Fantasy to Face Reality: The Future of Sports Betting and Fantasy Leagues
A Fantasy league takes the rush of “gambling” and combines it with the thrill and excitement of sports by allowing individuals to get involved in the games they watch. It is no surprise then that fantasy sports have seen a massive explosion in recent years, specifically Daily Fantasy Sports, or “DFS.” This recent evolution has brought many to question the blurred legal lines between fantasy leagues and sports betting.
According to the Fantasy Sports Trade Association, the estimated total annual spending on fantasy sports in the U.S. and Canada is roughly $26 billion, with an average annual spending of $465 per player. Kristin Wong, The Fantasy Sports Industry, by the Numbers, NBC News (Oct. 6, 2015, 7:44 PM), http://www.nbcnews.com/business/business-news/fantasy-sports-industry-numbers-n439536. Daily fantasy games, specifically, are expected to generate roughly $3.72 billion in entry fees and $370 million in revenue in 2015, and by 2020, they are expected to reach approximately $17.7 billion and $1.77 billion, respectively. Sarah E. Needleman, FanDuel, DraftKings Ban Employees From Playing Daily Fantasy Contests for Money, Wall St. J. (Oct. 7, 2015, 7:01 PM), http://www.wsj.com/articles/fanduel-bans-employees-from-playing-daily-fantasy-contests-for-money-1444233537. With such a large market and strong support, any future regulation or legal changes could create heated debates that would affect the entire sports industry.
Federally, fantasy sports have remained completely legal. In 1992 Congress passed the Professional and Amateur Sports Protection Act (“PAPSA”). Marc Edelman, A Short Treatise on Fantasy Sports and the Law: How America Regulates its New National Pastime, 3 Harv. J. Sports & Ent. L. 1, 36–37 (2012). PAPSA makes it illegal for any private person to operate a wagering scheme based on a competitive game in which professional or amateur athletes participate. Id. Although on its face this seems to relate to fantasy sports, “America’s premier professional sports leagues were the chief lobbyists for PAPSA, and most American professional sports leagues both host and endorse seasonal fantasy sports.” Id. Additionally, in 2006, Congress passed the Uniform Internet Gambling Enforcement Act (“UIGEA”), which made it illegal, for those engaged in the business of wagering, to accept funds with participation of another person in unlawful gambling. Id. at 37–38. The purpose of the Act was to supplement gambling laws to help prevent cross-state and international gambling. Id. Congress has yet to specifically apply these laws to the different types of fantasy sports but the UIGEA includes an explicit “carve out” for fantasy sports games that meet three criteria:
(1) the “value of the prizes is not determined by the number of participants in the game or the amount of fees paid by the participants,” (2) “[a]ll winning outcome reflect the relative knowledge and skill of the participants and are determined predominately by accumulated statistical results of the performance of individuals . . . in multiple real-world sporting events”; and (3) no winning outcome is based on the outcome of the score of games or on the single performances of an individual athlete in a single, real-world event.
While this has generally been assumed to apply to all fantasy sports, there remains growing concern for the increasing popularity of daily fantasy leagues as these leagues were “not in the relevant economic marketplace envisioned by Congress” when passing the UIGEA. Michael McCann, Examining the Future of Daily Fantasy Sports Sites, Sports Illustrated (Oct. 7, 2015), http://www.si.com/nfl/2015/10/06/daily-fantasy-sports-legality-draftkings-fanduel-insider-trading. Additionally, even though backing for these leagues continues to grow, it is possible that the PAPSA “could be used against daily fantasy and weekly fantasy sports games…[and] the substantial emphasis on buy-ins and payouts in daily fantasy sports make it more probable that such games could be viewed as wagering schemes.” Edelman, supra, at 37–38. There is also an argument that daily and weekly fantasy games fail to fulfill the three-part test in the UIGEA. Id. For example, “winning outcomes [may not] reflect the relative knowledge and skill of the participants because the limited duration of these games heightens the importance of luck in game results.” Id. Further, as a matter of public policy, Congress may be hesitant to provide special protection to these short-term fantasy sports because “the shortened duration may feed the desires of compulsive and addicted gamblers.” Id. Still, fantasy leagues, including the daily and weekly fantasy leagues, remain completely legal.
