Online Gambling

Fake Teams, Real Money

The arbitrary legal distinction between fantasy sports and sports betting

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In the 2007 romantic comedy Knocked Up, a woman who suspects her husband of having an extramarital affair discovers he is actually sneaking off to play fantasy baseball. In real life, people who participate in fantasy sports generally do not feel a need to hide what they're doing, and neither do the companies that offer them the opportunity.

Fantasy sports is a burgeoning industry in the United States, one that probably will grow even faster now that the U.S. Supreme Court has let stand an appellate ruling that makes the business easier and cheaper to run. But the legitimacy of fantasy sports highlights the arbitrariness of U.S. gambling law, which for no good reason prohibits forms of betting that many millions of Americans enjoy.

Participants in fantasy sports choose real players for pretend teams that compete against each other based on the players' real-world performance. The online industry that facilitates these contests, which emerged a decade ago, today consists of more than 100 companies, including major players such as ESPN and Yahoo! Sports, and generates about $500 million in revenue each year, mainly from participant fees and advertising, according to the Fantasy Sports Trade Association (FSTA).

The FSTA expects the industry's growth to accelerate as a result of the Supreme Court's recent refusal to hear Major League Baseball's appeal of a 2007 decision by the U.S. Court of Appeals for the 8th Circuit. Last fall, in response to a lawsuit by CBC Marketing and Distribution, which operates CDM Fantasy Sports, the 8th Circuit ruled that companies like CBC need not pay license fees to professional sports leagues because they have a First Amendment right to use players' names and statistics.

Freed from the burden of getting league permission and paying millions of dollars in license fees, fantasy sports businesses are likely to expand and proliferate. Already, the FSTA estimates, 18 million Americans play fantasy sports. Mostly they do it for fun, but they can also win prizes, ranging from bobble-head dolls to cash awards as high as $25,000.

In other words, sports fans are paying for the chance to win money in contests that hinge on the performance of professional athletes. Why isn't this gambling?

One answer is that playing fantasy sports requires knowledge and skill. But so do sports betting and poker.

Here's the real reason playing fantasy sports is not gambling: The government says it isn't. The Unlawful Internet Gambling Enforcement Act, which took effect at the beginning of last year, includes a specific exemption for fantasy sports, provided the prizes are determined in advance and the imaginary teams do not correspond to any real teams.

The latter condition is aimed at preventing fantasy sports, which the professional leagues endorse, from morphing into sports betting, which they oppose. License fees aside, the leagues like fantasy sports because they increase interest in their games.

But so does sports betting, the market for which dwarfs the size of the fantasy sports industry. A 2003 ESPN survey found that more than 100 million Americans bet on sports each year, wagering something like $100 billion.

Yet taking sports bets is legal only in Nevada, and the leagues are adamantly opposed to broader legalization because they fear it would have a corrupting effect. Or so they say. Their actions suggest they know better.

"Most of the leagues now have a deal with the Las Vegas sports consultants," notes Jim Murphy, a professional handicapper. "The leagues pay them to track improper betting trends….Anytime you read about a point-shaving scandal or that so-and-so has been charged with trying to fix a game, it was the Las Vegas bookmakers that ferreted it out."

Whatever the likelihood that promising college players or well-paid professionals would jeopardize their careers by helping to fix games, keeping sports betting in the shadows of the black market is hardly a sensible way to reduce the odds.

© Copyright 2008 by Creators Syndicate Inc.

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  1. Of course the leagues wink at legal [and illegal] gambling on sports.

    Why do you think the NFL requires its teams to submit injury reports? It’s for the convenience of bettors.

    [I have been convinced for some time that the real reason the NFL came down so hard on Bill Belichick over the videotaping scandal is that they have long nursed a grudge over his disdain for the injury report system and his deliberate false injury filings. Messing with bettors messes with the league’s hard core customer base.]

  2. “…a specific exemption for fantasy sports, provided … the imaginary teams do not correspond to any real teams.”

    What if, for my fantasy team, I draft every player from the same, actual team? Poor strategy for sure, but does that mean they can lock me up? Or my league admin? Or the hosting site?

    Have Penn & Teller done an episode on gambling laws? If so I’d like to be on DVR alert.

  3. What if, for my fantasy team, I draft every player from the same, actual team?

    I think you could say that as long as it isn’t the team’s performance that determines the outcome, but some mathematical formula based on individual player performance, that you’re still not betting on the team. So if you have every Cincinnati Red, but you win or lose based on player performance and not based on whether the Reds win or lose, you’re OK.

    What’s funny is that the traditional illegal “numbers” game could in theory be made legal because of this exemption in the law. The daily “number” used to be a function of a stock market quote number published in the newspaper. You could probably come up with a way to generate a “number” based on fantasy sports performance, and pay out to “league participants” who had chosen to start players whose uniform numbers parse out to that number. Voila – instant lottery.

  4. The fantasy sports == sports betting analogy doesnt work as well as the fantasy sports == Dungeons and Dragons analogy.

    Fantasy sports is a Role Playing Game. The fact that it is often done for money distinguishes it from D&D (I dont know of any pay D&D “leagues”).

    During my fantasy (I prefer the term “rotisserie”, but it only applies to baseball and to a subset of rules possibilities) baseball draft a few years back, one of the other owners made fun of RPGers (I forget the context of the conversation). I pointed out the irony, he was a little ticked. Somehow, it was different.

  5. why it is perfectly legal to play fantasy sports but mostly illegal to bet on the real thing.

    I suspect it might have something to do with the history of mob involvement and game fixing relating to bets on real games between real teams.

  6. The GOP war on internet gaming….. just another anti-freedom stance.

    And folks AX why I hate the GOP so much?

  7. As the little German said,”veeerrry interesting”.
    I am a dabbler in gambling of all sorts,mostly horses & casino games. I’ve learned & now you have confirmed how much betting means to the world of commerce. I also consider the Stock Market the biggest gamble in the world today.

  8. Knocked up as a great film.

    thanks for a great Article i am a big fan.

    cheers James

  9. Very interesting, and this has been brought back into focus recently as Betfair, the British company, has been investing in sports and sports community sites like watercooler.com.

    Presumably this is all in response to the inevitable loosening of gambling legislation in the US, which in turn will mean that internet punters all over the globe can breathe a sigh of relief as draconian (and irrelevant) ‘global’ restrictions are lifted, based on the aforementioned US law…

    Matt

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