Author: Matt Huffman, Associate Member, University of Cincinnati Law Review
In 2014, nearly 37 million people will participate in a fantasy football league.[1] As the game’s popularity has grown, it has drawn unwanted attention from state officials questioning the legality of betting on fantasy football. While a small group of friends drafting fantasy football teams in a basement is unlikely to attract law enforcement scrutiny, fantasy football host sites[2] have become a billion dollar industry and are potentially subject to prosecution in states with strict gambling laws. Congress addressed fantasy football and determined that, under certain circumstances, betting on fantasy football is a legal activity.[3] However, some state gambling laws are stricter than federal law. Ohio law does not explicitly address the legality of fantasy football gambling, but based upon Ohio’s application of the “predominant factor test,” Ohio courts would likely determine that betting in fantasy football leagues, particularly those of shorter duration, would violate state gambling laws. Therefore, any host site (and its operators) accepting bids from Ohio or a state with similar gambling laws could be subject to criminal prosecution under state gambling laws.
The Internet Gambling Act
The federal government’s position on online gambling has been hostile, and has included criminal prosecutions of online gambling operators. Despite this government opposition, millions of Americans spend billions of dollars each year to gamble online, primarily through unregulated, offshore gambling operators. In 2006, Congress passed the Uniform Internet Gambling Enforcement Act (UIGEA), which stated that “no person engaged in the business of betting or wagering may knowingly accept [funds] in connection with the participation of another person in unlawful Internet gambling.”[4] Under the UIGEA, “unlawful internet gambling” means to place or accept a bet using the internet in a state where such a bet is unlawful under any applicable Federal or State law.[5] Thus, if an individual places an online bet or wager in a state where that form of gambling is illegal, any business that knowingly accepts that bet or wager would violate the act, regardless of the business’s location.
Whether the UIGEA applies to a particular fantasy league or host site depends on the facts and circumstances of the case. The UIGEA does include an exception for fantasy sports games that meet three criteria: (1) the value of the prizes is not determined by the number of participants or the amount of any fees paid by those participants; (2) all winning outcomes reflect the relative knowledge and skill of the participants; and (3) the fantasy game’s result is not dependent on the outcome of any real-world games.[6] However, not all fantasy games meet this three-part test. For example, many fantasy football leagues operate on a weekly basis, and “winning outcomes [may not] reflect the relative knowledge and skill of the participants” because the limited duration of the games heightens the importance of fortunate chance in the outcome. As such, for host sites that do not meet this exception to the UIGEA, accepting a bet from an individual in a state where fantasy football is illegal under state gambling law would open the host site to criminal prosecution.
State Gambling Laws
1. Gambling Tests
In most states, the state can make a prima facie claim of illegal gambling by showing that an activity involves (1) “consideration,” (2) “reward,” and (3) “chance.”[7] States define each of these terms differently, but a host site that collects a “buy-in”[8] and rewards participants based on their relative performance would meet any definition of “consideration” or “reward.” However, the element of “chance” can have a very different definition and application in each state. “Chance” is defined as “something that happens unpredictably without discernible human intention or observable cause.”[9] To determine whether a particular game meets the element of “chance,” states traditionally apply one of four tests: the predominant purpose test, the material element test, the any chance test, or the gambling instinct test.
