Is Daily Fantasy Sports Legal?

DFS Legality

Daily fantasy sports (DFS) commercials for FanDuel and DraftKings are now all over television and radio. Millions of dollars are being invested. Many major sports leagues are embracing the game in one form or another. And the world’s top fantasy sports providers such as Yahoo are elevating their interest and seeing the upside that the industry provides.

Most everyone, including most experts, now feels that the legality of daily fantasy sports is an open and shut case. But is there any doubt about daily fantasy sports legality, and if not, what has taken major interests so long to fully embrace DFS?

Simply put, yes, fantasy sports is legal in most parts of United States. One only needs to look at how major interests are approaching daily fantasy sports. You would not see the level of activity we have seen from the major interest (sports leagues, Yahoo, major investors) if they did not feel they were on very solid legal footing before putting their significant resources behind DFS.

Of course, there is a more specific reason sports leagues and big money are starting to jump in with both feet – fantasy sports’ exemption in the last major federal online gambling bill.

UIGEA Exception Paves the Way for Daily Fantasy Sports

If you are a fantasy sports enthusiast, chances are you have played online poker or are at least aware of the popularity of the game. During the early to mid 2000s, online poker was riding high on the heels of expanded television coverage through the World Poker Tour (WPT) and World Series of Poker (WSOP), which included Chris Moneymaker’s improbable win turning an online satellite tournament ticket into a multi-million WSOP win. During this period, the entire poker world was on fire, online poker companies were printing money and online poker players were enjoying games and promotions that were unprecedentedly lucrative.

By late 2006, after a few failed attempts by the United States Congress, the Unlawful Internet Gaming and Enforcement Act (UIGEA) was added as an attachment to must-pass legislation, the Safe Port Act. The legislation temporarily turned the industry on its head. While poker players were bemoaning an uncertain future, the seeds of the online daily fantasy sports industry were sown with new language, exempting fantasy sports that met a certain criteria:

“has an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance), and, in the case of a fantasy or simulation sports game, has an outcome that is determined predominantly by accumulated statistical results of sporting events, including any non-participant’s individual performances in such sporting events”

Further language in the UIGEA stipulated that fantasy sports contests must involve multiple games — to avoid similarities to sports betting — but the wording of the new law did not limit the duration of the contests. While the language of the bill was likely referencing season-long fantasy leagues — which were quite popular by 2006 — the lack of a restriction on the length of the contests opened up the possibility for more frequent versions of fantasy sports and ultimately ushered in the daily fantasy sports era.

And while daily fantasy sports continues to sit on relatively safe legal ground, some existing laws for certain states aren’t as favorable. As a result, daily fantasy sports websites have restricted players from joining real money contests in Arizona, Iowa, Louisiana, Montana and Washington state until more favorable legislation is passed in those states.

Why Have Major Interests Hesitated with Daily Fantasy Sports?

With the clear language of the UIGEA, opponents of daily fantasy sports have largely been muted. There is certainly not as much debate about the legality of DFS, say compared to online poker prior — or even after — the UIGEA passed.

Still, the game is new enough and has made the power players uncomfortable enough to hesitate and avoid jumping into the industry with both feet. The NFL league office is still taking a cautious approach, while almost half of its member teams now have some sort of sponsorship with Fanduel.

So what is the holdup? Why hasn’t Yahoo, which has been offering season long fantasy contests since the 1990s, or the NFL, who could gain significantly from expanding fantasy sports, jumped into the daily fantasy sports world sooner?

The industry’s history with gambling is a long one. Most American major sports leagues are unequivocally against traditional sports betting on its games. The leagues desire to maintain the purity of the game, and historically the perception has been that gambling goes against that. On the flip side, fantasy sports is now a billion dollar business, and perhaps more importantly, is a very effective way for the core demographic to be engaged with the sport. The problem is that for some daily fantasy sports could be little too close to sports betting for comfort. That perception is changing.

Yes, the leagues don’t want even the perception that it is associating itself with gambling. But fantasy sport’s recent reputation — with fans of all varieties participating — means the common perception is that it’s not in the same class as gambling, even when real money is part of the equation. The jury is still out on daily fantasy sports, but so far it looks like daily fantasy sports is more closely lining itself with the more palatable fantasy sports game than with sports betting.