Worldwide Fantasy Sports Legality*

Joseph Kelly Ph.D., J.D. (kelleaf@att.net)

SUNY College Buffalo

Catania Consulting

Fantasy Sports Trade Association

January 27, 2009

The United States generally leaves gambling and wagering regulation to the states. There is one notable exception, viz. the Indian Gaming Regulatory Act, which creates a federal and state regulatory scheme for Native American gambling. Numerous other federal laws prohibit or restrict gambling. Concerning interactive gaming or wagering, there is consensus that the 1961 Wire Act prohibits interactive sports betting, but disagreement whether any federal laws prohibit other remote gaming. In 2006, Congress enacted the Unlawful Internet Gambling Enforcement Act, which places the burden on financial transaction providers to avoid financial transactions with operators of unlawful online gambling. It is uncertain , however, whether the UIGEA has made anything unlawful that was not already illegal. For example, Behnam Dayanim, “Internet Gambling Under Siege,” Gaming Law Review (11)(5), 536 (Oct. 2007), concludes that UIGEA has significantly expanded criminal liability while I. Nelson Rose, “Congress Makes Sausages,” Gaming Law Review (11)(1), 1 (Feb. 2007), reached the opposite conclusion.

It is undisputed, however, that the UIGEA specifically exempts Fantasy Leagues from federal prohibition if they follow specific procedures listed by the UIGEA.¹ Most experts and operators will exclude potential fantasy customers from seven to ten states where Fantasy Leagues might be prohibited by state law. For example, the Attorneys General of Florida (1991), Louisiana (1991), and Arizona (1998) have opined that fantasy sports violated respective state statutes. Montana has legalized fantasy sports leagues but has limited the administration fee to 15 percent. This has effectively kept fantasy sports operators from accepting Montana participants. Other states that have excluded players from fantasy sports often have a statute that prohibits contests that require payment or wagers even though the game is “pure” skill or predominantly one of skill. Various state statutes prohibit internet wagering. These state restrictions might be unconstitutional. One commentator, Mark Dubnoff, persuasively suggests that state anti-Internet gambling laws that criminalize online gambling or wagering “probably violate the constitution’s so-called ‘dormant commerce clause’” (Mark D. Dubnoff, “State Bans on Internet Gambling May Be Unconstitutional,” 12 Gaming L. Rev. & Econ. 207-219 (2008)).

Fantasy sports is certainly a game of skill. Unfortunately, when a litigant claimed fantasy sports was a game of chance and attempted to launch a class action suit to recover lost money, the case was dismissed without the federal judge determining whether fantasy sports was a skill game (Humphrey v. Viacom, Inc., No. 06-2768 (DMC), 2007 U.S. Dist. LEXIS 44679 (D.N.J. 2007)).

The Humphrey decision did contain language that will be utilized by fantasy sports proponents indicating that the activity is neither gambling nor wagering. For example, the court opined “it would be ‘patently absurd’ to hold that ‘the combination of an entry fee and a prize equals gambling,’ because if that were the case, countless contests engaged in every day would be unlawful gambling, including ‘golf tournaments, bridge tournaments, local and state rodeos or fair contests, ... literary or essay competitions [Id. at § 19].’” Humphrey also stated that fantasy sports fees did not constitute a bet or wager. “Courts that have examined this issue have reasoned that when the entry fees and prizes are unconditional and guaranteed the element of risk necessary to constitute betting or wagering is missing [Id.]”

Worldwide

Some countries might have different definitions as to what constitutes a sport. For example, Russian law, pursuant to a 2007 decision, considers poker to be a sport and therefore not subject to prohibition. Outside the United States, no country has specifically exempted fantasy sports from liability. In examining the laws of other jurisdictions, it is important to remember that some countries, such as Australia, Canada, Germany, South Africa, and Spain, have both federal and provincial/state regulations. Should an operator receive a fantasy sports license in an EU country, he may be allowed to accept customers throughout those European Union countries that license gaming. The European Commission requires gambling restrictions on EU members to be necessary, proportionate, and nondiscriminatory.

