Presentation Title

The Special Exemption for Fantasy Sports

Panel Title

Session 4-1-F: Emerging Legal Issues in Gaming

Location

The Mirage Hotel & Casino, Las Vegas, Nevada

Start Date

10-6-2016 8:30 AM

End Date

10-6-2016 10:00 AM

Abstract

The Special Exemption for Fantasy Sports

Jeffrey Standen

The legality of particular sports betting transactions is defined under federal or state laws. The most applicable federal law is the Wire Wager Act. It prohibits bets or wagers on any sporting event or contest. The next most relevant federal statute is the Professional and Amateur Sports Protection Act (“PASPA”). It prohibits any person from operating a betting scheme that is based on any competitive game in which amateur or professional athletes participate, or on the performance of such athletes in such games. As for state law, most states prohibit any gambling, unless the state has passed a specific statute or constitutional amendment permitting it. Gambling is generally defined as a transaction that involves the classic elements of consideration, chance, and prize. Very few states, most notably Nevada, have passed specific statutes permitting sports wagering.

Fantasy games are bets. They constitute a wager on a sporting event. They are prohibited under federal law. The Wire Act prohibits transmitting betting information on any sporting event, except in states where such bets are legal. PASPA precludes bets on the performance of professional athletes or the games they play, unless such betting activity was legal in a state at the time of passage. Thus both principal federal statutes appear to prohibit fantasy games, unless specifically permitted under state law. In general, fantasy games are prohibited under state law. A fantasy contest involves the classic elements of consideration, chance, and prize. Fantasy game operators and investors are under the constant risk of federal or state prosecution. “Black Friday,” which shut down the comparatively smaller market for internet poker, might one day be regarded as a mere dress rehearsal.

Those who defend the legality of fantasy sports cite two arguments, both of them not entirely compelling. First, the Unlawful Internet Gambling Enforcement Act (“UIGEA”) prohibits certain financial intermediaries from facilitating transactions involving unlawful Internet gambling. What constitutes unlawful Internet gambling is not defined by the statute; instead, UIGEA refers to other applicable, aforementioned federal and state laws. But UIGEA contains several “carve-outs,” exemptions to the otherwise breathtaking sweep of its language. These carve-outs are notable: stock and commodities trading, insurance, banking, and fantasy sports. As a matter of legality, the specific exemption for fantasy sports only allows financial intermediaries to facilitate transactions involving fantasy games. The exemption does not make fantasy sports legal; indeed, the exemption does not speak to the legality issue at all. Nonetheless, the fact that the federal financial intermediary statute specifically permits funding of fantasy sports activities has been understood by many to constitute an implicit endorsement of their legality. I will argue that it should not be viewed in that way.

The second principal argument in favor of the legality of fantasy sports refers to state law. Citing the “chance” element derived from the common law definition of gambling, and to the numerous state court decisions that adhere to it, this argument holds that fantasy sports, in which success appears to involve an apparent measure of skill, do not fall within the common definition of gambling. I will argue that the conception of “chance” to which most state courts appear to adhere does not comport with the expansive notion of chance that these proponents have in mind. State courts generally take a less rigorous, more commonsensical approach to defining “chance,” with an eye toward precluding gambling in the traditional sense. Certain varieties of fantasy games certainly appear to be gambling games. State courts will respond accordingly.

Despite the dubious legality of fantasy sports, this paper will argue that they should be lawful as a normative matter. The exceptions to UIGEA are telling and informative. The Congress has often permitted what are essentially gambling markets in order to promote particular social ends. Fantasy games promote a desirable social end. Specifically, they deepen our understanding of games, of the proper definition of athletic skill, and of the limits of human performance. They are useful, and they are fun. They should not be proscribed by federal or state law.

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Jun 10th, 8:30 AM Jun 10th, 10:00 AM

The Special Exemption for Fantasy Sports

The Mirage Hotel & Casino, Las Vegas, Nevada

The Special Exemption for Fantasy Sports

Jeffrey Standen

The legality of particular sports betting transactions is defined under federal or state laws. The most applicable federal law is the Wire Wager Act. It prohibits bets or wagers on any sporting event or contest. The next most relevant federal statute is the Professional and Amateur Sports Protection Act (“PASPA”). It prohibits any person from operating a betting scheme that is based on any competitive game in which amateur or professional athletes participate, or on the performance of such athletes in such games. As for state law, most states prohibit any gambling, unless the state has passed a specific statute or constitutional amendment permitting it. Gambling is generally defined as a transaction that involves the classic elements of consideration, chance, and prize. Very few states, most notably Nevada, have passed specific statutes permitting sports wagering.

Fantasy games are bets. They constitute a wager on a sporting event. They are prohibited under federal law. The Wire Act prohibits transmitting betting information on any sporting event, except in states where such bets are legal. PASPA precludes bets on the performance of professional athletes or the games they play, unless such betting activity was legal in a state at the time of passage. Thus both principal federal statutes appear to prohibit fantasy games, unless specifically permitted under state law. In general, fantasy games are prohibited under state law. A fantasy contest involves the classic elements of consideration, chance, and prize. Fantasy game operators and investors are under the constant risk of federal or state prosecution. “Black Friday,” which shut down the comparatively smaller market for internet poker, might one day be regarded as a mere dress rehearsal.

Those who defend the legality of fantasy sports cite two arguments, both of them not entirely compelling. First, the Unlawful Internet Gambling Enforcement Act (“UIGEA”) prohibits certain financial intermediaries from facilitating transactions involving unlawful Internet gambling. What constitutes unlawful Internet gambling is not defined by the statute; instead, UIGEA refers to other applicable, aforementioned federal and state laws. But UIGEA contains several “carve-outs,” exemptions to the otherwise breathtaking sweep of its language. These carve-outs are notable: stock and commodities trading, insurance, banking, and fantasy sports. As a matter of legality, the specific exemption for fantasy sports only allows financial intermediaries to facilitate transactions involving fantasy games. The exemption does not make fantasy sports legal; indeed, the exemption does not speak to the legality issue at all. Nonetheless, the fact that the federal financial intermediary statute specifically permits funding of fantasy sports activities has been understood by many to constitute an implicit endorsement of their legality. I will argue that it should not be viewed in that way.

The second principal argument in favor of the legality of fantasy sports refers to state law. Citing the “chance” element derived from the common law definition of gambling, and to the numerous state court decisions that adhere to it, this argument holds that fantasy sports, in which success appears to involve an apparent measure of skill, do not fall within the common definition of gambling. I will argue that the conception of “chance” to which most state courts appear to adhere does not comport with the expansive notion of chance that these proponents have in mind. State courts generally take a less rigorous, more commonsensical approach to defining “chance,” with an eye toward precluding gambling in the traditional sense. Certain varieties of fantasy games certainly appear to be gambling games. State courts will respond accordingly.

Despite the dubious legality of fantasy sports, this paper will argue that they should be lawful as a normative matter. The exceptions to UIGEA are telling and informative. The Congress has often permitted what are essentially gambling markets in order to promote particular social ends. Fantasy games promote a desirable social end. Specifically, they deepen our understanding of games, of the proper definition of athletic skill, and of the limits of human performance. They are useful, and they are fun. They should not be proscribed by federal or state law.