FANTASY SPORTS
Welcome to Fantasy Island
“Betting on the Growth of Fantasy Sports in the U.S., a Gamble With Many Risks” by Robert M. Crawford and David J. Apfel.
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David J Apfel (above) and Robert M Crawford, of Goodwin Procter
ports gambling in the United States is an enormous and lucrative business; it’s also mostly illegal. In 2012 the National Gambling Impact Study Commission estimated that $3.45 billion was legally
wagered in Nevada sports betting facilities, but this is just a pittance compared to illegal sports betting, which cashes in at around $380 billion annually in the U.S., and more than $2.5 billion of that comes from annual betting on just the NCAA Men’s Basketball Tournament. While Congress and federal prosecutors have launched aggressive attacks on Internet gambling and sports betting in the United States, more people play the odds through online fantasy sports. What was once a seasonal hobby among friends and co- workers has blossomed into a $4 billion to $5 billion per year industry, with nearly 35 million adults in the United States participating in some form of fantasy sports in 2014. This meteoric success has led entrepreneurs,
investors, sports leagues and media companies to pour hundreds of millions of dollars into online fantasy sports businesses without fully evaluating the legal risks posed by existing federal and state laws. Under traditional fantasy sports models, players manage a roster of real-world professional athletes and, based on the statistical results of the athletes over the course of an entire season, compete for pride and relatively small prizes awarded on a one- time basis at the end of the season. Daily leagues, however, typically include a cash entry fee, the selection of players, and a payout of large cash prizes based on the performance of athletes in a single day. Both traditional fantasy sports leagues and daily
leagues rely on statistical results of real athletes, but daily leagues entice participants with elements of exchange wagers, daily market action, and sports betting. This complex and cutting-edge structure will likely fuel the growth of the fantasy sports industry, increasing the risk that sponsors will be targeted in an enforcement action. To lessen these risks, and to lawfully tap the multi-billion dollar fantasy sports
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market, key stakeholders must ensure that their games and platforms comply with applicable federal and state laws. Internet gambling, and sports betting in particular, is generally regarded as illegal under most states’ laws, and has long been in the crosshairs of Congress and federal prosecutors. Over the past 12 years, the United States has taken aggressive measures to prevent states and tribes from implementing new sports betting schemes and to otherwise prohibit all forms of Internet gambling.
Opportunity, Huge Confusion and Under Appreciated Risk
Legislation Has Spawned In 1992, the Professional and Amateur Sports
Protection Act (“PASPA”) became law in the United States, effectively banning sports betting outside of Nevada and grandfathering-in limited sports betting operations in three other states (Delaware, Montana and Oregon). In 2006 – a time when the Internet gambling market was expected to reach $15 billion worldwide – Congress passed the Unlawful Internet Gambling Enforcement Act (“UIGEA”), aimed at prohibiting the transfer of payments in connection with “unlawful Internet gambling within the United States.” In 2011 and 2012, relying in part on the UIGEA, the U.S. Department of Justice shut down PokerStars, Full Tilt Poker, Absolute Poker/Ultimatebet and Bodog, four of the largest Internet poker and sports betting sites operating in the United States, and indicted the companies’ principals.
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