Legality of Daily Fantasy Sports

Is DFS Legal

If one assumes that DFS falls under the realm of gambling and thus the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), they would be wrong. The legality of Daily Fantasy Sports cannot be questioned because they are defined as games of knowledge and skill, as opposed to chance.  

UIGEA 2006 Carve Out

The exception which allows for the industry to thrive is outlined in the following excerpt from the Act:  

(ix) Participation in any fantasy or simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization (as those terms are defined in section 3701 of title 28) and that meets the following conditions:

(I) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.

 

(II) 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.

 

(III) No winning outcome is based—   (aa) on the score, point-spread, or any performance or performances of any single real-world team or any combination of such teams; or (bb) solely on any single performance of an individual athlete in any single real-world sporting or other event. -UIGEA 2006, Subchapter IV, Sec 5362 (ix)

The carve-out, at the time considered “… a kind of footnote” by Iowa congressman Jim Leach (R), who co-authored the bill, was originally intended to allow season long fantasy sports to continue as they were “much like horse racing, already part of the American betting scene.” Looking back, it’s clear that no one had thought about Daily Fantasy Sports, which Daily Fantasy Operators and the public at large are now benefiting from immensely.

Is DFS Legal?

Lawyers for all of the major sporting leagues (NFL, MLB, NBA, NHL and the NCAA) petitioned members of Congress to co-sponsor UIGEA knowing full well that the provision to exclude fantasy sports was included. After all, no league could thrive without acknowledging the role that fantasy sports play in building a brand. As a result of this petitioning you can find the NBA holding a reported 2.5% stake in FanDuel, with MLB and the NHL acknowledging they are stake holders in DraftKings although the terms of the stake are yet to be announced.

To answer the question ‘Is DFS legal?’ the answer is a resounding YES, so long as you live in a state that approves real money fantasy contests. This provision excludes the residents of Montana, Washington, Louisiana, Iowa and Arizona. Washington and Iowa have seen bills sponsored in the past year to legalize real money fantasy sports, undoubtedly with help from Daily Fantasy lobbyists, so we can expect this list to shorten as the popularity of Daily Fantasy Sports soars. Apart from these unlucky five states, Daily Fantasy Sports is legal in the remaining 47 and all of Canada.

Future of Fantasy Sports

While the legality of the pastime is currently not in question, we dare not offer a projection on the state of the industry in the coming years. The future of fantasy sports hinges on if the governments at the federal and state level decide to get involved, and to what extent that involvement will entail. Will they maintain the status quo, or look to tax operators whether through tariffs on the action generated our licensing fees for the operators?

Given the commissions already charged by the benchmark companies FanDuel and DraftKings, one would hope no special sanctions are enacted which could be detrimental to the industry as a whole.

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