A Diversion: Fantasy Sports Betting and the Law

(Usual Disclaimer: I am an attorney. Nothing in this post is specific legal advice, and you are not my client. Always consult an attorney licensed in your jurisdiction and familiar with the relevant laws before making legal decisions.)

UPDATE UPDATE: Thank you, Illinois Attorney General Lisa Madigan, for totally agreeing with my analysis and making me look even better. :)

UPDATE: Thank you, Nevada Gaming Commission, for making this post not only brilliant, but prescient!

Nevada Gaming Commission: Daily Fantasy Sports Betting is Gambling

I happened across an interesting Diana Moskovitz piece on fantasy football at Deadspin the other day:

http://deadspin.com/the-daily-fantasy-nightmare-is-here-because-the-nfl-mad-1734882560

(hat tip to https://twitter.com/ChrisWarcraft )

While there’s a lot of info in there about the UIGEA (Unlawful Internet Gambling Enforcement Act) and it’s all on point, I commented, as I have in other venues, on something these stories always seem to miss. The UIGEA is a Federal law. And unlike many Federal laws (e.g., the various patent laws) not only does it not anticipate pre-empting state and local laws about gambling, it specifically says it doesn’t. To wit:

(b) RULE OF CONSTRUCTION.—No provision of this subchapter shall be construed as altering, limiting, or extending any Federal or State law or Tribal-State compact prohibiting, permitting, or regulating gambling within the United States.

 

— Unlawful Internet Gambling Enforcement Act, 8 U.S.C. § 5361(b) (2006).

 

So while, for most purposes, betting on fantasy sports over the Internet is not a violation of Federal law, the UIGEA is totally silent as to its legality under the law of any state. While I am actually very familiar with the gambling laws of several states – I was the General Counsel of a large gaming company – the law of my own state, Illinois, makes a great example.

 

Let’s leave aside questions of jurisdiction and venue (i.e., whether any particular act takes place in Illinois, and whether the courts of Illinois have the power to reach any particular individual) and assume that John Rogers, a resident of the state of Illinois, logs in from a computer in Illinois, uses money from a bank account in Illinois, etc, etc, and places a bet on a fantasy football event. Assuming the court has power over all this, has John broken the law of Illinois? I think there is a very strong case that he has.

Let’s look at the relevant portions of the Illinois gambling statute. My comments are in BOLD. I refer to Fantasy Betting as FB and sites that offer it as FBS.

CRIMINAL OFFENSES
ARTICLE 28. GAMBLING AND RELATED OFFENSES

720 ILCS 5/28-1) (from Ch. 38, par. 28-1)

Sec. 28-1. Gambling.
(a) A person commits gambling when he or she:
(1) knowingly plays a game of chance or skill for money or other thing of value, unless excepted in subsection (b) of this Section; Illinois is a “skill or chance” state. It doesn’t matter that you’re claiming you’re playing a game of skill. Making a wager on the outcome, unless it falls into one of the exceptions in subsection (b), is unlawful gambling. Period, full stop.

        (2) knowingly makes a wager upon the result of any game, contest, or any political nomination, appointment or election; This is why the claim that FB is a game of skill AND that it is not based on any single sporting event is irrelevant. An FB contest is just that – a contest. Maybe skill is an overwhelming factor (it seems to be, since in actuality almost all the money on FBS is won by a handful of players.) It doesn’t matter. It’s a skill-based contest and therefore falls under this section.

I’ve cut out a bunch of the more obscure things which pertain to private lotteries, numbers rackets, etc. They don’t apply to FB.

        (12) knowingly establishes, maintains, or operates an Internet site that permits a person to play a game of chance or skill for money or other thing of value by means of the Internet or to make a wager upon the result of any game, contest, political nomination, appointment, or election by means of the Internet. Internet bookmaking is itself gambling even if you’re just making book. This would seem to apply to FBS themselves, not John. However, the FBS servers are all in Costa Rica or someplace and their owners, if they have a lick of sense, will never enter the great state of Illinois. This item (12) does not apply to activities referenced in items (6) and (6.1) of subsection (b) of this Section. Sections 6 and 6.1 make an exception for the Illinois State Lottery and its games. Not applicable to FBS.

    (b) Participants in any of the following activities shall not be convicted of gambling: Here are the exceptions. Most of them, such as legitimate insurance policies, commodity trading, etc, are not applicable and I’ve cut them.

