By David O. Klein, of Klein Moynihan Turco LLP
People have been playing in online fantasy sports leagues for a long time. When the federal government created a specific carve-out for fantasy sports in the Unlawful Internet Gaming Enforcement Act (UIGEA) in 2006, paid money leagues became legal on a federal level for the first time. However, the ability to collect monetary prizes in paid money leagues was left to the discretion of the individual states.
Legality of Online Fantasy Sports Betting
Under the laws of many states, season-long and even multi-week online fantasy sports tournaments are not considered “gambling.” The regulatory trend in these states is to categorize fantasy sports as games of skill based on the sports knowledge of each league participant. The skill involved in fantasy sports betting exempts online fantasy sports leagues from the gambling laws of these states, which only regulate games premised on chance or luck.
Legality of Daily Fantasy Sports Betting
In large part, betting on the daily outcome of a fantasy sports team has been unregulated in many states. In fact, yesterday an Illinois federal court dismissed a lawsuit against a daily fantasy sports website in which the plaintiff sought to recover damages by claiming that the website was operating an illegal gambling operation. Despite the fact that the court dismissed the case on federal procedural grounds and did not make a final ruling on the legality of daily fantasy sports, the dismissal of the lawsuit is good news for daily fantasy sports website operators and league participants. However, a similar daily fantasy sports lawsuit is still pending in Illinois State court and does not face the strict procedural restrictions that were present in the foregoing federal case.
Therefore, if the case proceeds, it is possible that the Illinois court will rule on the legality of daily fantasy sports within the State. As such, the outcome of the case should be of utmost importance to those interested in fantasy sports law.
In a related matter, the Third Circuit Court of Appeals struck down a New Jersey State law that would legalize sports gambling, holding that the New Jersey law conflicted with federal law. Despite the fact that the New Jersey law addressed betting on the outcome of individual games or events, parallels can be drawn between betting on the outcome of a game vs. betting on the daily outcome of a fantasy sports team. It may be argued that daily online fantasy games have a stronger element of chance than season-long or even multi-week fantasy sports leagues.
Therefore, caution should be used before operating or participating in a daily online fantasy sports tournament.
New Form of Daily Fantasy Sports Betting
A new type of daily online fantasy sports may present a way around the legal uncertainty discussed above and allow players to experience the instant monetary gratification associated with daily online fantasy sports betting.
Earlier this month, Paul Charchian, president of the Fantasy Sports Trade Association, and previously outspoken critic of daily fantasy sports, announced that his season-long fantasy sports website, LeagueSafe, would be partnering with a daily online fantasy sports website. This partnership may sidestep the potential legal pitfalls associated with daily online fantasy sports by allowing LeagueSafe players to place daily bets using their season-long fantasy sports teams.
Wagering on the player’s pre-selected, season-long fantasy sports team may arguably remove the element of chance inherent in daily fantasy sports leagues in which players pick new fantasy sports teams on a daily basis. Whether this “twist” on short-term fantasy sports holds up to legal scrutiny on a state and federal level remains to be seen.
