Fantasy sports betting has become a popular form of online gaming, with millions of users participating in real-money fantasy sports contests. However, the legality of such platforms has always been a matter of debate, with many laws that apply to gambling and lotteries being potentially relevant to these models. Federal and state laws vary, but most require that the model is based on skill rather than chance, and that there is no consideration for a chance to win a prize. Any model that involves such consideration runs the risk of being considered an illegal lottery or gambling activity.
To evaluate the legality of alternative models, such as daily fantasy and quick pick, the facts of each individual model must be carefully considered. The shorter the contest duration and the less skill required, the higher the legal risk for the model. The entry fees and the prize pool are also important factors to consider, as a model that uses entry fees to create the prize pool may be considered illegal gambling. The UIGEA has a limited exception for certain fantasy sports activities, but it does not make all fantasy sports legal.
The UIGEA exception applies only if no fantasy team is based solely on the current membership of an actual team, all winning outcomes reflect the relative knowledge and skill of the participants, and the prizes offered to the winning participants are established and made known to the participants in advance of the game. If a fantasy sports model does not meet all of these requirements, it may be at risk of running afoul of the law. Additionally, other federal laws may be relevant to certain fantasy sports models, such as the 1961 Wire Act and the Professional & Amateur Sports Protection Act.
It is important to note that the UIGEA does not make fantasy sports legal, but rather exempts certain models from enforcement under the UIGEA. The UIGEA does not preclude the applicability of state law, so it is essential to ensure that the business model is legal under the laws of all 50 states. Using points or virtual currency as entry fees is also not a guarantee of legality. The UIGEA defines “bet or wager” to include staking or risking something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value based on a certain outcome. Participation in any game or contest where participants do not stake or risk anything of value other than points or credits that the sponsor of the game or contest provides free of charge is excluded from this definition.
