Navigating The Legal Risks Of Daily Fantasy Sports

Navigating The Legal Risks Of Daily Fantasy Sports

Navigating The Legal Risks Of Daily Fantasy Sports: A Detailed Primer In Federal And State Gambling Law

Marc Edelman

City University of New York – Baruch College, Zicklin School of Business; Fordham University School of Law

March 30, 2015

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Over the past two years, there has been a monumental shift in how U.S. professional sports leagues have perceived “daily fantasy sports.” Back in March 2013, the chief executive of Major League Baseball Advanced Media, Robert Bowman, told the New York Times that he perceived “daily fantasy sports” as “akin to a flip of the coin, which is the definition of gambling.” However, today, Major League Baseball promotes a play-for-cash “daily fantasy sports” contest on its website. Similarly, the National Basketball Association once purported to oppose all forms of fantasy sports gaming; meanwhile it now owns an equity stake in FanDuel Inc. – the marketplace leader in “daily fantasy sports.”

Today’s more favorable relationship between professional sports leagues and the “daily fantasy sports” industry has led many in the media to speculate that “[l]egal issues, although a concern, are relatively minor.” Nevertheless, such generalizations about the legal status of “daily fantasy sports” are grossly oversimplified. Indeed, there is no blanket immunity under federal or state law for “daily fantasy sports.” Rather, in all likelihood, the legal status of “daily fantasy sports” varies based on the nature of any specific contest’s game rules and where that particular contest operates.

This article explores the legal status of “daily fantasy sports” in light of both federal and state gambling laws. Part I of this article discusses the history of “daily fantasy sports,” beginning with its dimorphic roots in both full-season fantasy sports contests and illegal online sportsbooks. Part II introduces the different formats of “daily fantasy sports” that exist in today’s online marketplace. Part III explores the legal risks of “daily fantasy sports” under state gambling laws. Part IV analyzes these same risks under federal law. Finally, Part V proposes eight best practices to enable “daily fantasy sports” companies to minimize their legal risks under both federal and state gambling laws.

Navigating The Legal Risks Of Daily Fantasy Sports: A Detailed Primer In Federal And State Gambling Law – Introduction

I. The History Of Daily Fantasy Sports Contests

Origins of Traditional Fantasy Sports

The origins of fantasy sports in the United States date back to the early 19603 when Professor William Gamson. a psychology professor at both Harvard University and the University of Michigan. created “The Baseball Seminar“ – a contest among esteemed college professors who “paid a ten-dollar entry fee to ‘draft‘ a team of baseball players.“ The winner of Gamson’s “seminar“ was “the participant who. over the course of an actual Major League Baseball season. selected the players who earned the most points in a per-determined set of statistical categories.“

Gamson‘s “Baseball Seminar“ initially was a private pastime among his academically-minded friends. However. over time. “the Baseball Seminar“ expanded beyond the ivory towers of academia.  Most notably, one of the contests earliest participants. Professor Robert Sklar. taught the game to his mentee, Daniel Okrent, while instructing a journalism course at the University of Michigan. ‘4 Okrent then brought the contest to his friends in New York. who first participated during the 1979 Major League Baseball season. These friends thereafter renamed the contest “Rotisserie League Baseball” in honor of the French bistro where they held their inaugural league draft.

B. The Internet Boom and Commercialization of Fantasy Sports

Rotisserie League Baseball began “as a tongue-in-cheek exercise“ among hyper-focused New York professionals. But during the Major League Baseball strike of 1981, several reporters decided to write articles about Rotisserie League Baseball – leading to “a cult following among statistically oriented sports fans.“ Some of the earliest adopters of Rotisserie League Baseball replaced the game’s original scoring system with head-to-head scoring and adopted the new moniker “fantasy baseball” to describe the game.” Others expanded the concept of Rotisserie League Baseball into other sports such as football and basketball and called these games collectively “fantasy sports.”

Then. in 1994, the Internet came along and changed everything. The Internet facilitated the playing of fantasy sports, not only among friends, but also among participants from around the world – many of whom had never met in real-life. The Internet also allowed participants to enjoy “instantaneously downloadable statistics“ and to have third-party services collect league entry fees and payout the league’s prize winners. Indeed, it was the advent of the Internet that truly transformed fantasy sports from an in-home, social activity into a highly publicized. co1mnercial pursuit.

C. Federal Crackdown on Sporrsbooks and Online Poker

As the Internet became a mainstream vehicle for playing fantasy sports, it also emerged as a popular venue for less socially acceptable forms of online gambling such as Internet sports-books and poker rooms. By 1999, some offshore sports-books had begun to accept bets from US. residents.” Meanwhile, a 2002 article. published in the New York Daily News. indicated that online sports betting had become most popular among college students Who regularly used computers as “part of their daily life.”27

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