “drafts” coupled with the participants’ lack of ability to use skill to manage the team probably fall below the “greater than 50 percent” mark set in the predominant purpose test.
Despite this position draft, traditional leagues that use this still have valid arguments their game is predominately skill-based even though some small elements of chance still exist. This is because participants have the ability to invoke their skills of team management over duration of time. To negotiate trades and use free agency to add/drop players involves the skill and knowledge of the sport and athlete’s tendency. Although longer duration leagues may lead to the conclusion that less luck is involved, because a participant cannot use team management skills to offset the inherent risks of chance, it is not determinative for whether the fantasy sport is chance or skill. In fact, Tom Griffiths, CEO of FanDuel, one of the daily fantasy sports industry leaders, said in an interview, “there is more randomness over the four or five months than there would be just in the period of a few hours.”
“Salary cap” draft is another type of daily fantasy sports game that is more predominately based on skill than position drafts. The basics of a salary cap draft are that participants have a certain amount of play-money to spend in which they can spend more on certain players or positions over others. This allows for more strategic selecting compared to the traditional position draft where the strategy is often to pick the best player available. Instead, in a salary cap draft participants must decide how they can afford certain players and how they should allocate their resources. This type of player selection requires a participant to know more of the ins and outs of the game. For example if a participant over pays for a player, it leaves them with less “cap space” (financial flexibility) to acquire other players, forcing them to make more calculated decisions. Salary cap drafts allow a participant to act more like a team’s general manager than they otherwise would be able to with the traditional position draft. While the chance aspect of player underperformance or injury still exists, it is balanced out by the amount of skill required in selecting players based on a budget. According to Draftstreet.com (before being acquired by Draftkings.com), a daily fantasy sports league host site, “Salary cap fantasy…can be considerably more challenging that a regular fantasy…league, but many fantasy players like the challenge of trying to find low-risk, low-cost, and high-reward players. It’s a little more work, but it can also mean more of a reward.” Therefore, daily leagues that use salary cap drafts, even though they lack the ability to manage a team over a duration of time, are still predominately games of skill because the salary cap draft minimizes the aspect of chance involved by requiring more skillful player selection.
The Game Is Based on Accumulated Statistics Not Single Performances
For the third prong of the UIGEA exception, the fantasy sports league must not have winning based on “final scores or point-spread” and “not solely on any single athletes’ performance in a single event.” This is simply satisfied because these pay-for-play fantasy sports leagues base winning on accumulating the most “points” or by winning statistically categories. However, it is unlikely daily leagues would be able to operate for games such as the Super Bowl, because of the “single event” language.
Conclusion
The most difficult hurdle that fantasy sports must overcome is they must prove their game is a game of skill rather than a game of chance. Daily leagues, although they do not permit participants to use team management skills, these leagues that use the considerably skill-intensive salary cap draft should not be considered games of chance. No matter what there will always be an aspect of chance involved because of the nature of athletics. Nevertheless, a player selection process that requires a participant to use extraordinary knowledge and skill to assemble a winning team minimizes this inherent chance.
Adam Ainslie is a 2016 J.D. candidate at Southwestern Law School in Los Angeles, California. He currently serves as Editor-in-Chief of the Law Commentator and President of the Sports Law Society. While in law school Adam has studied international entertainment law and international sports law abroad in London through the Donald E. Biederman Entertainment and Media Law Institute. Adam earned his Bachelors of Interdisciplinary Studies in Socio-Legal Studies and Ethics from the College of Letters & Sciences at Arizona State University in 2013.
