Fantasy Games and their Exemption from the Status of Online Gambling

It’s that time of year…oh wait..isn’t it that time of year all year long these days!? Fantasy sports are cropping up not just for football, but for hockey, golf, and, what’s next…fantasy bowling, all despite the US’s prohibition of online gambling. In fact, online fantasy games are specifically exempt from the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), which prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law.

The UIGEA defines a “bet or wager” to include risking something of value on the outcome of a contest, sports event, or a “game subject to chance.” The “game subject to chance” restriction is designed to include Internet poker, while fantasy sports are specifically excluded from the definition of “bet or wager,” as long as any prize given to a participant is not determined by the amount of fees paid to enter the competition. Furthermore, the formal definition of fantasy sports within UIGEA stipulates that the outcome of a fantasy game must be dependent on multiple sports events. The enactment of UIGEA gave the first legal definition of fantasy sports with which operators could then develop games around, hence the recent explosion of online fantasy sports games.

The laws relating to fantasy sports vary by state. However, in the vast majority of them, fantasy sports is considered a game of skill, skill being the predominant factor in determining a winner, and therefore legal.  In order to determine whether a contest is one of skill or chance, because often there is usually a combination of both elements present, most states rely on the “dominant factor test.”  This test requires a court to decide whether chance or skill “is the dominating factor in determining the result of the game.”  In some states, the law is still quite unclear.

Although the methodology behind the chance/skill distinction and the “dominant factor test” is fairly straightforward, there is still no definite way to determine whether chance or skill predominates in a given game. The modern approach to conducting the “dominant factor test” appears to be to subjectively determine whether a game’s outcome is controlled more by chance or by some other factor that is under the game participants’ control.  Although a few courts and legislatures have weighed in on how to conduct this test, courts generally disagree about whether the outcomes of borderline games, such as poker and backgammon, are determined predominantly by chance or by skill.

In sum, please note that in order to have an online gaming platform in compliance with the UIGEA, three prongs must be met:

1.     All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by participants.

2.   All winning outcomes reflect the relative knowledge and skill of participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.

3.     No winning outcomes is based:

a.     On the score, point spread, or any performance or performances of any single real world team or any combination of such teams; or

b.     Solely on any single performance of an individual athlete in any single real-world sporting or other event.

I don’t know about you, but I’m off to get my fantasy shuffle board team together!