The Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”) prohibits any person engaged in the business of betting or wagering from knowingly accepting payments in connection with the participation by another person in unlawful Internet gambling. Violation of this statute may result in criminal penalties, including monetary fines and imprisonment for up to five (5) years. UIGEA has a well known “carve out” for fantasy sports contests. It is critical to note, however, that the carve out is fairly specific in its scope. In addition, even if your business falls within the scope of the UIGEA fantasy sports exemption, you must still be mindful that some state laws do not permit fantasy sports contests within their borders.
Federal Fantasy Sports Liability Issues
As set forth above, UIGEA carries the potential for criminal penalties, including fines and/or imprisonment. In light of this, and because there is currently much discussion and some uncertainty surrounding issues related to the duration of fantasy sports contests played for money, it is imperative to, at the very least, adhere to the basic rules that are clearly delineated in UIGEA.
First, for a fantasy sports contest to be legal under federal law, the outcome of the contest must be determined by the statistics generated by multiple athletes (on different teams) participating in multiple real-world sporting events. Accordingly, at a minimum, fantasy sports contests should require contestants to assemble a roster consisting of several athletes from more than one team and participating in more than one game.
Second, the prizes offered to the winners must be preset and not influenced by the amount of fees paid by the contestants, or the number of contestants in any given fantasy contest. While it might be tempting as an operator of a pay-for-play fantasy sports contest to treat the purse for each contest like a lottery pool – the more players that enter, the greater the prize – such a scenario would be in violation of applicable law. Instead, fantasy sports contest operators must set a prize amount prior to the commencement of the particular contest, and not modify that amount based on the number of entrants participating in the fantasy contest or the amount paid in entry fees.
State-Specific Fantasy Sports Liability Issues
On the state level, the legality of fantasy sports games that are played for money in many respects remains unclear and state laws and interpretations thereof are in a regular state of flux. Some states have specifically legalized fantasy sports (e.g., Maryland, where the statute follows the UIGEA exception) or are considering draft legislation. Other state laws appear to allow for fantasy sports contests, and then there are a small number of states that have statutes which seem to prohibit fantasy sports altogether (e.g. in Arizona, where operators of fantasy sports contests may face felony charges). Bear in mind that, even if a given state permits fantasy sports contests, the state’s attorney general’s office may still commence an investigation and prosecute if the subject contest is otherwise violative of state deceptive advertising laws. Finally, it is important to note that each state attorney general is authorized to enjoin certain violations of UIGEA.
Private Fantasy Sports Litigation
Be aware of the fact that private litigants may seek to take action against fantasy sports contest operators as well. For example, a handful of Qui Tam actions have been filed in which a private individual sues on behalf of the state for alleged violations of state anti-gambling statutes. There is also the potential that private suits and/or class actions may be brought based upon alleged violations of consumer protection and/or state marketing statutes.
Notwithstanding the foregoing warnings, remember that the fantasy sports arena is a rapidly growing industry that, if approached with caution and careful legal analysis, can result in a very lucrative business pursuit.
This blog post only touches on a few of the relevant legal issues involved in the fantasy sports arena. If you plan on engaging in, or operating, a fantasy sports venture, be sure to retain competent legal counsel to help you design the associated contests in a way that comports with applicable law, and best protects you and your business.
If you are interested in learning more about this topic or pursuing a venture in this area, please e-mail us at info@kleinmoynihan.com, or call us at (212) 246-0900.
The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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