Under the predominant purpose test—applied by most states—one must “envision a continuum with pure skill on one end and pure chance on the other.”[10] Games of pure chance, such as roulette, are illegal, but games of pure skill, such as chess, are legal. In games of mixed chance and skill, the predominant purpose test is used to determine whether skill or chance predominates. Under this test, the court considers whether skill or uncontrollable chance is the more likely factor in determining the outcome of a contest. Stated otherwise, this test deems an activity to be one of chance where greater than fifty percent of the result is derived from chance. While the predominant purpose test is easily applied to roulette or chess, a large gray area exists for games with mixed chance and skill, such as fantasy football. The remaining three tests – the material element test, the any chance test, and the gambling instinct test – are applied in a minority of states. The “material element test” considers a game to be illegal if chance has more than a mere incidental effect on the game. Thus, even though skill may primarily influence the outcome of the contest, a game may be considered illegal if it is determined that chance has a significant impact on the outcome of the game. Under the “any chance test,” courts will consider a game illegal if any chance influences the outcome of the game. Virtually all games contain some level of chance. Therefore, under this test, any game in which consideration is given for a potential reward would be deemed illegal gambling. Finally, states applying the “gambling instinct test” prohibit any game that “appeals to the player’s gambling instinct.” This test considers the nature of an activity to determine if it appeals to “gambling instinct,” regardless of whether skill or chance dominates. While there is some skill involved in selecting and managing a roster, the outcome of a fantasy football matchup ultimately depends on predicting future outcomes based on wholly unpredictable events. Therefore, under any of the three aforementioned tests, fantasy football host sites would likely violate state gambling laws should a state pursue legal action.
2. Under Ohio Law
In Ohio, lotteries and schemes or games of chance are prohibited, with the exception of several exemptions: the State operated lottery system, charitable organizations, four casinos, and horse racing.[11] All other forms of “gambling” in Ohio are illegal.[12] Sports gambling is not exempt in Ohio; therefore, gambling on future sports contests is illegal under Ohio law. However, while simply betting on the future result of a game clearly falls within the definition of illegal gambling, drafting and managing a roster of fantasy football players over a seventeen week period, as is generally the case in fantasy football, is less clear cut.
A “game of chance” in Ohio means “poker, craps, roulette, or other game in which a player gives anything of value in the hope of gain, the outcome of which is determined largely by chance.”[13] The “predominant purpose test” is generally applied in Ohio courts,[14] though Ohio has not determined whether fantasy football leagues are considered “gambling” under this test.
In most fantasy football leagues, owners draft a roster of players and manage that roster over the seventeen-week NFL season. Fantasy football is generally not considered illegal sports gambling because participants are not betting their money on the outcome of games, but rather on the future production of individual players. Therefore, additional skill is involved in analyzing team game plans and matchups between competing players. Additionally, in traditional fantasy leagues owners have the ownership rights of players throughout the NFL season, and no other league owner may use that player on their team. Therefore, each owner must construct his roster in the way they deem most beneficial for a seventeen-week season. For example, one owner may hedge against potential injuries and elect to draft three starting running backs and their respective backups, while another owner may elect to diversify their roster and draft running backs from six different teams. Thus, a participant in a league can significantly improve their chances of winning throughout the season by making strategic decisions and utilizing superior knowledge regarding weekly matchups, season-long analysis, and the individual players involved. Additionally, managers of fantasy football rosters must consider innumerable statistics, facts, and game theory in order to be competitive.
While there is an element of skill in managing a fantasy football roster, a participant leaves much to chance. First, a manager’s success depends entirely on predicting how a group of drafted athletes perform in a future event. Second, a future injury to an athlete is wholly unpredictable and can significantly alter the results in a fantasy contest. Third, a participant’s success is largely based on whether a particular athlete’s team executes a game plan in a given week that benefits that athlete’s statistical performance. Fourth, the performance of a drafted player can be altered by the performance of other players in the NFL game. Finally, even if a participant utilizes his superior knowledge and management skills, the participant’s opponent may outperform his team due to all of the aforementioned elements of chance.
In Ohio, “the fact that an element of skill may be involved in a game does not override the fact that elements of chance exist, and, therefore, the game can be classified as a game of chance.”[15] Due to the significant elements of chance in fantasy football, a court would likely determine that chance predominates over skill. Further, many host sites host contests in which participants draft players to play for their teams for just one week. Due to the significantly reduced duration of this format for games, the level of skill involved in constructing and managing a fantasy roster is less determinative in the outcome of the game. Therefore, a court applying the predominant purpose test would likely find that, even if skill predominates in a traditional fantasy football league, chance predominates in a weekly league. Therefore, host sites could likely be criminally prosecuted for accepting bets in a weekly league.
