The Fuzzy Place Where Daily Fantasy Lives

When the Unlawful Internet Gambling Enforcement Act (UIGEA) was passed in 2006, daily fantasy sports (DFS) were not in existence. One could argue that the law might have been worded differently had DFS been around then – a fact corroborated by one of the law’s writers – but the current fantasy sports carve-out still has enough grey area to question its validity.

The UIGEA provides what appears to be a firm definition of what would be considered a legal fantasy game:

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 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.

3. No winning outcome 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.

If your game meets these three criteria, it is a legal game and skirts any essence of gambling. The key make-or-break passage in this carve-out is passage #2. It includes two clauses that open the door to DFS.

The first clause is “multiple real-world sporting or other events.” This was intended to prevent the betting on the outcome of one game, or the achievement of one player. However, a single evening’s slate of two or more games fits safely under the legal umbrella. It’s the reason why there will never be a DFS competition for the Super Bowl. The UIGEA draws the line at the number of games; it must be more than one.

But then there is this other clause: “relative skill and knowledge of the participants.” To me, this presents a conflict. Is the UIGEA saying that a skills-based contest can’t be designed around a single game?

The clause is clear – the contest must have both a skills base and multiple sporting events but does that really determine whether a game would be considered gambling? After all, that’s the goal here, isn’t it? To define a game as not gambling?

Here are the elements of a typical DFS baseball game. Let’s call it the Standard Game (and use the Fanduel format as the example):

a. You start with a budget of $35,000 of imaginary dollars.
b. You have to select 9 players, each with a fixed price.
c. The player pool consists of every player on the rosters of all MLB teams competing on a given day.
d. The selection process includes the evaluation of a myriad of variables as compared to the pricing. These variables include each player’s skill, recent performance, caliber of the opposition, ballpark dimensions, weather, etc.
e. Games are scored based on positive and negative events produced by each selected player.

The anti-DFS crowd cites the wide error bars affecting individual player performance (e) on any given night, creating the perception that results are more prone to chance than skill. The pro-DFS crowd cites the intensive research process (d) that goes into player selection and how participants more adept at this process tend to fare better over the course of many trials.

Both are valid points.

But let’s consider another game. Let’s call it My Game (changes from the Standard Game are in bold):

a. You start with a budget of $20,000 of imaginary dollars.
b. You have to select 5 players, each with a fixed price.
c. The player pool consists of every player on the rosters of two MLB teams competing against each other in a single game on a given day.
d. The selection process includes the evaluation of a myriad of variables as compared to the pricing. These variables include each player’s skill, recent performance, caliber of the opposition, ballpark dimensions, weather, etc.
e. Games are scored based on positive and negative events produced by each selected player.

According to the UIGEA, this game is illegal.

If a key variable is the question of skill versus chance, how is My Game any less of a game of skill than the Standard Game? Item “d” – the skills requirement – is identical.

The UIGEA says that, if we add a second game – a choice among four teams instead of two – that’s the dividing line. In fact, the UIGEA can be interpreted to mean that the following change makes the game legal as well:

c. The player pool consists of every player on the rosters of two MLB teams competing in different games on a given day.

Last year, attorney Glenn Colton was a guest on BaseballHQ Radio. He and his firm have been intimately involved in protecting the fantasy sports industry over the past decade. Here was a relevant exchange with host Patrick Davitt:
PATRICK: As you shorten the time span for the game—from a full season to one day—you move along a continuum away from skill towards chance. And by chance, aren’t you really talking about gambling?
GLENN: How much skill is involved does not necessarily correlate with how long a season is. How many decisions do you have to make? How many factors do you have to consider? How many players are you playing? How many statistics? To use a simple example, if you played a season long game that just measured home runs for hitters and wins for pitchers, as opposed to a daily game that measured 16 different statistics, I don’t think we’d have a hard time arguing that the 16 statistics are tougher to measure than the two and therefore require more skill.
It’s a valid argument, and one that says that My Game should be completely legal. It’s not.
But the following game is. Let’s call it Alternate Game 1:

a. You start with a budget of $35,000 of imaginary dollars.
b. You have to select 9 players, each with a fixed price.
c. The player pool consists of every player on the rosters of all MLB teams competing on a given day.
d. The selection process includes the evaluation of a myriad of variables as compared to the pricing. These variables include each player’s skill, recent performance, caliber of the opposition, ballpark dimensions, weather, etc.
e. Games are scored based on positive and negative events produced by each selected player during the first inning only of each game.

The fuzzy clauses in the UIGEA don’t specify that the multiple real-world events need to be complete events. Yes, that could be inferred, but it’s not explicit. So Alternate Game 1 would be completely legal under the UIGEA, even though it smells more like gambling.

In fact, one might reasonably conclude that this is exactly how DFS manages to exist at all under the currently worded carve-out. Given that daily games did not exist in 2006, the expectation was that all fantasy contests lasted for an entire season, so there was no need to spell it out explicitly.

A first-inning game is actually pretty easy. How about this wrinkle?

e. Games are scored based on positive and negative events produced by each selected player during the seventh inning only of each game.

Still completely legal.

Now we have to use even greater expert skills. We have to determine whether the starting pitcher will make it to the seventh inning, whether the team will be tapping into their bench and whether the contest will even make it that far if the weather forecast calls for the heavens opening up after the fifth inning.

It’s tough to believe that these are still skills-based decisions.

Somewhere along this continuum, we cross a line where chance begins to far outweigh skill. I don’t know exactly where that is, but it seems awfully close.

In the end, perhaps the gambling litmus test is not really about skill, or chance, or the number of games at all. In the end, it’s only about the wagering of cash on uncertain outcomes. We can play all these games in whatever flavor they come in, but it doesn’t matter what drives them as long as they are engaging, and we’d want to play them for the challenge.

And therein lies the issue: what drives the game?

The answer to that question is what should determine whether DFS is, or is not, gambling. My personal litmus test consists of two easy questions:
1. Would anyone play the game if not for the promise of cash prizes?
2. Would you be able to construct a successful, sustainable business model around offering a version of the game that did not have cash prizes?
If you can’t answer YES to both questions, then the game must be gambling.
Why does this matter?
It’s disingenuous for DFS operators to defend the legality of their game by simply waving the UIGEA flag. Invariably, when they are asked, “why is your game not gambling?” their response has been, “because the UIGEA says it’s not.”
I’m not so sure that’s a defense that will hold up forever.