Just a few years ago, it seemed like you couldn’t watch a sporting event without seeing advertisements for daily fantasy sports leagues like Draft Kings or Fan Duel. Before the 2015 NFL season these companies spent nearly $500 million on advertisements, but after consumer concerns arose, they cut their advertising budgets.

After multiple lawsuits against the industry, the companies are fighting for their existence amid accusations that they fall under the same legal category as traditional online gambling.

A new study from Rutgers University on gambling in New Jersey concludes that daily fantasy sports (DFS) users exhibit highly similar habits as those who engage in traditional forms of gambling. It also finds that there is a high crossover between the two activities. This is bad news for an industry that has tried to distance itself from gambling in order to win lawsuits and continue operation. The study’s authors wrote:

A majority of activities listed in this study are historically classified and widely accepted as ‘gambling,’ because they involve spending money on activities with an uncertain outcome and the possibility of winning or losing that can result in harm. However, other activities elude precise classification and are largely context and jurisdiction‐dependent.

The key distinction for these companies is whether their games are based on skill, not chance. This stems from the Unlawful Internet Gambling Enforcement Act (UIGEA) passed by Congress in 2006, which makes a distinction between the two forms of gambling and outlawed only games that require no skill.

Fan Duel, which opened in 2009, was the first major daily fantasy sports company before Draft Kings, its main competitor, opened in 2011. First, they experienced massive growth and profits before running into legal problems.

To learn more about daily fantasy sports check out Law Street’s Explainer.

These companies, and their users, must prove to the courts that they are winning massive amounts because of skill and hard work, not pure luck like traditional gambling games.

Those who argue that DFS is skill-based believe it’s clear the games aren’t random because of the overwhelming success of experienced players. While normal gambling games such as roulette or slots don’t favor someone with experience, these games show that the most winners have dedicated themselves to the craft.

While many users casually play the games, others have dedicated themselves to the game, and some manage to earn six-figure payouts in just one month.

In fact, 1 percent of players win around 91 percent of the profits from DFS  sites, according to a study by gambling expert Ed Miller. Miller argues this is evidence of a surplus of skill exhibited by the top bettors, whom he refers to as “sharks,” who feast on the “minnows,” which are novice gamblers who lose over 50 percent of their investments.

On the other hand, those who argue the game is just gambling cite evidence that knowledge of the actual sports doesn’t help win the game. Instead, it’s just about algorithms, gaming the system, and luck, they argue.

Even former Florida governor and presidential candidate Jeb Bush called it, “day trading without any of the regulation” during one debate in the 2016 campaign. The lack of oversight is yet another reason many hope for government intervention in the industry.

In recent years, the industry has faced lawsuits across America while states such as Nevada and New York barred them and defined them as gambling. In 2015 both states booted daily fantasy sports companies from their states.

But in late 2016, New York and Nevada compromised with the companies.

New York’s ban was particularly impactful because the Fan Duel headquarters is located in the Big Apple. However, Governor Andrew Cuomo later signed a law in classifying DFS as a “game of skill,” which allowed them to continue business in the state.

Meanwhile, Nevada decided that the companies need a gambling license to operate, but only one company–USFantasy–has applied and received a license as of last November, according to the Legal Sports Report. The policy means that daily fantasy sports is considered gambling in the state, allowing DFS companies to operate under the same regulation as traditional gambling. However, given the industry’s efforts to identify itself as a game of skill, many DFS companies have been unwilling to participate with a gambling classification.

In Texas, state Attorney General Ken Paxton issued an opinion last year equating DFS with illegal gambling, which prompted lawmakers to craft a bill formally classifying DFS as games of skill. State Rep. Richard Peña Raymond, a fantasy football lover himself, decided to sign onto the bill after speaking with constituents who worried about government interference, he told the Texas Tribune.

So while the Rutgers study finds that DFS users also tend to engage in traditional gambling–and are susceptible to similar gambling and drug-related problems–many states are working with these companies to continue operation.

The new study doesn’t necessarily mean that legal changes are coming down the road, but it furthers research that will help inform future decisions. The legality of DFS is a complex issue that must weigh the economic benefits of gambling for local taxes and the negative impact that it can have on individuals and their families.

Josh Schmidt

Josh Schmidt is an editorial intern and is a native of the Washington D.C Metropolitan area. He is working towards a degree in multi-platform journalism with a minor in history at nearby University of Maryland. Contact Josh at staff@LawStreetMedia.com.