Common Law Countries

Great Britain

In 2005, Parliament enacted the Gambling Act which was the first major overhaul of British gambling law since the Gaming Act of 1968. The Gambling Act also established a Gambling Commission which issues regulations and interpretations of the 2005 Act.²

Fantasy Sports would be considered gambling if the game involved:

1. a stake in money or money’s worth;
2. a competition in which the winner is determined wholly or partly by chance;
3. the payment of a prize in money or money’s worth to one or more winners [emphasis added].

Thus, if a game contained an element of chance, it would require a pool betting remote operator’s license from the Gambling Commission. The Gambling Commission ,in “Frequently Asked Questions” concerning offered services ,has stated a “Remote Betting Operating Licence” is required for an operator “providing facilities for betting: e.g. general betting, betting intermediary, pool betting, competitions such as ‘Spot the Ball,’ ‘Fantasy Football,’ to be carried on remotely or by means of remote communication http://www.gamblingcommission.gov.uk/client/faq_detail].” The licensing cost for remote pool wagering would require a one-time “application fee” of between £685 and £5,139 and an annual fee between £1,500 and £146,282 dependent on gross gaming yield (“Fee Categories,” Remote Betting (remote pool betting fees) http://www.gamblingcommission.gov.uk/client/detail).

There might not be a need for a license if the game were based entirely on skill. If “fantasy sports competitions centered on the performance of fantasy teams using known results from actual past event, the outcome is based on the competition entrant’s knowledge of the performance of individual players at those past events. This would be considered a game of skill, not chance, and therefore might not come within the definition of gambling under the 2005 Act.” It might also be permissible to “charge a fee which is specifically related to the provision of statistical or advice services allowing the player to enhance his ability to put together a competitive team, but which does not constitute a wager.” If there was no charge, then there might not be a need for a license since element (b) would be missing. If there was no prize or “money’s worth,” then element (c) would also be missing.

One prominent fantasy game is operated by the Daily Telegraph, which has gaming licenses for both remote general betting and also remote pool betting for its fantasy cricket game. The Telegraph, on its Web site http://fantasycricket.telegraph.co.uk, operates Fantasy Cricket games for players in the U.K. and Eire and a player must pay £6 per team to register. It is “licensed and regulated by the Gambling Commission (Great Britain), License No. 000-004309-R-103048-001.” Sportsphere, the operator of Club Fusion, an “online fantasy game for sports clubs,” charges £1 for a team and £10 for each transfer. It is also licensed and regulated by the Gambling Commission [http://www.clubfusion.org.uk].”

Prize competitions which require payment may not require a gambling license if it allows an alternative method to payment for entry to a prize contest. Along with postal response, entrants might be able to enter by email on the following condition:

• Potential participants who do not have home web access need sufficient time to gain web access elsewhere. The Commission considers three working days around the date of the particular draw as a reasonable length of time to obtain such access.
• Participation by such web access should also be available at all times while the scheme is being actively promoted. Hence, a quiz on a television programme should permit web entries while the programme is being aired.
• The availability of free entry via the web should be made widely known, for example as the general policy for schemes organised by the operator concerned.
• Where any doubts exist as to whether the web entry arrangements in any particular case fully satisfy the Act’s requirements, other routes, for example by post which has been specifically sanctioned by Parliament, should be offered in addition.³

The Gambling Commission, however, has warned that an alternative free entry for fantasy sports might be in violation of the Gambling Act.

