Last year there were 33 million fantasy football players in the United States—racking up an estimated $11 billion on the activity in 2013 alone. But is the latest version of it—the constantly-advertised daily fantasy option—even legal?

Photo Credit: dabruins07 cc
Photo Credit: dabruins07 cc

Apparently it depends on who you ask. This year many politicians and legislators seem to be taking a more watchful eye to how exactly this fantasy national past time justifies itself. And as eSports popularity continues to rise, that’s just the beginning shift in how digital sports is seen by the law.

Friday saw news that Frank Pallone, a congressman from New Jersey, was requesting a hearing about the relationship of fantasy sports to gambling. Much of the legal precedent here stems from a New Jersey District Court, and as Steven J. Daroci wrote for Garden State Gavel, fantasy sites—particularly the daily kind—brazenly operate in a murky legal area:

So how are daily fantasy sites flourishing while sports gambling remains illegal in the United States outside of Nevada, Delaware, Oregon, and Nevada?

The answer to this question is the distinction between games of skill versus games of chance. Whereas gambling on the outcome of sporting events are considered games of chance, fantasy sports, are considered games of skill.

In 2006 the federal government passed the Unlawful Internet Gambling Enforcement Act (the “Internet Gambling Act”), which was enacted to prevent gambling over the internet. The law, however, includes a carve out that appears to exempt these types of fantasy games.

Although daily fantasy sports have several differences from the more traditional season-long fantasy games (for example, in a daily fantasy game, there is no trading of players or determining which players to “start” or “bench”), these fantasy sites like FanDuel and Draft Kings continue to hang their hat on the exemption in the Internet Gambling Act and the implication in Humphrey that these fantasy games are games of skill.

To Congressman Palone, this is clearly still gambling in one form or another; players are still risking their money on the performances of individual players, which doesn’t leave a lot of difference from wagering on a game. And he’s right—it’s not easy to see much of a difference at all.

And yet…


Which is why it’s bizarre that the DraftKings’ chief executive Jason Robins would proudly tout that these games are “clearly legal.”

“Anyone who has taken the time to understand the law as it relates to DraftKings’ offerings, and anyone who has seen the data . . . on the skillfulness of the game, it’s really, honestly not a debate,” Robins said in a Washington Post article. “It’s clearly legal. And we have a team of great lawyers who watch everything we do.”

But that doesn’t seem to be entirely true. So far it seems these sites have enjoyed a meteoric rise thanks to the Internet, which blurred the lines just long enough on where the Federal Wire Act applied, and because they operate in loopholes of most sports gambling laws.

As the Legal Sports Report writes, the actual legality of daily fantasy sports is a huge matter of debate:

Ask yourself if the following facts about the conversation around DFS at the state level comport with Robins’ description of DFS as a “clearly legal” product that warrants no debate:

  • Nearly all DFS operators – including DraftKings – do not operate in five states(Washington, Montana, Iowa, Arizona, and Louisiana) due to concerns regarding the application of state law to the product.
  • The head of Michigan’s Gaming Control Board recently asserted that DFS is “illegal under current Michigan law.”
  • FanDuel and DraftKings are lobbying in Florida for legal clarity around DFS in the face of a 1991 AG opinion that deemed real-money fantasy sports illegal.
  • Nevada officials have announced that they’re reviewing the legality of DFS.
  • The Massachusetts Attorney General is reviewing the status of DFS.
  • Legal commentators have identified a number of additional states where the question of DFS is unsettled.

The fact of the matter:

  • State gambling law is maddeningly complex and often rests upon inherently subjective tests such as the distribution of skill and chance within a given activity.
  • With one or two exceptions, state gambling law does not speak directly to the daily fantasy sports product.

The Next Generation

But even that isn’t stopping DraftKings from expanding. On Friday they announced that they were launching a fantasy eSports platform, dedicated to facilitating the same fantasy league-prowess to the world of competitive gaming.

 Photo Credit: Alex--  cc
Photo Credit: Alex– cc

Considering the eSports market is boasting great profits and even better ratings, it’s quickly becoming less of a third rail and more of a new pillar for plenty of folks in the sports industry. And that includes fantasy, where already established eSports fantasy leagues have been thriving.

Competitive gaming also enjoys the oversight that comes with not (yet) being considered a “real sport,” which means that it’s technically legal to bet on. But some eSports gambling parlors, like Seattle’s Unikrn, aren’t taking any risks, and prohibit gambling through their platform from U.S. customers. Perhaps it’s because they know (or at least hope) that competitive gaming is on its way to becoming the real deal in the eyes of the nation. Or maybe it’s just because the U.S. is too volatile towards where the line is for gambling on sports.

Even so, as the football season takes off, many fantasy players are already forming pools with friends or in the office that expand and test the limits of our current system, while Congressman Palone continues to circle the wagons looking a true difference between gambling and daily fantasy. If they can find one, DraftKings and its ilk may be losing more than the season—and now it’s got the hope of a whole new industry riding on them as well.