By Erica Buerger
I. Introduction
When Indianapolis Colts’ future Hall of Fame quarterback Peyton Manning announced that he would not start the 2011 NFL season, his streak of 227 consecutive starts ended and fantasy team owners panicked. In 2011, there were approximately $650 million of fantasy football prizes on the line.[1] It is estimated that Manning’s absence shifted $65 million away from people who would have won their fantasy football leagues had he not been injured.
There are currently over 32 million fantasy sports players in the United States and Canada, and the industry generates more than $3 billion in revenue.[2] Fantasy sports have become as much of an American pastime as the games upon which they are based. But this popularity may be disguising the fact that fantasy sports are just another form of illegal gambling. In most states, the legality of a betting game depends upon the amount of skill versus chance required to play the game. In general, the more skill that is involved, the more likely the game is legal.
The problem is that as fantasy sports evolve to meet the needs of an ever-expanding fan base, many leagues have added features that allow less-knowledgeable players to participate. By lowering the amount of skill needed to play, the outcome is more chance-based. If this trend continues and current gambling law prevails, fantasy sports could become so dependent on chance that they will become illegal.
II. Gambling Law
A. Federal Law
The purpose of federal gambling law is to “aid the states in controlling gambling.”[3] Specifically, to assist the states in the “enforcement of their [gambling] laws.”[4] Federal gambling laws do not attempt to create uniformity between the states. Rather, they exist simply to supplement each state’s own laws.
B. State Law
Gambling regulation is mostly a function of state law and can vary considerably. The dictionary defines gambling as “play[ing] a game for money or property” or “bet[ting] on an uncertain outcome.”[5] However, most states allow activities that seem to fall into this category, such as state lotteries. In fact, in most states, an activity is legal unless a plaintiff makes an affirmative showing that a particular activity involves three elements: consideration, reward, and chance.[6]
1. Consideration
Consideration is often loosely defined as something given in exchange for something else. In the context of gambling, most courts construe this term narrowly holding that consideration exists only when a “participant provided money or a valuable item of property in exchange for the chance of greater winnings.”[7] However, some courts adopt a broader definition finding that consideration exists when any legal detriment is given in exchange for the chance to win a prize.[8]
2. Reward
In gambling, the reward is the prize that one receives after winning a game of chance. To meet this requirement, courts have held only that the reward must be tangible.[9]
3. Chance
Chance is the most controversial element. To constitute a game of chance, courts have held that the outcome of the game must depend upon factors that are out of a player’s control, as opposed to a player’s “judgment, practice, skill, or adroitness.”[10] To make this determination, courts have applied three tests: (1) the “dominant factor test,” (2) the “any chance test,” and (3) the “gambler’s instinct test.”
Most states use the dominant factor test.[11] In Johnson v. Collins Entertainment, the South Carolina court explained that a game is chance-based when “the dominant factor in a participant’s success . . . is beyond his control . . . even though the participant exercises some degree of skill.”[12] The threshold of the dominant fact test is the point at which either skill or chance affects the outcome by more than 50%.
Some states use the any chance test. In these states, an activity is a game of chance if it incorporates any element of chance, regardless of whether the game also incorporates skill.[13] Because almost every game involves some chance, most games will not survive scrutiny in these states.
Finally, a few states use the gambler’s instinct test. This test defines a game of chance as one that appeals to the “gambling spirit,” without regard to whether skill or chance dictates the outcome.[14] Because of the highly subjective nature of this test, a court’s decision can vary considerably.
III. The Legality of Fantasy Sports Under the Majority View
Most states adopt a narrow definition of consideration and use the dominant factor test. In these states, the structure and features of a particular fantasy game is of utmost importance. Legal fantasy games generally fall into three categories: (1) leagues that do not charge an entry fee; (2) leagues that do not award prizes; and (3) leagues that are predominately skill-based. The first two categories are relatively straightforward. Leagues that are free are legal because there is no consideration. Alternatively, leagues that do not award prizes are legal because there is no reward.