Conclusion
The federal government has taken a hostile position towards online gambling, prosecuting numerous online gambling operators in recent years.[16] However, fantasy football has not been deemed to be “gambling” per se, and is even exempted from the UIGEA under certain circumstances. Still, some states, including Ohio, have stricter gambling laws than the federal government, and any host site can be criminally prosecuted if it accepts a bet from an individual within a state where that form of gambling is illegal. While some skill is involved in drafting and managing a fantasy football roster, the game is ultimately decided on predicting future outcomes, similar to most other forms of illegal sports gambling. Additionally, weekly leagues increase the significance of chance. While no fantasy football host site has been prosecuted to date, host sites will likely see their day in court due to their growing popularity and revenue. Because Ohio and most other states apply the “predominant factor test” in determining whether a game is “gambling,” host sites will likely be forced to follow other online gambling operators’ suit and move operations out of the United States.
[1] Fantasy Sports Trade Association, “Industry Demographics,” http://www.fsta.org/?page=Demographics (last visited Nov. 11, 2014).
[2] A “host site” is a website where data for a fantasy football league is stored, participants manage their league rosters, and statistical updates and tracking are provided. Additionally, some host sites collect entry fees and distribute prize winnings.
[3] 31 U.S.C. § 5362(1)(E)(ix) (2006).
[4] 31 U.S.C. § 5363.
[5] 31 U.S.C. § 5362(10)(A). Under the UIGEA, “unlawful internet gambling” means to “place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State in which the bet or wager is initiated, received, or otherwise made.”
[6] 31 U.S.C. § 5362(1)(E)(ix) (2006).
[7] Kroger Co. v. Cook, 17 Ohio App. 2d 41, 44, 244 N.E.2d 790, 792 (Ohio Ct. App. 1968) (noting that the statutory elements of a “lottery,” “scheme of chance,” or “gambling are: (1) prize; (2) chance; and (3) consideration). Geis v. Cont’l Oil Co., 511 P.2d 725, 727 (1973) (noting same under Utah law); McKee v. Foster, 347 P.2d 585, 590 (1959) (noting same under Oregon law); Valentin v. El Diario Prensa, 427 N.Y.S.2d 185, 186 (N.Y.C. Civ. Ct. 1980) (noting same under New York law).
[8] A “buy-in” is the amount of money that must be given to the operator of a game, league, or tournament in order to become involved in the game, league, or tournament.
[9] Merriam-Webster. http://www.merriam-webster.com/dictionary/chance. (last visited Nov. 5, 2014).
[10] Internet Gambling Report X 14 (Mark Balestra & Anthony Cabot eds., 2007)
[11] Mills-Jennings of Ohio, Inc. v. Dep’t of Liquor Control, 70 Ohio St. 2d 95, 101, 435 N.E.2d 407, 410 (1982)
[12] Ohio Rev. Code Ann. § 2915.01(A). Bookmaking is considered a form of “gambling” in Ohio, and means the business of receiving and paying off bets. A “bet” is the hazarding of anything of value upon the result of an event, undertaking, or contingency. Ohio Rev. Code Ann. § 2915.01(B).
[13] Ohio Rev. Code Ann. § 2915.01 (D)
[14] Stevens v. Cincinnati Times-Star Co., 72 Ohio St. 112, 148, 73 N.E. 1058, 1061 (1905) (concluding that if the dominating, determining element is one of chance, that element gives character to the whole scheme).
[15] Garono v. State, 37 Ohio St. 3d 171, 175, 524 N.E.2d 496, 500 (1988)
[16] See, e.g., United States v. PokerStars, 2012 U.S. Dist. LEXIS 66021 (S.D.N.Y. May 9, 2012); Lawson v. Full Tilt Poker Ltd., 930 F. Supp. 2d 476, 480 (S.D.N.Y. 2013).
