Fantasy Sports Business: Media & Lawmakers Need Education
FSTA Founding Board Member Rick Wolf attempts to simplify the legal battle over fantasy sports explaining what has happened and why the future is bright.
MY CHILDHOOD SUCKED.
Yeah, I said it. So what! It’s not an excuse. Hell, everyone’s childhood sucked, right? Too many expectations or not enough love. So what!
Well, my father was easily angered. If something wasn’t perfect, it only took seconds…then…BOOM. He would attack anything near him. He had five kids. He would come after whoever was closest. My mom finally got rid of him when I was six. Dad became lonely and sought Jesus. It was too late. We had seen the “dark side.” I laughed every time he chased my brother around the neighborhood because of the ridiculousness of his behavior. My brother laughed too. Dad liked the attention from the neighbors and it calmed him down.
Why explain all this crap about my father?
Well, in the fight for fantasy sports we have lawmakers and media trying to find anyone to beat up, looking ridiculous by saying uninformed or irrelevant things and, well, simply looking for attention. So, it seemed to fit.
Their behavior makes people confused. Heck, people in New York and Illinois are not sure if daily fantasy sports can be played in their state. It is impossible to sift through all the negative stories to find the truth. I am not a lawyer and do not even play one on TV. However, here are some truths you should know:
- As of this writing, New York and Illinois residents can enter contests on FanDuel and DraftKings
- Most pending state legislation is favorable to fantasy sports and the media is only reporting the things that are bad for fantasy sports
- Under Federal Law passed less than 10 years ago, you cannot bet or wager on fantasy sports since the legal definitions are clear that fantasy sports are games of skill and not bets or wagers.
- State laws being cited these days were not written with fantasy sports in mind and were not intended to address fantasy sports which have been played and enjoyed by tens of millions of people for many years. Only now that it is a means of getting media attention are public officials seeking to climb the public ladder by stomping on the backs of fantasy sports.
So how is someone supposed to understand all this? I will try to simplify it for you.
WHAT MATTERS WHEN CREATING A LEGAL FANTASY SPORTS GAME?
- CONSIDERATION (FREE vs. PAY) – If a sports contest is free, there is nothing of value being risked and thus no argument that most of the now often cited antiquated gambling laws even apply. Stated another way, making a game free to enter resolves many of the issues associated with fantasy sports games.
- SKILL – Under the most recent Federal Law, fantasy sports are games of skill and thus not gambling. Few state laws address the issue directly, however, for the most part, if your sports contest is a game of skill (i.e., winning depends more on skill than luck), you can charge an entry fee and have a cash prize. Each state is different and you need to make sure you are complying with the states laws to have a legal sports contest. Many states laws are antiquated or pre-Internet. Many states are working to update laws as they are associated with sports contests and specifically fantasy sports.
HOW DOES UIGEA EFFECT FANTASY SPORTS?
Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) defined the terms BET and WAGER to decide whether a sports contest is considered gambling under the law. UIGEA specifically defines Fantasy Sports Games as NOT gambling as long as it meets these requirements:
- The composition of the Fantasy Team could not be based on the current membership of an actual team
- All prizes NEED to be made known to the participants in advance and not determined by the number of participants or the amount of any fees paid.
- All winners are determined by their skill at predicting athletes’ real-world performance
- No winners are determined either by a single athlete or a single real-world event
- No winners are determined solely by the real-world score, pointspread or real-world team performance
When Congress passes a law, it can decide to say that a Federal law takes supremacy over State laws. In the case of UIGEA Congress did NOT. So, if one fits into UIGEA, one is free from UIGEA enforcement but could STILL be subject to state law enforcement should that state law be violated and vice versa. So state laws are still relevant to the question of whether a fantasy sports game is gambling within that state.
STATE LAWS AND THE FUTURE OF FANTASY SPORTS
There are 22 bills (or drafts) in 16 states currently that are favorable to the fantasy sports industry. The sensational things happening in New York have overshadowed what is largely positive news in the legislatures. On November 30, the National Conference of Legislatures discussed regulation and taxation for daily fantasy sports game sites. So, the states are looking to find ways to generate revenues from the exploding hobby, keep it safe for consumers, and allow their constituents who love fantasy sports to play. They are not seeking to shut down fantasy sports to create headlines like the Attorney General in New York.
Below I tried to recap what is my understanding of the laws and Legal Sports Report does a good job of keeping their tracker up-to-date. Largely states fall into two buckets:
- Favorable: Clarifies legality of fantasy sports sometimes includes regulation & taxation: Florida, Illinois, Iowa, Maryland (already law), Kansas (law already), Louisiana, Michigan, Montana (only some forms), New York (3 of 5 bills), Washington State.
- Unfavorable: Lumps fantasy sports with Gaming or Lottery: Massachusetts (Lottery), New Jersey (Gaming), New York (Gaming - 2 of 5 bills), Pennsylvania (Gaming), Texas (Gaming), Georgia (Lottery).
So as you can see, for the most part, most states recognize that fantasy sports needs to be clarified. Smart people got confused. Some people saw daily fantasy sports as possibly eating their lunch. Now, from above, you can see that New York is the most confusing so let’s take a closer look at what happened in my home state.