The longstanding argument for the daily leagues, and fantasy sports in general, as repeated by the CEO of DraftKings, a leader in daily fantasy leagues, is that it is a game of skill rather than a game of chance. Debra Cassens Weiss, Are Fantasy Sports Payouts Legal?, ABA J. (Oct. 6, 2015, 6:15 AM), http://www.abajournal.com/news/article/are_fantasy_sports_payouts_legal_ceo_says_its_a_game_of_skill_like_the_stoc/. CEO of DraftKings, Jason Robins, argues that fantasy sports are like a game of chess or the stock market; the players become more skilled as they play, and the game is analytical. Id. Critics claim, however, that since fantasy sports, like the stock market, are comprised of massive amounts of analytical data, there is also a potential problem with “insider trading.” This debate has been fueled by a recent Kentucky lawsuit against the fantasy sports company DraftKings. Josh Brustein et al., Fantasy Player Sues Sites, Claiming Fraud, Bloomberg Bus. (Oct. 8, 2015, 6:38 PM), http://www.bloomberg.com/news/articles/2015-10-08/fantasy-player-sues-sites-claiming-fraud. The lawsuit claims participants were “fraudulently induced into placing money onto DraftKings because it was supposed to be a fair game of skill without the potential for insiders to use non-public information to compete against them.” Id. The suit seeks class action status and requests that the companies pay damages with interest in addition to changing their practices to make sure employees do not benefit from inside information. Id. This lawsuit arises from a DraftKings employee prematurely leaking vital statistical information about player data, which resulted in his winning of over $350,000 in a single tournament on DraftKings’ rival site, FanDuel. Id.
The incident begs the question of whether or not these “legal” daily fantasy leagues can regulate themselves, or if the government needs to step in. Even if a DraftKings’ employee is not playing on his or her own site, daily fantasy sports data would be extremely valuable to professional players. Chris Grove, DraftKings Lineup Leak Rocks Dialy Fantasy Sports Industry: Questions and Answers, Legal Sports Rep. (Oct. 4, 2015, 12:55 PM), http://www.legalsports report.com/4548/draftkings-data-leak-faq/. “With too many employees presumably having access to this inside information, it raises the specter of insiders using this non-public information to gain an edge when they play similar contests for big money on other sites.” Id.
DraftKings and FanDuel have traditionally kept the idea of outside regulation close amid growing concerns from federal and state legislatures, gaming commissions, and attorneys general about the “murky legal landscape around daily fantasy.” Travis Waldron, Congress is Waking up to the Unregulated World of DraftKings and FanDuel, Huffington Post (Oct. 6, 2015, 4:59 PM), http://www.huffingtonpost.com/entry/congress-harry-reid-daily-fantasy-sports-scandal_56141db2e4b022a4ce5fc344?utm_hp_ref=sports&ir=Sports§ion=sports. Senate Minority Leader Harry Reid and other lawmakers have called for increased federal examination of daily fantasy sports. Id. Rep. Frank Pallone claims that this data problem is a “prime example” of the need for further congressional examination, considering fantasy sports to be in a “Wild West void within the legal structure.” Id. Other committees may also take a closer look into the industry. Id. Many have called on the House Judiciary Committee to hold its own hearing “to determine whether permitting a multi-billion-dollar industry to police itself serves the best interest of the American people.” Id. Simply put, daily fantasy is “an industry growing faster than its ability to self-police.” Id.
Most interesting is the potential repercussions in the world of sports betting. While this small exception to the law gains further momentum and support, sports betting has continually been rejected. New Jersey has waged litigation for years now in an effort to carry out a law that would repeal the prohibition against sports betting that has thus far been unsuccessful. McCann, supra. To date, these legal arguments have failed, including in the U.S. Court of Appeals for the Third Circuit, which held the “commerce clause” protects PAPSA. Id.; see also Nat’l Collegiate Athletic Ass’n v. Governor of New Jersey, 799 F.3d 259 (3d Cir. 2015). Big picture, fantasy leagues continue to hold the position that they are legal because they are about skill and not about chance, but there is a strong argument that this logic will lead to the legalization of sports betting. Id.
With all of the legal and political attention surrounding fantasy sports, a betting man should put his money on there being significant changes to the current laws and regulation in the not so distant future. How these leagues respond to incidents such as this and future lawsuits could potentially determine whether Congress will end up stepping in. Ultimately, either fantasy sports could be the “sleeper” debate that leads to the legalization of sports betting, or the attention could create changes to the law and regulation of the industry that would make this “fantasy exception” become just that, a legal fantasy.
Second year law student at the University of Baltimore School of Law where he is a Staff Editor for the Law Review. This past semester he interned with Judge Clayton Greene, Jr. with in the Maryland Court of Appeals. This semester he is working as a law clerk for Rollins, Smalkin, Richards & Mackie, L.L.C.