However, thanks to the best efforts of the major US sports leagues and their lobbyists, UIGEA adopted an exemption for fantasy sports. It’s this carve out that DFS sites quote when their right to operate freely and without regulatory oversight is challenged.
Of course, fantasy sports was a very different proposition back in 2006, when UIGEA was drawn up. Back then, the games were almost exclusively the season-long variant, and many argue that the daily fantasy sports, where money can be staked and winnings collected on a daily basis, was not what the bill was designed to permit. DFS, they say, should be regarded as sports betting, and is therefore illegal in most states.
DoJ Interprets the Wire Act
In 2011 the US Department of Justice was asked to offer an opinion on the federal Wire Act of 1963, specifically whether it expressly forbade all remote gambling games. Of course, the Wire Act predated the internet by some 25 years, which means a degree of interpretation and clarification was necessary for the modern gambling sector.
The bill prohibits the “business of betting or wagering knowingly [using] a wire communication.” This, said the DoJ, referred merely to sports betting and no other gambling game.
"Interstate transmissions of wire communications that do not relate to a 'sporting event or contest' fall outside the reach of the Wire Act," it ruled.
It was this judgement that paved the way for Nevada, Delaware and New Jersey to legalize and regulate certain forms on online gaming in 2013. But, if daily fantasy sports is sports betting, and some folks contest, then it looks like it could be in trouble.
Apart from these federal bills, the large part of American gaming law is left up to individual states to decide upon, and this is why we have such differing attitudes to the contests across America.
Some states are happy to ignore DFS, at least for now, and let their residents engage in contests freely. Others, such as Maryland and, most recently, Kansas, have expressly ruled that DFS does not fall under their definition of gambling at all and that it is a perfectly legal “game of skill.”
The Nevada Gaming Commission, meanwhile, has said that DFS is a gambling game, pure and simple, which means it is not necessarily illegal but operators must apply for a license in Nevada, just like any other operator.
New York Gets Tough
Meanwhile other states, such as New York, which is the biggest DFS market in the US, have declared it illegal. The New York Attorney General’s Office is waging a legal war with DraftKings and FanDuel and has vowed to shut down their operations, threatening them with billions of dollars in fines.
Until we receive a judgment on that case, which will likely be a defining moment for the DFS industry, New Yorkers are free to play on their favorite sites by order of the courts.
In fact, while it may be illegal to offer DFS in a handful of states, it’s not illegal to engage in playing fantasy sports, with the possible exception of Washington State. Washington is the only jurisdiction where the very act of playing an online gambling game could land you in hot water, although we must stress that no one has ever been prosecuted in the state for doing so.
An increasing amount of states, among them California, are looking to introduce measures to regulate, license and tax DFS, drawing up a framework of best practices in order to ensure consumer protection and safeguard the fairness of games.
This is likely the way forward for the currently self-regulating DFS industry, and even states currently hostile may opt to regulate in the long-term. Until then, these are crucial times for the industry, and for now its future lies very much in the hands of lawmakers, gaming regulators, and federal judges.