QUICK SYNOPSIS OF WHAT HAPPENED IN NEW YORK
Here is a quick timeline some of the major milestones in NY. This is not meant to be a complete list:
- 11/10 - New York Attorney General sent cease & desist letters to DraftKings & FanDuel. In the letter, the New York Attorney General states:
- There is NO criminal liability for the players.
- There is a critical distinction between DFS and traditional fantasy sports – He wrote that “traditional fantasy sports has NEVER seriously been questioned”.
- The letter is focused on advertising “deception”
- 11/13 - DraftKings & FanDuel filed requests for Temporary Restraining Orders (TROs) preventing NY AG investigation from moving forward
- 11/17 - Judge denied TROs and called for a hearing
- 11/17 - New York Attorney General filed request for a court ordered preliminary injunction to stop DraftKings & FanDuel from operating while the court case proceeds. FanDuel voluntarily stops operating in New York
- 11/25 – An oral argument with no live evidence or witnesses is held in NY State Supreme Court (which by an odd naming convention is a low level or entry level Court not to be confused with the august United States Supreme Court – they are as far away from each other as possible).
- 12/11 – NY State Supreme Court Judge granted NY AG’s request for a preliminary injunction to stop DraftKings and FanDuel from taking entries in NY. This decision, made without live evidence does not determine the final outcome of a case that has not begun in earnest.
- 12/11 – Within hours, NY Appellate Court (the court that is higher in New York) granted a stay of the injunction to keep status quo until they can review in January session.
Shouldn’t we all have thrown a party? The media should have played this as a HUGE victory for the fantasy sports industry. However, the news came last thing on a Friday afternoon and frankly the news of the stay of the injunction went largely unreported. The FSTA released a statement. DraftKings and FanDuel released statements, but the media was asleep for the weekend. People can play in the state of New York, but the media simply did not do its job and failed to highlight the most critical part of the story and the New York Attorney General failed to recognize the importance of a higher court Judge quickly overruling (whether temporarily or permanently) the “supreme” court’s order. All this allowed for misleading news to permeate the airwaves and hit like a ton of bricks.
Major media outlets have been reporting since then that you cannot play in New York. The New York Attorney General has killed the lexicon so badly that the people within sports are calling daily fantasy sports by the irresponsible name “fantasy sports betting”.
Here is my favorite desperate quote from the New York Attorney General:
“If a player were to make a bet based on eight offensive NFL players and one team defense, he would have just constructed a DFS roster—but that roster is fundamentally no different from a prohibited parlay bet…DFS represents nothing more than an extension of the proposition bets and parlay bets that have long been a staple of sports bettors.”
Let’s examine how uninformed this is:
When you select a proposition bet in sports gambling, you are given two sides to choose from that are made into a 50-50 proposition. You have the equal chance of which will be right.
When you select a player at a position for a DFS roster, you select one out of dozens of players to choose from. It is your skill and knowledge that allows you to understand how to compose a roster that will score enough points to defeat your opponents in the contest you enter. The key point is that in a proposition bet, the result is binary where in DFS Roster creation, any number of rosters can score a lot of points and beat the opponents in your contest.
The argument that playing daily fantasy sports is like a parlay bet is ludicrous.
This is politics and an attempt at getting attention.
QUICK SYNOPSIS OF WHAT HAPPENED IN ILLINOIS
Paying attention to the laws that are being drafted in each state’s legislature, it certainly caught me off-guard when Illinois’ Attorney General released an opinion on the legality of daily fantasy sports in her state. There are similar bills in both the senate and the house in Illinois that make it clear that operating fantasy contests will be legal.
The Attorney General decided that she needed to weigh in on this even though the legislature was bringing bills in both houses to solve the problem. Frankly, this bill is the model bill for fantasy sports. She instead concluded that since the participants of daily fantasy sports games are not in control of the outcome of the contest.
Again, all this is counter to what is happening in the same states’ legislature. I asked a number of people smarter than me and the consensus is that the Attorney General is attempting to move the legislature faster to resolve this issue in her state. If this is true, this is more good news for fantasy sports.
FANTASY SPORTS IS MY LIFE
On opening day in 1989, my first Rotisserie league began accruing stats. It was the beginning of a lifetime dedicated to fantasy sports. For me, it enveloped all that is good in the world. It was the first social network. It had comradery, statistics and baseball. It made me feel like I belonged. It got me closer to the founders of Allstar Stats since both Mike Oliveto & Rich Pike played and ran the league as the second league on their new statistics service. I got closer to Harold Topper, who in that summer choose me to work on the development team of Baseball Manager, the first online fantasy baseball game. In some weird way, it also connected me with my misguided father. His love of baseball was the only thing that we connected on. We had great conversations about my team and its players speculating on their success for the 1989 season.
The next day, my father had a heart attack and died. I have played fantasy baseball ever since.
So again, why explain all this crap about my father? Even the misguided get it right in the end.
So, as an industry, we need to first celebrate that largely lawmakers understand that our skill-based hobby is not gambling. We need to steer clear of the politics that drives the most uninformed to attempt to call fantasy sports illegal. We need to recognize the politics aimed at helping the industry like the opinion from Lisa Madigan. We need to be out in front of the conversation instead of reacting to it all the time. We need to update journalists with the truth when they get it wrong or attempt to vilified fantasy sports to sell more of their newspapers. Most of all, we need to forgive people of their mistakes. We need to show them that our skill-based hobby brings joy to millions, connects families and friends in a deep way and creates a deeper connection with sports.