Taking a Gamble on Fantasy Sports, or Is It?

Gambling goes back to before the founding of America. The Continental Congress authorized a lottery to raise $5 million to fund the Revolutionary War. Over the next 200 years, both the federal and state governments seesawed between outright bans on all forms of gambling to approving limited types of gambling. But in each case, the types of games banned or approved might vary (e.g., lotteries vs. parimutuel horse racing vs. poker vs. bingo vs. dice). For as long as gambling has been banned or regulated, operators have been looking for ways to operate within the gray areas of the law.

One of these gray areas is fantasy sports. Today, it is impossible to watch professional or even collegiate sports without being subjected to promotions for sportsbooks and fantasy sports. Sports betting and fantasy sports are intertwined but different.

Almost everyone is familiar with the yearly office pools on the NCAA men’s basketball championship, Super Bowl party pools, and fantasy football leagues. For most, it has been an occasional indulgence that may or may not have violated local gambling prohibitions. Today, sports betting and fantasy sports are big business. Fantasy sports became an even bigger business when the concept of “daily fantasy sports” (DFS) was introduced. DFS goes beyond the traditional creation of a fantasy team for the duration of the season, with the winners determined at the end based on combined performance. DFS can include that as well as games based on daily performance or even “micro bets” on whether the Yankees lead-off batter will get to first base on a bunt single. Some platforms even offer “parlays”—a concept from horse racing where a bettor has to correctly choose the winner of several races.

Billions of dollars now flow through both sportsbooks and fantasy leagues. As with all large money-making enterprises, the intersection of law, government, and business has resulted and will continue to result in complex cases regarding what constitutes gambling or what constitutes lawful gambling, which judges will have to resolve. The purpose of this article is to familiarize judges with how states have approached the question of whether fantasy sports are gambling and help them resolve disputes involving fantasy sports and local gambling laws.

Background

Because of fantasy sports’ connection to sports, some background on sports betting is helpful. Once frowned upon and restricted nationwide by the federal Professional and Amateur Sports Protection Act of 1992 (PASPA), sports betting has become a major component of legal gambling, with over $120 billion in U.S. wagers handled in 2023. By comparison, all fantasy sports (whether or not deemed gambling) were estimated to be valued at approximately $26 billion in 2023.

PASPA made it unlawful for a government entity to “sponsor, operate, advertise, promote, license, or authorize by law or compact” or a person to “sponsor, operate, advertise, or promote a lottery, sweepstakes, or other betting, gambling, or wagering scheme” based on games in which amateur or professional athletes compete. In 2018, the U.S. Supreme Court held in Murphy v. NCAA that the law violated the 10th Amendment’s anti-commandeering prohibition. The case arose after New Jersey voters amended the state constitution, authorizing the legislature to legalize sports betting in Atlantic City and at horseracing tracks. The NCAA and several professional sports leagues challenged it, arguing that it violated PASPA.

Following Murphy, other states began to legalize sports betting. As of 2024, 38 states and Washington, D.C., have authorized some form of sports betting, 30 of which allow online wagers to be placed.

In 1931, Nevada legalized casinos and became the only state to allow legal casino gambling. In 1949, it was the only state to have legalized sports gambling.

Three decades later, President John F. Kennedy signed the Federal Wire Act, which prohibits the use of wire communications and the transmission of wire communications to receive money or credit for bets or wagers or the placing of bets or wagers on sporting events and contests. At the time, organized crime was heavily involved in illegal horse racing schemes and used telegraph wires to transmit the results of horse races. The Wire Act sought to address illegal interstate bets placed by illegal bookmakers by targeting the method of communication they used to operate these betting schemes. After years of debate over whether the Wire Act applied to all gambling or just sports betting, the First Circuit Court of Appeals held that the Wire Act applies “only to the interstate transmission of wire communications related to any ‘sporting event or contest.’”