        (2) Offers of prizes, award or compensation to the actual contestants in any bona fide contest for the determination of skill, speed, strength or endurance or to the owners of animals or vehicles entered in such contest. Aha. Here is the lone reed upon which any defense rests. However, it is too thin a reed, and here’s why. To claim this defense, usually known as the “actual participant” defense, you must be able to directly affect the outcome of the contest. FB does not allow this, because John is not playing in the sporting events underlying the FB system. (To claim that this applies to the skill of selecting winners would make it logically impossible to gamble on sporting events at all, which is clearly not the intent of the statute and no court would accept such an argument.) If you want to have a bowling tournament, and let people pay to enter in hopes of placing highly and winning prizes, that’s fine. But no one can wager on the outcome for any other person, not even one of the other players!

        (13) Games of skill or chance where money or other things of value can be won but no payment or purchase is required to participate. – This is the “promotional sweepstakes” exception and it’s why McDonalds can run their Monopoly game every year. No purchase is, technically, necessary to win (there’s an alternate entry means that doesn’t cost anything.) FBS can offer free contests, no problem. But if you have to pay to play, this no longer applies.

Now that we know what the law says, let’s look at what John actually did. He went on an FBS, gave them some money, selected a fantasy roster, and hoped to win money when the players on his roster performed well. Taking it one thing at a time:

  1. He went on an FBS. In and of itself, this is fine. However, FBS clearly meet the definition of something which can facilitate gambling. So while this isn’t sufficient to determine whether he broke the law, neither is it in any way exculpatory. The fact that he’s on a web site and not calling his bookie down the block is unimportant.
  2. He gave them some money. This is the actual wager, or “consideration.” Under the common law, the crime of gambling required three things: Chance, consideration, and prize. If any of them were missing, it wasn’t gambling. The same principle applies here at least this far. If he hadn’t given them money, he’d be in the clear. However, he did. We can proceed with our analysis.
  3. He selected a fantasy roster. This is the contest upon which he wagered.
  4. He hoped to win some money. Now he has made a wager upon the result and/or played a game for money. This is the last requirement of the statute.

So, upon analysis, John appears to have broken the law of the state of Illinois by using an FBS. What punishment does he face? From the same statute:

(c) Sentence. Gambling is a Class A misdemeanor. A second or subsequent conviction under subsections (a)(3) through (a)(12), is a Class 4 felony.

It seems that John will probably only violate (a)(1) and/or (a)(2), no matter how many times he uses FBS. So, technically, he will simply commit Class A misdemeanors over and over again if he keeps using it. What’ll that get him? Well, a Class A is the highest class of misdemeanor under Illinois law: it’s one step below a felony. The potential punishment is up to 1 year in prison, a $2,500 fine, or both. (See: 730 ILCS 5/5-4.5-55) And that is per offense.

Meanwhile, the owners of FBS are violating subsection (a)(12.) Their first offense will be a Class A misdemeanor. Their subsequent offenses will be Class 4 Felonies. A Class 4 Felony is the lowest class of felony in Illinois, and is subject to a sentence of not less than three and not more than six years in prison, plus significantly higher fines and restitution. Like I said, they’d better not ever go where Lisa Madigan can get at them, or they’re in for a hard time.

Now this is an IP blog, so I would be remiss if I didn’t put some IP reference in here. And voila! Here we go.

If you want to see how you can transform a game of chance into a game of skill, a really good example (ahem*) is US Patent 8,523,651. It teaches a method of evaluating skill at poker which makes the chance element (i.e. the actual cards dealt) irrelevant. In my opinion (this is not legal advice, laws vary by jurisdiction) you could use the method in this patent to make a “poker” game which was legal in even a jurisdiction where games of skill or chance were potentially gambling, so long as they had an actual-participant exception. However, this would not work for FB. It only works for “solved games.” Neither football (or any other underlying sporting event) nor FB is a solved game. If the game is not solved, the player is not an actual participant in the outcome. Ooooh, so close!

In conclusion, I’ll say what I always say when this topic comes up:

  1. Fantasy Betting is almost certainly unlawful gambling under the law of many states.
  2. The fact that the Federal UIGEA allows it is completely irrelevant to point #1.
  3. If you participate in FB, you are risking potential criminal liability.
  4. I don’t understand why every prosecutor in the United States who likes easy convictions, big sanctions, and lots of press (i.e., all of them) isn’t all over this.

Thanks for reading!

*I am the patent attorney who drafted this patent.

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