This is the fourth in a series of articles for Sports Handle discussing various federal statutes that in one way or another remain relevant to the expansion of legalized sports betting after the fall of the Professional and Amateur Sports Protection Act (PASPA). The first two parts, on the Wire Act, are available here and here, and Part I on UIGEA is here. This information is provided for information and entertainment purposes only. Nothing contained in this series constitutes legal advice.
Ben from Eau Claire, Wisc., asks: I love daily fantasy sports. I heard that UIGEA exempts daily fantasy sports because they are a game of skill and sports betting is a game of luck, is that true?
Answer:
UIGEA does contain an exemption for some fantasy contests from the statute’s definition of betting or wagering. UIGEA exempts fantasy sports contests (or educational games) that satisfy the following conditions:
(I) 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 those participants.
(II) All winning outcomes reflect the relative knowledge and skill of the 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.
(III) No winning outcome is based:
(aa) on the score, point spread, or any performance or performances of any single real-world team or any combination of such teams; or
(bb) solely on any single performance of an individual athlete in any single real-world sporting or other event.
Fantasy contests that do not satisfy these criteria are not exempt under the statute. It is also important to remember that UIGEA is primarily concerned with payment processors and the funding of gambling businesses, which is a relatively narrow (still important) area of application.
UIGEA is not a sweeping statement that fantasy sports or daily fantasy sports are legal in all forms or conditions. In fact, UIGEA contains a rule of construction (description of how the statute should be applied) that says nothing contained in UIGEA should be understood to modify any other state or federal law. This has effectively left states with the primary authority to determine whether DFS or fantasy sports generally are prohibited forms of gambling.
There has certainly been some extensive research to show that skilled players do better at DFS. FanDuel submitted a report by an MIT mathematics and mechanical engineering professor, Anette Hosoi, during litigation in New York in which she found that there is a relationship between player skill and the likelihood of success in daily fantasy contests.
The professor’s research showed that players can improve over time—an element related to skill—like “learning to play a musical instrument….” The MIT professor found that the impact of skill in daily fantasy sports is more pronounced than “in three of the four professional sports,” which the games are based on.
Of course, in any given contest anything can happen. While daily fantasy sports have been found to contain elements of skill, so has sports betting. Both the NFL and the Department of Justice have made legal arguments that sports betting is a game of skill adding doubt to those who have sought to differentiate daily fantasy and sports betting on the basis of skill required to be successful.
Nick from Las Cruces, NM, asks: What kind of implications might UIGEA have on sports betting that takes place at brick-and-mortar casinos or racetracks? What are the practical implications of UIGEA for sports betting?
Answer:
The ‘I’ in UIGEA stands for Internet, so the statute is primarily concerned with online transactions. That does not mean however, that brick-and-mortar operations are necessarily free from concerns about UIGEA, especially those entities that seek to enter the mobile space as has been popular in Nevada. To the extent brick-and-mortar operations seek to offer mobile betting there are risks associated with UIGEA, though many of those can be mitigated by geo-fencing, and reasonably knowing your customer regulations such as age and identity verification. The statute’s text notes it is inapplicable to intrastate transactions, and transactions where:
“the bet or wager and the method by which the bet or wager is initiated and received or otherwise made is expressly authorized by and placed in accordance with the laws of such State, and the State law or regulations include—
(I) age and location verification requirements reasonably designed to block access to minors and persons located out of such State; and
(II) appropriate data security standards to prevent unauthorized access by any person whose age and current location has not been verified in accordance with such State’s law or regulations…”
UIGEA may rear its head in a manner similar to what happened with daily fantasy sports and payment processor Vantiv Entertainment Solutions, where Vantiv ceased accepting payments given growing uncertainty surrounding the industry. It is possible that a similar situation may manifest with online sports betting, much like many of the other questions that have come P.P. (Post-PASPA), only time will tell.
Eddie from Evanston, Ill., asks: What other resources are available to learn about UIGEA?
Answer:
Here are a few resources that will provide you some additional reading material on UIGEA.
The Congressional Research Service does fantastic work and they have published a report titled: Unlawful Internet Gambling Enforcement Act (UIGEA) and Its Implementing Regulations. It is available here.
I also wrote about the possible origins of the Fantasy Sports Exemption here.
Stay tuned for the Q&A on the Indian Gaming Regulatory Act (IGRA) and Illegal Gambling Business Act (IGBA).
John T. Holden J.D. / Ph.D. is an Academic. His research focuses on policy issues surrounding sports corruption. John is on twitter @johnsportslaw.
