Business Law 11th Edition by Kenneth Clarkson,Roger LeRoy Miller,Gaylord Jentz,Frank Cross

Exercise 13

Are Online Fantasy Sports Gambling
As many as 20 million adults in the United States play some form of fantasy sports via the Internet. A fantasy sport is a game in which participants, often called owners, build teams composed of real-life players from different real-life teams. A fantasy team then competes against the fantasy teams belonging to other "owners." At the end of each week, the statistical performances of all the real-life players are translated into points, and the points of all the players on an owner's fantasy team are totaled. Although a wide variety of fantasy games are available, most participants play fantasy football. On many fantasy sports sites, participants pay a fee in order to play and use the site's facilities, such as statistical tracking and message boards; at the end of the season, prizes ranging from T-shirts to flat-screen televisions are awarded to the winners.
In other instances, the participants in fantasy
sports gamble directly on the outcome. In a fantasy football league, for example, each participant-owner adds a given amount to the pot and then "drafts" his or her fantasy team from actual National Football League players. At the end of the football season, each owner's points are totaled, and the owner with the most points wins the pot.
Congress Weighs In
As online gambling has expanded, Congress has attempted to regulate it. In late 2006, a federal law went into effect that makes it illegal for credit-card companies and banks to engage in transactions with Internet gambling companies. a (A version of the Unlawful Internet Gambling Enforcement Act of 2006 was incorporated into this statute as Title VIII.)]Although the law does not prohibit individuals from placing online bets, in effect it makes it almost impossible for them to do so by preventing them from obtaining financing for online gambling. At first glance, the legislation appears comprehensive, but it specifically exempts Internet wagers on horse racing, state lotteries, and fantasy sports. Hence, one could argue that Congress has determined that fantasy sports do not constitute a prohibited Internet gambling activity.
Testing the Gambling Aspect in Court
Thus far, the courts have had the opportunity to rule only on whether the pay-to-play fantasy sports sites that charge an entrance fee and offer prizes to the winners are running gambling operations. Charles Humphrey brought a lawsuit against Viacom, ESPN, The Sporting News, and other hosts of such fantasy sports sites under a New Jersey statute that allows the recovery of gambling losses. Humphrey claimed that the fantasy sports leagues were games of chance, not games of skill, because events beyond the participants' control could determine the outcome-for example, a star quarterback might be injured. He also pointed out that in the offline world, federal law prohibits any games of chance, such as sweepstakes or drawings, that require entrants to submit consideration in order to play. Consideration has been defined as the purchase of a product or the payment of money. For these reasons, he argued, the entrance fees constituted gambling losses that could be recovered.
The federal district court that heard the case ruled against Humphrey, mostly on procedural grounds, but the court did conclude that as a matter of law the entrance fees did not constitute "bets" or "wagers" because the fees are paid unconditionally, the prizes offered are for a fixed amount and certain to be awarded, and the defendants do not compete for the prizes. b The court also observed that if a combination of entrance fees and prizes constituted gambling, a host of contests ranging from golf tournaments to track meets to spelling bees and beauty contests would be gambling operations-a conclusion that the court deemed "patently absurd." c [ Note, however, that the case involved only pay-to-play sites. The court did not have to address the question of whether fantasy sports sites that enable participants to contibute to a pot in the hopes of winning it at the end of the season constitute gambling sites.
Determining what is and what is not gambling does not always lend itself to an easy answer. If you buy a mutual fund that consists of a broad array of stocks and your purpose is to enhance your standard of living during your retirement, no one considers that gambling. In contrast, if you are a day trader-buying and selling stocks during a one-day period-you are clearly "betting" that the stocks you buy in the morning and then sell in the evening will have gone up in value. Should day trading be deemed gambling and therefore illegal Where do you draw the line between what is and what is not gambling in our society
[a. Security and Accountability for Every Port Act, Public L. No. 109-347, Sections 5361-5367, ___ Stat. ___ (2006).
[b. Humphrey v. Viacom, Inc., ___ F.Supp.2d ___ (D.N.J. 2007).]
c. In reaching this conclusion, the federal district court cited portions of an Arizona Supreme Court ruling, State v. American Holiday Association, Inc., 151 Ariz. 312, 727 P.2d 807 (1986).]