In 2006, the same year that President George W. Bush signed PAPSA, he also signed the Unlawful Internet Gambling Enforcement Act (UIGEA), forbidding companies from “knowingly” accepting payments in connection with the participation of another person in a bet or wager that involves the use of the internet and that is unlawful under any federal, state, or Tribal Law.

Notably, the UIGEA excludes fantasy sports from the definition of “bet or wager” if the fantasy or simulation sports team is not based on the current membership of an actual team in a professional or amateur sports organization and:

• 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.
• 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.
• 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.

Thus, under federal law, the distinction between fantasy sports games, which are not considered gambling, and sports betting includes the role of participant skill in determining the outcome. The “skill” vs. “chance” distinction is applied in varying degrees by several states, as will be discussed below.

Is Fantasy Sports Gambling?

Justice Potter Stewart famously wrote in Jacobellis v. Ohio with respect to hard-core pornography, “I know it when I see it, and the motion picture involved in this case is not that.” The same can’t be said about gambling.

The different state approaches to prohibition and regulation of gambling require courts to review every applicable state law to determine what that state considers “gambling.” Lottery prohibitions and their interpretation under different gaming contexts, in particular, are relevant to this analysis because lotteries are the quintessential games of chance. Thus, even though state law may speak only to the prohibition of a lottery, the term has been interpreted repeatedly to include all games of chance. With respect to fantasy sports, the question that comes up repeatedly is whether fantasy sports games (including DFS) are games of chance (considered to be gambling) or games of skill (which may or may not be considered gambling), or something in between. Some have cited research from the Massachusetts Institute of Technology (MIT) for the proposition that fantasy sports are a contest in which a participant’s skill level has an impact on the outcome of the fantasy game. But this alone doesn’t answer the question.

Even if skill is involved, how a state views the role of skill v. chance on the outcome is also important. The devil’s in the details.

A 2016 opinion by the attorney general of West Virginia addressed the skill v. chance distinction with respect to whether fantasy sports played for money was prohibited under the state constitution. The question arose in the context of proposed legislation authorizing fantasy sports that tracked language similar to the fantasy sports exemption in the UIGEA. The state constitution provided:

The Legislature shall have no power to authorize lotteries . . . and shall pass laws to prohibit the sale of lottery . . . tickets . . . except that the Legislature may authorize lotteries which are regulated, controlled, owned and operated by the State of West Virginia . . . and may authorize state-regulated bingo games and raffles for the purpose of raising money by charitable . . . organizations. . . .

Citing this constitutional provision, existing gambling legislation, and previous interpretations of state law, the West Virginia attorney general concluded that the constitutional prohibition on lotteries and, implicitly, raffles meant that only games of chance—i.e., where the result was determined “wholly or predominantly” by chance—were constitutionally barred. Based on this interpretation, as well as the approaches of a majority of other state attorneys general, he concluded that because skill “predominated” in the results of fantasy sports games, it was not a prohibited game of chance under state law. The opinion did not address specific fantasy sports games, as that was beyond the scope of the request. But it signaled that West Virginia would not follow the “lone outlier” opinion from Nevada, which concluded that the legality of particular fantasy sports gaming would depend on the specifics of the game.

The opinion noted that while a majority of state attorneys general had reached similar conclusions, others had reached opposite conclusions where state law prohibited gambling games that had any element of chance, even if skill predominated. In one cited example, prior to Mississippi’s 2017 legalization of sports betting and fantasy sports, its attorney general opined that any form of fantasy sports wagering in exchange for prizes violated Mississippi’s gambling law because it involved playing games or amusements for money in violation of a state law that made it a crime if:

any person shall encourage, promote or play at any game, play or amusement, other than a fight or fighting match between dogs, for money or other valuable thing, or shall wager or bet, promote or encourage the wagering or betting of any money or other valuable things, upon any game, play, amusement, cockfight, Indian ball play or duel, other than a fight or fighting match between dogs, or upon the result of any election, event or contingency whatever. . . .