3.16 Finally, competition organisers will need to consider whether their competition may involve betting as defined in section 9(1)(c), as applied by section 11 of the Act. These provisions are designed, amongst other things, to ensure that prediction competitions, such as “fantasy football” games, are regulated as betting products and thus can only be offered under a relevant betting licence. However, a bet is defined by section 9 to include making a bet on “whether anything is or is not true” and other competition organisers beyond those running “fantasy football” type schemes will need to consider whether they are caught by this definition and thus whether their schemes involve betting.⁴

Finally, if a fantasy sports offshore operator simply accepted U.K. customers and did not advertise except through its Web site, there would be no need to obtain a license. Great Britain, unlike the United States, believes that remote gaming takes place solely on the operator’s online site. Unless the operation has an agent within the U.K. or advertises on the British media, it is not subject to British jurisdiction.

Ireland

Irish fantasy sports law may fall under per s. 2 of the Gaming and Lotteries Act, 1956, which “includes all competitions for money or money’s worth involving guesses or estimates of future events or of past events the results of which are not yet ascertained or not yet generally known.”

Canada⁵

In an excellent presentation, Michael Lipton Q.C. has opined that fantasy sports leagues violate Canadian Criminal Code Section 202 (Disorderly Houses, Gaming, and Betting) if they require payment of an entry fee. Section 202 states in relevant part:

(1) Every one commits an offence who:
(a) uses or knowingly allows a place under his control to be used for the purpose of recording or registering bets or selling a pool; (b) imports, makes, buys, sells, rents, leases, hires or keeps, exhibits, employs or knowingly allows to be kept, exhibited or employed in any place under his control any device or apparatus for the purpose of recording or registering bets or selling a pool, or any machines or device for gambling or betting; (c) has under his control any money or other property relating to a transaction that is an offence under this section; (d) records or registers bets or sells a pool; .... (I) willfully and knowingly sends, transmits, delivers or receives any message that conveys any information relating to book-making, pool-selling, betting or wagering, or that is intended to assist in book-making, pool-selling, betting or wagering; .... [emphasis added].

If a game is one of mixed skill and chance, then Canadian courts have concluded it is illegal (R v. Ross, 1968, S.C.J. No. 60). However, if an operator could show that it is not in the business of betting, then it might be entitled to the private bet exemption of Section 204(1)(b) (R v. Ruskoff (Ont. C.A. No. 410, 1979)).

A Fantasy League, as Lipton explains, might also avoid liability if it provides a “free alternative method of entry” (FAMOE). This could eliminate “consideration” or a “stake,” which is an essential element of gambling. In order to escape potential liability,

• Individuals eligible to participate (must)have a choice whether to do so by paying, or by sending a communication
• The communication is either:
  • — A letter sent by ordinary (1^st or 2^nd class) post, or
  • — Another method which is neither more expensive nor less convenient than the paid route. “Normal Rate” : no additional payment over normal cost of using that communication;
• The choice is publicized so that it is likely to come to the attention of all those intending to participate; and
• The system for allocating prizes does not distinguish between those using either route.

Australia⁶

Australian federal law has mandated a gaming license where fantasy sports operators require an entrance fee as a precondition for a prize. It does not permit a minimal entry fee in order to defray expenses. Fantasy games, however, are common and are provided free of charge. For example, Sportal Fantasy NBL (Australian National Basketball League) provides free entry for all sports fans. The site, predictably, is filled with advertisements (http://nbl.sportalfantasy.com.au/fantasy).

Code Countries

Israel⁷

Unlike most countries, Israel has taken action against Internet gaming operators and Israeli law has concluded that offshore gaming which targets Israelis is subject to Israeli jurisdiction. In 2007 an Israeli Court concluded the Gibraltar-licensed Victor Chandler sports betting operation violated Israeli law because it targeted Israeli citizens. Chandler was ordered to block access to Israelis.⁸ Israeli police were also warned by letter that online gaming, including backgammon, was a criminal offense. The relevant statute is Article 12, Chapter 8 of the Penal Law, 1977 (the “Penal Law” ), which “defines the permitted boundaries for games, lotteries and gambling where money, money-equivalents or benefits can be won.” Section 224 of the Penal Law defines a prohibited game, lottery, and betting as follows:

“Prohibited Game” —a game at which a person may win money, valuable consideration or a benefit according to the results of a game, those results depending more on chance than on understanding or ability;

“Lottery” —any arrangement under which it is possible—by drawing lots or in another manner—to win money, valuable consideration or a benefit, more by chance than by understanding or ability;

“Betting” —any arrangement under which it is possible to win money, valuable consideration or a benefit, by guessing something, including lotteries based on the results of sports games and competitions.