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A federal judge has ruled that the FBI acted inappropriately in an investigation into championship poker player Paul Phua last year. The FBI conducted a search of Phua’s room without a warrant, after posing as repairmen to gain entry. Federal Judge Andrew Gordon, located in Las Vegas, determined that the FBI’s actions violated Phua’s rights to be protected from unreasonable searches and seizures.

The FBI began to investigate Phua last summer after they suspected that he and his associates were illegally taking bets on the Poker World Cup. At the time of the investigation, Phua was staying at Caesar’s Palace in Las Vegas. The FBI shut off the internet to his room, then came in posing as repairmen to fix it, hoping to get a look at what was going on in the room. They wore hidden cameras on their bodies in order to get footage of the room and whatever they saw that pointed to Phua’s guilt. Phua, and others including his son, were then charged.

While some, including Phua’s son Darren, have pled guilty to the federal charges related to gambling, Phua has continued to fight the charges. This is in part because of the nature in which the FBI obtained the evidence. That argument proved convincing to Judge Gordon, who stated in his ruling:

Permitting the government to create the need for the occupant to invite a third party into his or her home would effectively allow the government to conduct warrantless searches of the vast majority of residences and hotel rooms in America. The government need only disrupt the phone, cable, Internet, or some other ‘non-essential’ service, and reasonable people will opt to invite a third party onto their property to repair it, unwittingly allowing a government agents into the most private space to view and record whatever and whomever they see.

As a result of Gordon’s ruling, the evidence that was collected in Phua’s hotel room via the FBI agents cannot be used in his trial. Prosecutors will have to figure out whether or not it’s even worth moving forward the case. They apparently do have other evidence, but it’s not as strong.

This is apparently a unique case and it could serve as a deterrent to keep the FBI from making similar searches in the future. Judge Gordon’s point is compelling. If all the FBI had to do to get into someone’s house was deceive them, they could infringe on various parties’ privacy quite easily. While Phua may or may not win his case, Gordon’s decision certainly weakens the FBI’s claims.

Anneliese Mahoney

Anneliese Mahoney is Managing Editor at Law Street and a Connecticut transplant to Washington D.C. She has a Bachelor’s degree in International Affairs from the George Washington University, and a passion for law, politics, and social issues. Contact Anneliese at amahoney@LawStreetMedia.com.

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The NFL regular season is coming to a close, and with it, a plethora of fantasy-football dreams. Typically, friends draft a team of their favorite stars before the start of the season and depending on their team’s performance, a fantasy dueler can win bragging rights or bets made within the group. Except today, what started as a competition among friends has evolved into a multi-million dollar enterprise. Websites like DraftKings and FanDuel have capitalized on this competition by changing the fantasy landscape. These sites hold weekly competitions allowing users to choose players weekly for a fee. Although this option bypasses the heartache of seeing a number one draft pick go down with a season-ending injury, this type of competition raises some interesting concerns. Instead of bragging rights, friends can compete for millions of dollars against thousands of players across the globe by depositing cash for a particular contest. This sounds wonderful on paper, except it also sounds like gambling, too. Read on and find out whether you should cosign your fantasy involvement.

 What’s the latest news in the fantasy world?

Like the fantasy pro, I’ve endured the pleasure and heartbreak that fantasy football conjures. For instance, two weeks ago week I won $500. Nevertheless, the excitement that a touchdown catch enlivens is comparable to blackjack. The rush in seeing the craps table explode with shouts of hope and trembles of fear is similar to the anxiety of watching the player that you almost drafted “go-off” for three touchdowns. Although there are plenty of gambling outlets for duelers like myself to feast on, discouragement kicked in after reading this article about the Denver Broncos signing a partnership with Draftkings. Let’s face it, it wouldn’t be fair if the number one offense was in cahoots with the fantasy source. Although it’s doubtful that Peyton Manning gets a call during the game to throw an interception, these competitions craft an accessible outlet for fantasy football, which inadvertently targets kids and young adults to compete/bet/win. That worry grew after researching the inner-workings of these one-day fantasy events.

As my fellow New York Law School alum Andrew Blancato correctly noted in his article about fantasy sports gambling, the Unlawful Internet Gambling Enforcement Act (UIGEA) outlaws online sports gambling. The fine distinction is based on skill and chance. But when did this all begin? Years ago, fantasy sports was limited to drafting teams before the season and hoping your team excelled in their respective positions. Today a user can bet online anywhere from 25 cents to upward of a thousand dollars on his team’s weekly performance. When did Football Sunday transform into caring more about the points a player scored, rather than the outcome of the game itself?

