DraftKings was riding high with a strongly growing business in online fantasy sports betting and a recent advertising blitz when the regulators decided to insert a road block. In came a lawsuit from the New York attorney general and a reported review of its business by the Massachusetts attorney general. DraftKings then had to shift its main focus from the growth of its business to fighting a lawsuit and lobbying to keep its business legal. Fortunately, they were able to successfully fight, and today, online sports’ betting is legal as long as the business is in compliance with the Unlawful Internet Gambling Enforcement Act.

Legal Landscape

Online sports betting businesses like DraftKings have to comply with both federal and state laws, including the Unlawful Internet Gambling Enforcement Act mentioned above. A key thing that DraftKings has been able to do has been to keep its innovative business legal by both fighting for its business to remain legal and maintaining its structure to keep it within the bounds of federal and state laws.

The federal side of the legal field when it comes to online sports betting, including the ever popular fantasy football, is the Unlawful Internet Gambling Enforcement Act of 2006. In 2006, Congress passed this act. The act included special carve-out language clarifying that fantasy sports were legal. What is illegal under the act are transactions which are made directly to these online betting websites from banks and similar institutions, with exceptions such as fantasy sports, online lotteries and horse/harness racing. The specific exemption language says that any fantasy sports game, educational game or online contest that “has an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance), and, in the case of a fantasy or simulation sports game, has an outcome that is determined predominantly by accumulated statistical results of sporting events, including any non-participant’s individual performances in such sporting events…” is not illegal under the act.

State laws regulating businesses similar to DraftKings vary from state to state. Some states have developed regulation specifically geared towards the regulation of daily fantasy sports. Some states are still questioning the legality of these contests, while others have never put into question whether they were legal or not. In these states, legality is assumed. Specifically in states where politicians and other government officials have spoken out about daily fantasy sports contests, DraftKings has made moves to ask the respective state’s courts to clarify DraftKings’ right to operate. Because of the uncertain legal landscape on  state by state basis, DraftKings monitors developments in the online betting legal landscape as a step in ensuring its continued compliance.

A Game of Skill

Why is online sports betting, under the right business plan, legal and not considered gambling? It’s a game of skill. It includes taking into account statistics, facts and game theory to gain a competitive advantage. This reaches above simple depth charts and basic statistics into the injuries on the team/in the sport, coaching styles, weather conditions and patterns, prospects  home and away statistics and an ongoing, never-ending list of other factors. At least this is what is used as the rationale for why certain online betting is not gambling.

All businesses have to be considered valid under both state and federal law. For some businesses, this is easy, but for others, it’s not. Further consultation and information on how to legally operate your business is available, call Dodson Legal Group today for a consultation at 844-4DODSON.