If they haven’t already, a substantial portion of the U.S. population will complete their fantasy football drafts before the NFL regular season kicks off when the Saints take on the Packers.  Fantasy football attracts long-time fans and non-traditional fans alike by offering a new football experience, one where fans and observers have a more concrete interest in outcomes.  Fantasy football has also changed the way football games are presented, with live look-ins on up-to-the-minute action, an incredible breadth of online interactive content, and even the new NFL Redzone channel.  Considering the apparent widespread acceptance of fantasy sports, one may conclude that the game is as American as apple pie and raises no legal concerns. Not so fast, my friend.

The Gambler

Fantasy sports are a growing $5 billion a year industry.  Increasing numbers of pay leagues and higher entry fees for “professional” (aptly named) fantasy leagues have turned the former back-room buddy game into a worldwide phenomenon, a stat geek’s Texas Hold’Em, if you will.  However, in some jurisdictions, the very idea of fantasy sports leagues with an entry fee – and thus with a prize for the winner – is prima facie evidence of illegal gambling.  Although the law is a bit antiquated, the issue is worth considering.

Illegal gambling breaks down into three basic elements: consideration, reward, and chance.  A minority of jurisdictions (including Washington, Kansas, Michigan, Ohio, Vermont, Wisconsin, and Delaware) have found consideration to exist for illegal gambling purposes under a contract theory – essentially any legal detriment in exchange for a chance to win a prize – including an entry fee.  Further, under a larger number of jurisdictions, a reward is found any time something tangible and of value is provided.  Finally, chance is generally found to exist where the game’s result is driven by factors beyond the participants’ control (jurisdictions differ, however, on “how much” of the result must fall beyond the participant’s control – the majority of states apply the predominant purpose test, which requires >50%).

Although a majority of U.S. jurisdictions will not likely find participation in or hosting of a fantasy sports league to violate illegal gambling laws, there are some initial considerations that may tip the scales in the other direction.  First, if the league allocates players via a draft, an autopick draft, or some other non-auction form of player selection, the element of chance takes much greater prominence in determining a result.  Likewise, short-season fantasy leagues invoke greater amounts of chance, as strategy and player ability becomes much less important.

In the states with true contract theories of consideration or those with “any chance” theories of chance (not just the predominant purpose test, but games involving any chance/risk – including Arkansas, Iowa, and Tennessee) the law may be applied more strictly, thus implicating fantasy sports in illegal gambling issues.  Other states, including Florida, Arizona, Kansas, and Louisiana have officially called into doubt the legality of certain web-based fantasy games.  Notably, Montana is on the cutting edge of the law, having passed a specific statutory authorization for fantasy sports in 2005.

Although the likelihood of your average friendly fantasy football league being busted for illegal gambling is a bit of a stretch, it’s worth noting that there are still some legal concerns with operating large-stakes leagues or running fantasy football sites.  That, and it’s entertaining thinking that ESPN has been shamelessly promoting potentially illegal activity for years.

– Alex Payne

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One Response to When Fantasy Gets a Little Too Real

  1. Mike Ritter says:

    Fantasy sports as gambling is an interesting issue. It came up a few years ago, with regards to company policies, in a situation where Fidelity employees were fired for “violation of company gambling policy involving fantasy football.” Check out this news article: http://www.aolnews.com/2009/12/17/fired-over-fantasy-football-the-unfortunate-case-of-cameron-pet/