Image courtesy of Evangelos Siozos

When did fantasy become financial?

In July 2009, Nigel Eccles and Tom Griffiths altered the fantasy sports arena by launching their newly minted one-day fantasy competitions. Eccles, the CEO of FanDuel, based his idea on a simple premise: Letting people pick professional athletes daily and bypassing the debilitating effects of injury risks associated with season-long tournaments. Instead of one bite at the apple, these businesses capitalize on multiple game-day bites.

In 2010, Allen Tippy explained the phenomena that recently started interrupting your favorite TV or radio show with a 30 second advertisement.  “Fantasy is the steak,” Mr. Lowitz says. “We just want to be the mashed potatoes on the side.” After gorging on the traditional fantasy platter, Tippy made the change to one-day fantasy competitions.

I search out the weak players…I played in the same traditional fantasy baseball league with a group of lawyers from Mobile, Alabama for about 15 years.

That’s right. The success of one-day fantasy sports is semi-driven by the fantasy fanatics, those who play and switch their line-ups with 30 seconds to spare before the game begins. In fact, by employing these modern tactics, a one-a-day dueler can exploit an opponent’s weakness by staying alert of all injuries and penalties that keep a player sidelined. Interestingly, this awareness sounds just like skill, except in one-a-days there are a few caveats.

For example, unlike traditional gambling site, there is a higher commission taken out by the one-day fantasy servicer. Further, what separates a winner from the host of losers requires beating 60 percent of them to make a profit. Eccles calls it “fantasy for the ADD generation.” Mr. Eccles hits it on the nose, considering FanDuel paid out roughly $500 million this year alone.

After FanDuel captured 70 percent of the daily fantasy sports market, DraftKings snatched the remaining 25-30 percent. Fast forward four years: these simple startups have catapulted to infamy and success. In fact, the Fantasy Sports Trade Association acknowledged that about $1.7 billion is spent each year on fantasy sports in the U.S. and Canada. Couple this with an infinite pool of investors and big-name endorsers and one is left to wonder if any regulatory measures have been taken to ensure fair play.

So…is this even legal?

In 2006, Congress passed the UIGEA, which basically outlawed any online sports gambling that relied strictly on chance instead of skill. Whether or not fantasy sports are chance- or skill-related is a question for Socrates; however, what has been done since 2006 is quite startling, especially considering the mammoth explosion of this business. Vice Sports explained it best:

The debate over the legality of DFS revolves around the definition of skill versus chance. DFS games fall somewhere in between pure games of skill (chess, checkers) and pure games of chance (lottery, bingo). Picking a winning lineup involves a level of skill, intelligence, and talent that can be improved but also, Peyton Manning could tear his ACL in warm-ups and sorry, bro, your lineup is done.

Great, so playing fantasy sports involves both a touch of skill and a dash of luck. Easy, done. But some questions still linger. For example, since 2006, the marketing landscape changed, technology evolved, and fifth graders were given cell phones. So, what exactly is going on?

On December 2, 2014, lawyers lodged formal complaints against FanDuel in Florida Federal Court. The allegations included claims of deceptive practices by misleading customers, which tiptoes the line into fraudulent territory. Basically, FanDuel targeted customers through its promise to double any money deposited into its website. Yet, its “double your deposit” promotion didn’t double its customers’ deposits upon joining. Instead, if a user deposited $200, her money was entered into a formula, which requires a contestant to spend $5,000 in order to receive the initial $200 promised payback. This wasn’t the only lawsuit targeting the fantasy giants.

That’s when I was introduced to Christopher Langone, who filed pleadings in Illinois Federal Court to challenge the winnings of Patrick Kaiser, a FanDuel enthusiast. Months later, Langone filed another action against DraftDay.com and bypassed any jurisdiction issues by filing in San Antonio, Texas, DraftDay’s state of incorporation. What initially seemed like a theoretical query based on whether fantasy sports involved more skill than chance, created a battle of mythical proportions, perfect for the great professors who teach me.

What is being done?