The third category is more complex. In this category, fantasy games are legal if the outcome is more than 50% based on skill. Fantasy leagues are generally considered skill-based if they allocate players through a traditional auction and span at least one entire season.[15] This is because fantasy players have the opportunity to offset chance occurrences, such as player injuries or adverse weather conditions, with efficient team management, lineup changes, and trade negotiation. It is this category of fantasy games that is most at risk as the popularity of fantasy sports increases.
IV. The Future of Fantasy Sports: How New Features Affect the Dominant Factor Test
A. Auto-Draft
Auto-draft is a feature used during a fantasy draft that ensures a fantasy team owner automatically drafts the highest-rated player available. Automatic drafting algorithms are designed to create competitive leagues. Beginners typically use auto-draft because they lack enough knowledge to fill their teams. Some argue that auto-draft is unfair because there is no guarantee that the owner using auto-draft would have actually selected the highest ranked player.[16]
B. Point Projections
Point projections are similar to a cheat sheet in that they predict how many points a player will earn during a game. To set a lineup, an owner starts the players on his team with the highest number of projected points. Point projections place a passive team owner in the same position as an owner who has done extensive research on his players’ current matchups, injury reports, or other conditions affecting a player’s potential performance.
C. Short Season Leagues
Fantasy games that stretch over longer time spans allow an owner’s managerial skills regarding drafting a team, setting lineups, and making trades to counteract the effects of chance. Fantasy leagues that span multiple seasons allow owners to employ strategies that may take several years. These leagues require a considerable level of commitment, knowledge, and skill. Conversely, some leagueslast only a day or a week. In these games, the outcome is more chance-based because it is closely tied to a single, real-world event.
D. The Effect
The intent of auto-draft, point projections, and short season games is to increase fantasy sports participation. These features accomplish this task by reducing the need to spend time analyzing statistics and setting lineups. But because the legality of a fantasy sports game is based on the level of skill required to play the game, these features, while increasing participation, are simultaneously pushing a multi-billion dollar industry to the brink of extinction. To avoid this outcome, current gambling laws should not be used to regulate fantasy sports.
V. How Fantasy Sports Differ From Other Gambling Games
Fantasy sports cannot be regulated effectively under current gambling law because they are different from other casino-type games. Fantasy sports are different because strategy can be used to overcome the chance elements involved in the game. To understand the impact of strategy in fantasy sports games, it is important to understand the differences between strategy and skill.
Skill is “the ability to use one’s knowledge effectively.”[17] Skill can be obtained through study, repetition, drill or practice. Often, exercising skill becomes an automatic response that occurs independently of any cognitive process. Strategy, on the other hand, is a deliberate, planned, and conscious activity. Strategy involves the application of skill but it also implies an understanding of the interaction between underlying concepts.
Managing a fantasy sports team takes skill and strategy. Drafting players, for example, is partly skilled-based because players’ statistics can be learned through study. Drafting players is also strategy-based because an owner must prioritize his selections by anticipating other owners’ choices. Trade negotiation, however, is primarily strategy-based. Skill-based trades would involve analyzing statistics to make mutually beneficial trades. But most trades are not mutually beneficial. Instead, trades typically involve psychological warfare, feeding off other owner’s impulsive natures, or exploiting other teams’ weaknesses. In fact, many fantasy experts insist that trade negotiation is an art.
By utilizing strategy, owners can prevent chance from determining the outcome of the game. All fantasy sports involve chance due to adverse weather conditions and possible player injuries. However, a skillful owner circumvents these elements by drafting backup players, checking game day weather and injury reports, and adjusting his lineup as necessary. Conversely, a poker player cannot eliminate the chance that he will be dealt an unfavorable hand, a craps player cannot anticipate the roll of the dice, and a roulette player cannot predict the number on which the ball will fall. Therefore, the ability to use strategy to “beat chance” distinguishes fantasy sports games from other illegal gambling.
VI. Resolving Fantasy Sports’ Differences Under the Law
A. Ambiguity
Not only are fantasy sports different from other gambling activities, they are also different from each other. Because of this, attempts to regulate fantasy sports under existing gambling laws have produced ambiguous guidelines. For example, in Humphrey v. Viacom, a New Jersey court held that the fantasy sports game at issue was legal because it would be “patently absurd” to conclude that the combination of an entry fee and a prize constituted gambling.[18] The court reasoned that such a holding would mean that spelling bees, beauty contests, and golf tournaments would also be considered gambling. Although this holding appears to give fantasy sports a “clean bill of health,” it has been severely limited to its facts.[19] Therefore, fantasy sports games continue to be arbitrarily analyzed depending on the rules of each particular game. A better approach is for states to pass specific fantasy sports legislation.