He reached this conclusion based on the fact that players paid a fee in exchange for the chance to win prizes, which he concluded “involves a wager ‘upon any game, play, amusement . . . or upon the result of any . . . event or contingency whatever,’ namely, upon how the selected players perform.”

Texas law also has been interpreted by its attorney general as prohibiting daily fantasy sports as gambling. The grounds for this conclusion turn on interpretations of both constitutional and statutory provisions addressing gambling. The attorney general noted that the state constitution directed the legislature to pass laws prohibiting “lotteries and gift enterprises in the state.” Lotteries, he noted, had been interpreted as involving three elements: “(1) the offering of a prize, (2) by chance, and (3) the giving of consideration for an opportunity to win the prize.” This “element of chance” (even if not predominant) met the lottery definition. While skill might play a role in player selection, random events, like injuries and bad referee calls, were not under a fantasy player’s control and thus introduced an element of chance into the game. He further pointed to Texas law also making it a criminal offense if the person makes “a bet on the partial or final result of a game or contest or on the performance of a participant in a game or contest.” Finding that wagers on DFS included a wager, an element of chance, and the giving of consideration for the chance to win a prize (i.e., a portion of fees kept by the operators), the attorney general opined that courts likely would find such games to violate Texas gambling laws. But he offered that if “traditional” season-long fantasy sports involved no percentage cut of entry fees in favor of the “commissioner,” then the element of consideration for the chance to win the prize would be absent, thus causing the fantasy sports games to fall outside the prohibition.

Not long thereafter, the Texas attorney general sent letters to FanDuel and DraftKings, the largest fantasy sports operators of the time, threatening them with prosecution for illegal gambling. FanDuel folded and entered into a settlement agreement with the attorney general, agreeing to cease offering paid contests in Texas in exchange for a nonprosecution agreement. DraftKings sued for declaratory judgment challenging his interpretation. Not long after the pleadings closed, the parties stipulated to a stay, pending the outcome of proposed legislation legalizing fantasy sports. The stay was recently extended in July 2024.

In Florida, state law prohibits gambling, subject to six exceptions. Florida law also makes it a third-degree felony to bet on the result of a trial or contest of skill:

849.14 Unlawful to bet on result of trial or contest of skill, etc.—Whoever stakes, bets, or wagers any money or other thing of value upon the result of any trial or contest of skill, speed or power or endurance of human or beast, or whoever receives in any manner whatsoever any money or other thing of value staked, bet, or wagered, or offered for the purpose of being staked, bet, or wagered, by or for any other person upon any such result, or whoever knowingly becomes the custodian or depositary of any money or other thing of value so staked, bet, or wagered upon any such result, or whoever aids, or assists, or abets, or influences in any manner in any of such acts all of which are hereby forbidden, commits a felony of the third degree, punishable as provided in s. 775.082 or s. 775.083.

In 1991, the Florida attorney general construed Section 849.14 as prohibiting fantasy sports games, even among a group of friends, if the format included contributing to a pool of funds that would be distributed among the winning fantasy team owners. While the attorney general acknowledged that Florida did not prohibit games where skill predominated, he cited Section 849.14 and several court cases drawing distinctions between a “purse, prize or premium” (not gambling) and a “stake, bet or wager.” He quoted from the Florida Supreme Court opinion Creash v. State to illustrate the distinction:

In gamblers’ lingo, “stake, bet or wager” are synonymous and refer to the money or other thing of value put up by the parties thereto with the understanding that one or the other gets the whole for nothing but on the turn of a card, the result of a race, or some trick of magic. A “purse, prize, or premium” has a broader significance. If offered by one (who in no way competes for it) to the successful contestant in a fete [sic] of mental or physical skill, it is not generally condemned as gambling, while if contested for in a game of . . . chance, it is so considered. . . . It is also banned as gambling if created . . . by . . . contributing to a fund from which the “purse, prize, or premium” contested for is paid, and wherein the winner gains, and the other contestants lose all.