In short, nothing yet. Some Federal Courts have reacted, using the judiciary power bestowed upon them to influence states to strike down fantasy football in Montana, Louisiana, Washington, Iowa, Arizona, and Puerto Rico. Or take Florida for example, where state law technically bans the “fantasy phenomenon,” and makes playing it a misdemeanor. But other than political riffraff and textualist toils over what chance and skill really are, the main concern for fantasy-player welfare has dissipated. As Mike Florio puts it,

In what would be a bizarre twist on point shaving, coaches and players could in theory be bribed to ensure that certain players will generate significant production, or that certain players will be shut down. Getting to coaches and assistant coaches who control the offensive game plan would be the most efficient approach. It also would help to grease defenders who would be inclined to slip on an invisible banana peel, springing a specific player for a touchdown or two. Or four.

Florio’s concerns express the same disbelief I have. Further, his article was written in July, way before Peyton endorsed Draftkings and Tom Brady joined DailyMVP.

Fanduel pays out 1 million dollars in prizes per day. Join my 1-day league http://t.co/oTvV4dzNZE

— Vince Wilfork (@wilfork75) August 23, 2014

With more and more players signing onto these fantasy startups, maybe it’s time to start paying attention to the inconspicuous tweets of NFL players. It’s not that Wilfork would miss a tackle to spring a runner 50 yards, it’s that he might be tempted to do so in order to capitalize on the same organization paying him to tweet.

Conclusion

Greed takes many forms. After witnessing the fall of the real estate market, we all saw the destructive nature of our fellow man. Like much of the law, Congress has slowly reacted to recent changes in technology. Today, kids and adults have online access at their fingertips. Although this doesn’t fit the bill as a pressing concern, it could become so. Anyone can click to verify that they are 18 years old in order to play on these sites. Further, not an iota of regulatory action has been taken since 2006. Although it is too early for the unforeseen consequences to materialize, it might already be too late to ensure that they don’t. Alas, chance and skill can only get a fantasy dueler so far. My hope is that there’s no one whispering in the players’ ears to strike that balance.

Resources

Primary

 Denver Broncos: Draft Kings, Broncos, Sign Partnership

Additional 

Law Street Media: Fantasy Sports: Good Fun or Illegal Gambling?

Wall Street Journal: Everyday fantasies

Boston: Single-Day Fantasy Sports

Vice Sports: The Daily Fantasy Sports Takeover

Forbes: Fanduel sued in court

Fox News; Gaming laws could pose risk for fantasy football craze

NBC: NFL Paying attention to Influence of high-stakes fantasy football leagues 

Evangelos Siozios

Evangelos Siozios is a student at New York Law School focusing on family law and real estate transactions. He is a 2012 Baruch Honors College Graduate whose interests include writing, exercising, and solving TV mysteries. Contact Evangelos at staff@LawStreetMedia.com.

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Fantasy football players received an early Christmas present this week, as leagues throughout the country crowned new champions following week 15 of the NFL season. For most, that present was the gift that keeps on giving: cold, hard cash. Anybody who has played in a fantasy league will tell you that these winnings are the result of hours of research, informed speculation, and hard work…or at least hard television-watching. Even those of you who don’t understand fantasy sports have still probably noticed the growing popularity of fantasy leagues. So with millions of dollars being legally exchanged this week for fantasy winnings, it’s time to re-visit the age old question: why are fantasy sports legal while most sportsbooks–places where gamblers can wager on sports–remain illegal?

The answer to this question lies in a small, perhaps capricious distinction between chance and skill. In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) which essentially outlawed online sports gambling. The law excluded most fantasy sports leagues, exempting bets with:

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…

Essentially, the government created a naughty-or-nice list. If you place bets based on skill, you’re nice. If you place bets based on chance, it’s coal city for you.

Exploiting this distinction has made fantasy winners happy, and fantasy businessmen even happier. FanDuel, which specializes in daily fantasy sports matches, is projecting $40 million in 2014 revenue. Boston-based DraftKings has raised over $75 million in investments since it was founded in 2012. Clearly, the industry heads of “skill” based sports wagers are at the top of the nice list, but the ambiguous language Congress has utilized may leave room on the list for others.

Most sportsbooks typically offer their clients bets on a particular team’s outcome in a particular game. Arguably, the results of these games are determined based on home-field advantage, strength of the opponent, and the collective performance of the team. Some larger sportsbooks offer player-props, which are estimations of how a particular player will do either in a particular game, or over the course of a season. For example, if a gambler banks on Detroit Lions wide receiver Calvin Johnson to catch more than 1.5 touchdowns in a specific game, he reaps a monetary reward. Sound familiar?