It could be argued that fantasy sports has nothing to do with the results or outcome of a sporting game and thus is not illegal.

It is also important to examine whether fantasy sports is a prohibited game, which is defined in Section 224 as “a game in which, depending on the outcome of the game, a person may win money, valuable consideration or a benefit, and where the outcome of the game depends more on chance than on understanding or ability.” Since fantasy sports is essentially a game of skill, it might not be considered a “Prohibited Game.”

Potential liability may be reduced further if a fantasy sports operator offered a free method of entry. “In Civil Case (Tel Aviv) 2296/00 Getsel v. Keshet Broadcasting Ltd., PM [District and Magistrate Court Decisions] 2000(2) 145, the Court ... assumed that ... where participants are not required to venture any money, no steps will be taken against organizers (because the interest that is protect by law is not violated). This ruling may be applied also to fantasy sport when there is a free method of entry.”

Italy⁹

Italy, like Israel, has taken action against unlicensed online sports/gaming operators. It is very common for fantasy sports to be offered without an entry fee or money prizes. Recent legislation (Law No. 248/06) has mandated that fantasy sports may be offered for cash prizes with an entry fee only “under the control of the state monopoly” by licensed operators. The state will take a 3 percent share of every stake and 80 percent must be return to players.

If an operator offered only a non-monetary prize without an entry fee, it would be considered a promotional game, which would still require government authorization but the process would be much easier.

India

Much of India’s gaming law is based on the Public Gambling Act of 1867. Section 12 of the Act states: “Nothing in the foregoing provisions of this Act contained shall be held to apply to any game or mere skill wherever played.” Certain online gaming operators have set up “business process outsourcing” (BPO) operations and assert that online gambling that does not allow Indian customers is actually being conducted outside of India. (Harry Ashton, “ India-a Regulatory Overview” ,2.1 Online Gaming, April 29,2008,www.GamblingCompliance.com)

Presino.com offers online games, including cricket fantasy prizes. “All games are free to play and there is no subscription fee charged” (http:www.ciol.com/News). Various prizes are awarded, including cash prizes of Rs. 2 million.

Norway

Norwegian law does not mention fantasy sports, but its government publication, “Is a Competition a Lottery?” (May 19, 2005), may address some of the issues of fantasy sports. A lottery must have “a stake, chance [a random outcome], and a prize.”

A stake is “any payment over and above the going rate for the service.” If a game operator allows participants to enter by first class mail it is not a stake. Should the requirement be by “registered mail” then “the reason for use of this service will determine whether the payment constitutes a stake.” “If the postal service costs more than ordinary first class post (e.g. registered mail), the reason for use of this service will determine whether the payment constitutes a “stake.” In other words, “a payment for telephone services, for which the charge is higher than the standard rate because the service entails higher administration costs, is also to be regarded as a ‘stake’ under the Lottery Act.”

There would be no liability if a winner “is picked solely on the basis ... of skill.” Generally it may be said that the competition/game has to provide an equal challenge for all participants. The preconditions for entry in the competition and hence the potential for winning must be the same for all entrants. Where these preconditions are not in place, the outcome of the competition will be determined wholly or in part by factors beyond the control of the individual entrant.

Sweden¹⁰

In Sweden, fantasy sports would be illegal if a game was very simple, unsophisticated, and required few decisions and an entry fee. The Swedish Gaming Board would consider this to be a “lottery” since chance prevails over skill.