B. Fantasy Sports Specific Law
Montana is currently the only state with specific statutory authorization for fantasy sports.[20] While the Montana Code is a good starting point, new legislation should expand the law by first defining a fantasy sports game and then requiring the game to meet a two-part test. First, like in Montana’s Code, a fantasy sports game could be defined as an activity in which “a limited number of persons . . . pay an entry fee for membership in the league” and create “a fictitious team composed of athletes from a given professional sport.” If the game meets the basic definition, its legal status could be determined based on (1) whether the game involves strategy; and (2) whether strategic decisions lessen the effect of chance on the game.
Part one of the test would require a court to consider whether the game involves strategy. This inquiry looks only at whether participants’ strategic decisions ultimately affect the outcome of the game. Part two asks whether a participant can use strategy to effectively “beat chance.” This requires a court to identify chance elements, such as player injuries or adverse weather conditions, and ask whether a strategic player could reduce the effect of those elements.
When the two-part test is met, the game should be deemed legal. Alternatively, if chance elements, such as those dependent on random number generators, dice throws, or card shuffles, cannot be controlled, the game should be illegal. The new law recognizes fantasy sports games as a game of strategy. By distinguishing them in this way, the law protects the legal status of true fantasy sports games.
VI. Conclusion
Fantasy sports emerged as an American pastime as participation skyrocketed over recent years. New features, designed to further increase participation, arguably lower the amount of skill involved in the game thereby threatening the legality of fantasy sports. To fix this problem, state legislatures must pass fantasy sports specific laws. By doing so, states can protect the multi-billion dollar industry.
[3] New York v. World Interactive Gaming Corp., 714 N.Y.S.2d 844, 852 (App. Div. 1999).
[4]Id. at 851 (emphasis added).
[6] E.g., New York v. Hunt, 616 N.Y.S.2d 168, 169 (Crim. Ct. 1994); Valentin v. el Diario la Prensa, 427 N.Y.S.2d 185, 186 (Civ. Ct. 1980); McKee v. Foster, 347 P.2d 585, 590 (Or. 1959); Geis v. Cont’l Oil Co., 511 P.2d 725, 727 (Utah 1973).
[7] Marc Edelman, A Short Treatise on Fantasy Sports and the Law: How America Regulates its New National Pastime, 3 Harv. J. Sports & Ent. L. 1, 27 (2012).
[8] E.g., Affiliated Enter. v. Waller, 5 A.2d 257, 262 (Del. Super. Ct. 1939); State ex rel. Schillberg v. Safeway Stores, Inc., 450 P.2d 949, 955 (Wash. 1969).
[9] Arkansas v. 26 Gaming Machs., 145 S.W.3d 368, 374 (Ark. 2004).
[10] Edelman, supra note 9, at 28
[11] Anthony N. Cabot et al., Alex Rodriguez, a Monkey, and the Game of Scrabble: The Hazard of Using Illogic to Define the Legality of Games of Mixed Skill and Chance, 57 Drake L. Rev. 383, 390 (2009).
[12] Johnson v. Collins Entm’t Co., Inc., 508 S.E.2d 575, 584 (S.C. 1998).
[13] Texas v. Gambling Device, 859 S.W.2d 519, 523 (Tex. App. 1993).
[14] Milwaukee v. Burns, 274 N.W. 273, 276 (Wis. 1937).
[15] See Joker Club L.L.C. v. Hardin, 643 S.E.2d 626, 629 (N.C. Ct. App. 2007); (“[S]kill will prevail over luck over a long period of time”).
[18] See generally Humphrey v. Viacom, Inc., No. 06-2768 (DMC), 2007 WL 1797648, at *7 (D.N.J. June 20, 2007)
[20] Mont. Code Ann. § 23-5-802 (2011).