The attorney general then concluded that even if picking a fantasy team involved skill, paying an entry fee for a chance to win a prize from that fee based on the performance of the athletes drafted for the fantasy team involved a “stake, wager or bet” on the outcome of a contest of skill that was prohibited under Section 849.14.

Notwithstanding that opinion, fantasy sports operators had been offering various types of fantasy sports games in Florida through 2024 without drawing any apparent action by state prosecutors or gaming regulators. This changed recently when the Florida Gaming Control Commission (Commission) (established as part of the 2021 Seminole Gaming Compact) explicitly stated in the FAQ section of its website that wagering on fantasy sports through any means other than a sportsbook operated “by or in conjunction with the Seminole Tribe of Florida” is likely illegal. Thus, Florida’s gambling regulator has essentially equated fantasy sports that involve player fees and prizes with sports betting. The reference to the Seminole Tribe’s sportsbook arises from the state’s 2021 gaming compact with the Seminole Tribe, which legalized sports betting throughout Florida but only under the Tribe’s sportsbook.

The Commission earlier this year also sent cease and desist letters to three DFS operators, asserting that the sites were engaged in illegal sports betting. These operators were said to be allowing players to “bet” on what was called “parlay-prop-style games,” which the Commission said was sports betting. Notably, neither FanDuel nor DraftKings received a similar cease and desist letter.

The Commission’s cease and desist letter took a similar tack to the 1991 Attorney General Opinion: “‘Under Florida law, betting or wagering on the result of contests of skill, such as sports betting, including fantasy sports betting, is strictly prohibited and constitutes a felony offense unless such activity is otherwise exempted by statute. . . . Accordingly, in Florida, sports betting may be lawfully conducted only pursuant to a gaming compact. . . . Further, receiving such illegal bets and wagers and aiding or abetting such criminal activities constitute separate felony offenses. . . . Lotteries are also strictly prohibited in Florida.’” The subsequent exchange of emails between the general counsel of one of the operators and the Commission’s general counsel, obtained by a local news organization through a public records request, further raised questions about the legality of all fantasy sports under Florida law.

The company lawyer asked: “As you might imagine, my exec team asking what the letter means and seeking actionable advice, pretty urgently. Would like to discuss the substance at some point, but if you can help with one question, it would be great. Namely, Underdog operates multiple paid fantasy formats (season-long drafts, daily drafts, pick’em) and I just want to confirm my reading of the letter, which is that the legal conclusion applies to all paid fantasy contests—e.g., all of our contests—and not just particular types.”

“Your reading of the letter is correct,” the Commission’s general counsel was reported to have responded. As of today, both FanDuel and DraftKings continue to operate in Florida and maintain that their fantasy sports leagues are legal under Florida law. Bills legalizing fantasy sports were introduced at the Florida 2024 Legislative Session but died in session. It’s expected that the bills will return.

These are just a few examples of how general gambling laws have been interpreted to apply to the question of fantasy sports. In some cases, while one aspect of the state’s gambling laws might have been found inapplicable, other portions of state law led to the conclusion that some or all types of fantasy sports games were gambling.

Conclusion

As the foregoing examples illustrate, state approaches to fantasy sports can take different paths. They even differ on the importance of the role of skill vs. chance and whether participant fees may constitute illegal wagers on contests of skill. State laws addressing sports betting and fantasy sports continue to evolve, but as is the case with many new industries, especially ones whose growth is fueled by technological advancements, the laws rarely keep up with the new products on the market. However, having an understanding of the different ways in which states have interpreted existing laws and applied them to evolving fantasy sports games should help judges resolve disputes they may adjudicate involving fantasy sports and state gambling laws.

Significant assistance in researching and developing early drafts of this article was provided by Buchanan Ingersoll & Rooney PC 2024 summer associate Jordan M. Fields, who is a J.D. candidate at the University of Pittsburgh School of Law as well as an MSPPM candidate at the Heinz College of Information Systems and Public Policy at Carnegie Mellon University and will be joining the firm following her graduation.