Although fantasy sports has not yet become popular in Sweden, the game Entropia Universe has been found to be a game where skill predominates and therefore no lottery permit was necessary.

The Gaming Board has investigated some popular online computer games in order to judge the balance between chance and skill. Entropia Universe, for instance, was found to be predominately a game of skill, not requiring a lottery permit. Entropia Universe is quite similar to World of Warcraft and other MMORPGs (Massive Multiplayer Online Role-Playing Games), but there is a real cash-economy with an exchange rate to real currencies. You can buy things in Entropia Universe, and thus create an impressive character rapidly, but you may also play without any cash investment. You can earn money in the game by, for instance, digging in the ground where you randomly find things of minor value. However, the value of these things is very tiny and you have to work very hard to earn enough to be able to buy something nice in the game or collect enough Entropia currency to make it worthwhile to exchange it to dollars or whatever you prefer in real currency. Is this a lottery? In the very strict sense it might be, but in reality the chance to quickly win anything of significant value seems to be nil and to gather microscopic wins until a significant sum is reached will require immense time and work. An official at the Gaming Board played the game for many hours without being able to earn/win much of value; … The Gaming Board judged the Entropia Universe did not require any permit; it was a game of skill like other MMORPG games. In order to get any real entertainment out of the game, you have to pay for it. You can buy, sell and trade things of significant value in Entropia Universe, but that is not an issue for the Gaming Board.

Generally, fantasy sports are considered games of chance and therefore are considered prohibited lotteries. Liability might be reduced if “quiz” questions were added and prizes did not include cash.

Denmark

Danish law has long been hostile toward Internet gambling. Danish regulators assert that “only the state monopoly can offer betting.... At the moment we are looking at the legality of different fantasy sport game concepts. The last couple of years we have accepted a number of fantasy sport (league) games with very low stakes (minimum USD 10) with a duration of at least 3 months. We have considered these games as games for fun (that do not fall under the scope of the law) rather than games with profit. What we see now is that the providers of fantasy sport games can actually make a profit—even with low stakes. Therefore it is possible that we will revise our practice in the near future.” (communication from Morten Ronde, Danish Gaming Board ,Jan.19,2009)

Germany¹¹

Germany has a federal legal system where the federal government regulates slot machines and horseracing, while all other gaming is regulated by the states/lander. An Interstate Gambling Treaty, effective 2008, would extend state monopolies over sports betting and generally prohibits all Internet gambling. The treaty may not only be ineffective, but it will be challenged by Deutscher Lottoverband (private lottery companies), by BWIN, and also perhaps by the European Commission.

Fantasy Sports did not become popular in Germany until 2008. As an online game of skill, it may have fallen within a legal loophole and does not require a license if certain rules are followed. Bild, a prominent German publication, accepts advertisements for online Fantasy Sports. Much may depend on whether courts take into account factors such as the players right to purchase and transfer team players and utilize other skills.

Latin America¹²

Fantasy Sports, except for Mexico, is still not popular in Latin America. ESPN allows players to manage teams that participate in Mexican and Argentine leagues. According to Mexican lawyer Alfredo G. Lazcano of Lazcano Samano, S.C., in a January 29, 2009 communication “fantasy sports are not considered a form of gambling ... [and] would be legal without a gaming license.” Operators such as Caliente and Pronosticos do not offer fantasy sports games. When and if courts decide the legality of fantasy sports, the crucial factor generally may be whether it qualifies or is determined to be a game of skill or chance.

Netherlands/Belgium/France

Under Netherland law,” fantasy sports (might be considered) sports betting, which is only offered by ‘DeLotto’ . The 1964 Gaming Act allows only one operator for sports betting” . There is case law that holds fantasy sports is not betting or gaming. In DeLotto v Sportdreams(dist ct Arnhem,Feb 2,2005,LJN :AS6590),the court referred to a scholarly report on the distinction between games of skill and games of chance, drafted by a professor in probability and statistics. According to the judgment , the report stated that an alteration in the prize schedule may lead to the conclusion that fantasy games are not games of chance . The Belgium Gaming Commission has issued a clarification concerning the legality of poker. The game is prohibited if there is a stake, winnings, and the existence of chance. The only example exception would be a very limited stake (E.22) with a maximum profit of E 6.20.