To New Jersey attorney Charles Humphrey, it sounded like a fantasy sports wager. That’s why in 2006, Humphrey filed an action in federal court arguing that fantasy leagues and sportsbooks were essentially the same, and that ESPN was breaking gambling laws by collecting fantasy entry fees. The District Court of New Jersey ruled against Humphrey, but chose not to tread into the murky waters of the UIGEA’s skill/chance distinction when relying on the law.

Few others have opined on whether player props are skill-based and technically legal under the UIGEA. That’s probably because it’s political. Some casinos with money and clout have set their sights higher than online player props, attempting instead to push through live-action sportsbooks in places like Monmouth, New Jersey. And seeking to compete online with the aforementioned FanDuel and DraftKings is also probably more difficult than it appears. Beyond deep pockets, those two companies belong to the Fantasy Sports Trade Association (FSTA). The FSTA is no stranger to lobbying and legal action, and although they typically argue in favor of the sports-wagering industry, don’t bet on them siding with a start-up company looking to specialize in prop bets and take a piece of their pie. After all, some of the biggest opponents of the online expansion of gambling happen to be other gamblers.

Regardless of hurdles, the valuation of a professional athlete’s performance is highly lucrative, and part of an industry that is getting bigger and bigger. It’s only a matter of time before some brave company offers player prop bets under the guise of a fantasy league. To prepare, Congress should rewrite the UIGEA’s skill/chance distinction, because the current list of who’s naughty and who’s nice doesn’t make much sense…even if you check twice.

Andrew Blancato

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Springtime in America is marked by a wonderful tradition shared by all, regardless of one’s age, gender, or socioeconomic status. I’m not talking about love or cherry blossoms — I’m talking about the NCAA college basketball tournament. If you are a sports fan or happen to work in an office, you have probably paid at least five dollars to enter a pool and pick the winners of the sixty-eight team, single-elimination competition. If you’ve ever been to Las Vegas in March, you’ve witnessed first-hand the popularity of gambling on college basketball.  March Madness is the third most popular time to travel to Sin City, behind New Years and Super Bowl weekend. But apart from office pools and Vegas trips, it may be difficult to legally bet on the college basketball tournament.

Since 1931, Nevada has sold itself to the rest of the nation as the premier destination for sports gambling, largely with the help of federal law enforcement. In 1961, Attorney General Robert F. Kennedy spearheaded an effort to crack down on organized crime in America and got Congress to pass the Federal Wire Act, which penalized most interstate sports gambling.  In 1992, a broadly supported law entitled the Professional and Amateur Sports Protection Act (PASPA) banned intrastate sports betting in jurisdictions apart from Oregon, Montana, Delaware, and of course, Nevada. And in 2011, the Department of Justice released a public memorandum reiterating that online sports betting is within the scope of the Federal Wire Act and will be prosecuted. U.S. law has clearly disfavored sports betting outside of Nevada, but that may soon change.

Enter New Jersey. The Garden State has seen better days, and its officials believe the road back to those better days is paved with the revenue generated through legalized sports gambling.  This effort was kickstarted in 2009 when New Jersey State Senator Raymond Lesniak filed a lawsuit in New Jersey federal court claiming that the PASPA unconstitutionally discriminates against states by allowing some to engage in legal gambling while blocking all others. The suit was dismissed in district court, and the Court of Appeals for the Third Circuit also ruled against New Jersey.  But New Jersey appealed its decision to the Supreme Court, and there are two reasons why the state has renewed hope for a favorable decision in Washington.

1. The Supreme Court’s recent jurisprudence: New Jersey’s appeal argues that the PASPA violates the equal sovereignty of New Jersey, a principle that basically says the federal government cannot discriminate among states. This principle was traditionally only evoked with regard to land and water rights, but it was recently cited by Chief Justice Roberts in Shelby County vs. Holder, the decision that struck down part of the Voting Rights Act. If the Supreme Court hears New Jersey’s case, it’s a safe bet that the briefs will cite that decision.

2. Times have changed: In addition to New Jersey, elected officials from Iowa, Missouri, and Rhode Island have either discussed or drafted joint resolutions requesting that Congress to repeal PASPA. Additionally, Nevada’s largest gambling ambassadors are more worried about gambling competition from the internet than from the East Coast and Midwest. The time may be most ripe for sports books to return, especially since our New Jersey gambling dearth will soon enlarge. How else would red-blooded Americans fill that vacuous space? With family time? Don’t bet on it.

Andrew Blancato

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