The Fantasy Sports Trade Association ("FSTA") (now the Fantasy Sports & Gaming Association ("FSGA")) reported that the daily fantasy sports ("DFS") industry generated $2.91 billion in 2018 and that the entire fantasy sports market was worth as much as $7.22 billion that same year. It has recently been reported that the fantasy sports market is expected to grow to $48.6 billion by 2027. Notwithstanding the size of the marketplace, the persistent question remains – are DFS contests legal? To answer this question, there are a variety of federal and state regulations that DFS operators must consider in determining how to launch a fantasy sports platform. As part of this process, a fantasy sports lawyer can assist DFS operators navigate the murky waters of fantasy sports law.
What do DFS operators need to know about fantasy sports law?
Federal Regulations
When operating DFS contests, operators must closely adhere to at least two federal regulations: 1) the Unlawful Internet Gambling Enforcement Act ("UIGEA"); and 2) the Interstate Wire Act ("Wire Act"). UIGEA was enacted in 2006 to combat transfer payments associated with unlawful Internet gambling in the United States. UIGEA provides a carve-out that expressly exempts certain fantasy sports contests. The Wire Act prohibits the use of wire communication facilities to transmit certain wagering information or bets. The Wire Act contains an exemption for wagers that are placed in a jurisdiction that has legalized sports betting and received in a jurisdiction that has legalized sports betting.
State Regulations
Federal regulations work hand-in-hand with state-specific prohibitions on gambling. When reviewing state level prohibitions on fantasy sports contests, DFS operators must review state legislation, case law, and attorney general opinion letters. States that do not have specific fantasy sports legislation will require a closer review of applicable statutes and case law, which often comes down to how much skill or chance is involved in each relevant contest. Most states abide by the "dominant factor test," which involves whether skill or chance dominates when determining the winner(s) of a given contest. Other states follow the "material element test," which takes into account whether the element of chance has more than a mere incidental effect on the outcome of a game, even if the game may be one that is primarily made up of skill. Finally, the "any chance test" prohibits any game that includes even a modicum of chance where payment to play is required. After reviewing state legislation and case law, it is also important to find out whether state attorneys general have released regulatory guidance in their jurisdictions by way of written opinions.
Retaining a Fantasy Sports Lawyer
The foregoing federal and state guidance covers just some of the regulatory issues that need to be considered when determining how and where to operate DFS contests. A fantasy sports lawyer serves an instrumental function in this process by evaluating applicable statutes, case law, and attorney general opinions in connection with determining risk. As the fantasy sports industry continues to grow, state and federal regulatory bodies will continue to work to keep up with the rapid evolution of the industry. Stay ahead of the regulatory wave by hiring a fantasy sports lawyer today!
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