In France the Durieux Report of April 2008 has recommended some liberalization toward online gambling legalization, but with strict controls. According to a Gambling Compliance article, “Spread betting, in running betting and fantasy sports betting also find themselves alongside betting exchanges as activities likely to be prohibited if the Durieux Report’s findings are adopted in full by the French Government. However, the report states that their initial prohibition ‘should not preclude the regulatory authority from authorising them at a later date.’” ¹³

China¹⁴

Since 1949, there has been minimal legal gambling in China. This might be changing. For example, horserace wagering has just been legalized by the government. Online poker has also been permitted to Asian Logic Ltd. where winners receive points for prizes instead of cash. Online Mahjong is considered a game of skill and therefore not illegal. Cryptologic, a publicly traded company, has contracted with the Chinese government to offer Mahjong at Internet cafes. It probably will be subscription-based with winners recovering prizes instead of cash.

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¹For background on US law concerning Fantasy Sports see Joseph M. Kelly, “Living in a Fantasy,” 12 Gaming Law Rev. & Econ., 310-317 (2008).
²Unless otherwise stated, the material in Great Britain was taken from John Watson, “Gambling in Great Britain—Fantasy Sports,” July 9, 2008, www.gamblingcompliance.com.
³Gambling Commission, “Guidance on Prize Competitions and Free Draws,” Explanation of Changes, Nov. 2007 at 2.2.
⁴Id., “Prize competitions and free draws: The requirements of the Gambling Act 2005. Nov. 2007
⁵Michael Lipton, Q.C., and Kevin J. Weber, “Fantasy Sports and Skill Games in Canada,” Next Generation in Gambling 2008, July 29, 2008.
⁶Communication from Jamie Nettleton, Partner, Addisons, Jan. 7, 2009.
⁷Much of the material is from a communication from Itzhak shragay, advocat, Herzog, Fox & Neeman; see also Pat Rodrigue, “Israel—A Regulatory Overview,” 2.5 Online Gambling, Jan. 14, 2009, www.gamblingcompliance.com.
⁸Id., “Victor Chandler Loses Appeal in Israel,” June 26, 2007.The author would also like to thank Nimrod Rozalis,advocate,Tel-Aviv
⁹ Most of the material on Italy is from the communication from Stefano Sbordoni, Studio Legale Sbordoni, Rome Jan 9,2009; see also Graham Wood, “Long Awaited Skill Game Law Debuts in Italy,” Nov. 6, 2007,www.GamblingCompliance.com.
¹⁰Communication from Per Binde, Ph.D., Univ. of Gothenburg,Jan 21,2009
¹¹Much of the material is from a telephone conference with Dr. Wulf Hambach, Hambach & Hambach, Munich, Jan. 12, 2009; the author would also like to thank Dr. Martin Arendts ,Grunewald.
¹² The author would like to thank Francois Peglau, communication, Jan. 13, 2009.
¹³Communication from Aernout Kraaijeveld,attorney,Amsterdam.Netherlands,Jan 22.2009;communication from Fabrice Mourlon Beernaert,attorney,Brussels,Belgium; James Kilsby, “French Prime Minister’s Report Proposes Rigid Gambling Regime,” GamblingCompliance.com, May 8, 2008.
¹⁴“Executive Summary—China,” www.GamblingCompliance.com; and “Analysts Cautious on Crypto Subsidiary’s Chinese Deal,” Interactive Gaming News, Sept. 3, 2008.

*The author would like to thank International Masters in Gaming Law and GamblingCompliance for assistance in this paper. Nothing in this analysis should be considered legal advice.