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The Gray Area of Fantasy Sports

6 Jul, 2015

By: Mary Helen Sprecher
Operating on the Fringes of Professional Leagues, Fantasy Sites Beg the Question: Legal or Not?

The presence of fantasy sports has never been questioned; otherwise, why do you think just about every sports site has a tab for them? And gambling on fantasy sports is likewise its own industry.

But the questions remains: is it legal?

Right now: yes. But as an article in the online version of the Pittsburgh Tribune Review reports, that might not be the case forever. As the debate over legalized sports gambling intensifies, the four major professional sports leagues say they officially remain opposed to it; however, they continue to accept partnerships with daily fantasy websites worth hundreds of millions of dollars.

And not just accept the partnerships but encourage the activity. In fact, the Minnesota Vikings will be adding a special suite, known as Club Purple, set up specifically for fantasy football fans. The suite is expected to cost $1 billion and will feature sofas, high-definition televisions and running tickers so that fans can keep up with sports on multiple platforms during the football game.

Fantasy sports has moved into the realm of its own industry. In fact, notes the Pittsburgh article, Draft Kings, a daily fantasy sports website which boasts it will give away $1 billion in prizes this year, recently signed a three-year deal with ESPN, owned with ABC by Disney. Competing fantasy website FanDuel already has a presence with the NBA, having signed a four-year deal with the league in November.

“Why is this legal?” asks Chris Smith in an article in Forbes. “To be honest, I’m not totally sure. But we should start by clarifying that it is currently legal to bet on fantasy sports. The Unlawful Internet Gambling and Enforcement Act of 2006 (UIGEA), which establishes the legal guidelines for online gambling, carves out a safe haven for any fantasy or simulation sports game that:

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…

In other words, Smith says, fantasy sports are considered games of skill – not chance – if they can be won by successfully utilizing superior knowledge of the players involved. The Act adds that the game in question cannot have a prize that is determined by the number of players or amounts paid (think betting odds on game picks), but rather is established in advance of the game’s start.

Smith is careful to differentiate sites like FanDuel and Draft Kings from leagues that involve friends or coworkers. (The worst thing that casual workplace involvement can cost someone, say pundits, is lost productivity.)

But it is the large sites, Smith notes, that host millions of dollars in transactions between players who organize and bet on new lineups each week; in many cases, bets are placed daily.

To give a specific idea of just how much money is going around, the Pittsburgh article notes,  DraftKings offers more than 20 daily contests, with some games paying out $1 million in overall prizes. Earlier, that site also partnered with Major League Baseball.

The NFL has not yet signed with a fantasy sports website, but five of its teams, including the Steelers, have signed deals with DraftKings, allowing the company myriad advertising possibilities. Sixteen NFL teams have signed similar deals with FanDuel.

According to the Fantasy Sports Trade Association, Americans spend about $15 billion annually on fantasy sports. Most of that -- $11 billion -- is spent on the NFL. To put that in perspective, the NFL's annual revenue is about $10 billion, according to Forbes. Popular pay-to-play sites take a cut of every payout; in 2010, FanDuel’s CEO said it was about $35 per player each month.

NHL, NBA, MLB and NFL officials say there is no conflict of interest for them, and that fantasy sports leagues do not conflict with their philosophies. However, Jim Murren, chairman and CEO of MGM Resorts International, told reporters in April that those (including politicians and sports officials) who argue that daily fantasy games are not gambling are "absolutely, utterly wrong."

"I don't know how to run a football team, but I do know how to run a casino, and this is gambling," Murren said.

But at the end of the day, it’s the revenues that count for those looking at the bottom line.

Pennsylvania State representative George Dunbar is banking on the popularity of fantasy sports sites to help push though House Bill 1197, which would permit licensed casinos in the Keystone State to offer fantasy sports tournaments.

"We're trying to find alternatives to what our casinos offer patrons, to attract more individuals and keep them in there," Dunbar said. "Let's use the Rivers Casino, for instance. A lot of people who go to a (Steelers) game go to the Rivers beforehand. Maybe they'll pick a fantasy team for that day, go over and watch the Steelers game, come back to the Rivers and hang out through the 4 p.m. game to see how their fantasy team does."

Nine states, including Pennsylvania, are attempting to pass daily fantasy sports bills.

But, noted CNBC, people who know the industry also acknowledge some troubling aspects of daily fantasy sites. Many sites are run by people with backgrounds in online poker or sports betting, activities that historically have run afoul of government regulators.

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