Daily Fantasy Sports Continue to Push the Envelope Amidst Legality Concerns
Sports gambling in the United States has been one of the largest drivers behind the rapid growth of professional sports. Before television revenues skyrocketed into the billions of dollars[1], and before athletes such as Michael Jordan were paid $100 Million by Nike to put his name on a pair of sneakers[2], gambling on sports matches was one of the top draws to fans nationwide. In 1919, the sports gambling atmosphere was so strong, that notorious mobster Arnold Rothstein paid off the entire Chicago White Sox baseball team to “fix” the World Series, thereby allowing Rothstein to win large sums from bookmakers.[3] It is for reasons such as this, among others, that sports gambling is illegal in forty-six of the fifty states.[4]
With the emergence of fantasy sports, however, the country has been faced with an interesting dilemma. Companies such as FanDuel and DraftKings are taking the sports betting marketplace by storm, with guerilla marketing campaigns, and offering guaranteed prizes in the millions of dollars.[5] The question though, is how is this type of gambling legal?
At the federal level, fantasy sports are actually exempt from sports regulation laws. The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) has a specific carve out that allows for the “…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…”[6] This exception, however, was intended to prevent citizens from getting prosecuted for playing in small fantasy football leagues with their friends. DraftKings and FanDuel, however, have taken this provision to claim that their websites, which pair millions of users against each other, are legal under the UIGEA. Under their interpretation, daily fantasy sports are legal.
With that being said, many states have taken their own action to prevent the spread of what they deem to be illicit gambling through the UIGEA loophole. States such as Arizona, Montana, Louisiana, Iowa, and Washington have laws in place that either explicitly ban fantasy sports gambling, or apply a more restrictive test that will allow for the intent of the UIGEA to stand, but for daily fantasy sports to remain illegal.
The rapid rise in success of such services may come as no surprise. The sports gambling market is estimated to be anywhere from $50 billion[7] to over $1 trillion.[8] With the overwhelming majority of that share being conducted illegally, it is no wonder that governments and corporations are looking to capitalize on revenues wherever possible. ESPN, the self-proclaimed “Worldwide Leader in Sports”, recently signed a deal with DraftKings for $250 million to have DraftKings advertising all throughout its website, and their fantasy statistics featured on TV and online.[9] Additionally, major professional sports leagues, such as the MLB, NHL, and MLS have all “bought-in” to the daily fantasy sports craze; these leagues are major investors in the industry.[10]
Daily fantasy sports have grown at an incredible rate over the past few years. With its legality questionable though, it appears that the major sites are doing everything they can to create a strong public relations image. With major players like the MLB and ESPN backing them, amongst many others, it seems more and more likely that DraftKings and FanDuel would win a legal battle, and that daily fantasy sports will be here to stay.
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