Legislatures in over a dozen states are considering the daily fantasy sports question via an array of approaches ranging from passive permission to active regulation.
One common thread among those efforts is a reliance on the Unlawful Internet Gambling Enforcement Act (UIGEA) as a source for language to define daily fantasy sports for the purposes of state law:
- A bill in California echoes much of the wording of 31 USC 5362(1)(E)(IX), the section of the UIGEA that outlines the “safe harbor” for fantasy games.
- Bills in Illinois, Louisiana, and New York cut and paste broad chunks of the section.
- A bill in Michigan simply inserts a reference to 31 USC 5362(1)(E)(IX).
The trend is not limited to new bills; laws clearing the way for DFS in Maryland and Kansas both leaned heavily on language from the UIGEA.
There are advantages to that approach, including efficiency and consistency. And the UIGEA has a potentially important role to play regardless of how states approach DFS.
But there are also several reasons why states might want to think of the UIGEA as only a starting point in the definitional discussion.
States have insights that Congress lacked in 2006
Save an off-the-cuff remark from Sen. John Kyl in 1999, Congress does not appear to have contemplated daily fantasy sports prior to passing the UIGEA in 2006.
States currently considering DFS, on the other hand, have several years of exposure to the industry “in the wild.” With that exposure comes valuable insights into:
- How operators are testing the limits of UIGEA.
- Unanticipated consequences of the UIGEA parameters.
- An appreciation of the size, scale, and trajectory of the DFS product.
All other things being equal, it seems logical to conclude that states acting today are in a better position to craft reasonable, salient policy regarding the statutory definition of DFS than their federal counterparts acting a decade ago.
Even in Maryland, John Olszewski Jr. — the sponsor of the state’s fantasy sports bill that became law — says lawmakers in 2012 weren’t really taking into account the DFS industry as it is currently situated:
“You still want people to have the independence and ability to participate, but we need to make sure it’s safe and that it’s fair. I don’t think anyone even back in 2012 envisioned the evolution we’ve seen. We’re not talking about friends and family leagues anymore.”
Current ambiguity surrounding UIGEA has divided industry
The UIGEA is chock-full of critical terms left completely undefined. For example:
- What qualifies as a “real-world sporting event” and what threshold do you need to cross to have “multiple” events? Consider baseball: Is a pitch an event? An at-bat? A half an inning? An inning? The whole game? A series of games?
- How about “accumulated statistical results” for an athlete? Does a basketball player meet this threshold every time they touch the ball (triggering a minimum of two statistical results: the time they posses the ball and whatever they do with the ball)?
Those and similar questions have spawned a high-profile disagreement between leading operators over what kinds of sports can be offered as a DFS product under the UIGEA exemption.
And on the margins of the industry that ambiguity has been leveraged to craft products that are broadly indistinguishable from a sports bet.
The upshot of the UIGEA language has been an industry that can’t agree internally on the ground rules. Porting the language that has fostered that division into state law feels like fundamentally flawed public policy.
State law is for higher stakes
The UIGEA does not define what constitutes gambling for any purposes beyond compliance with the UIGEA itself.
In that sense, the vagueness and ambiguity inherent in the UIGEA has always been a bit limited in terms of impact, because the law was always ultimately backstopped by definitions of gambling in state and other federal laws.
But when you insert the language of the UIGEA into state law, you lose that backstop, and language that was never intended to serve as a definitive statutory definition of gambling is forced into precisely that role.
The unintended consequences of the UIGEA becoming the gambling law of the land for a significant portion of the population are potentially significant.
The UIGEA could change
While much of the attention surrounding daily fantasy sports is taking place at the state level, the federal government is hardly a passive observer.
There are multiple voice in Congress calling for action on DFS, a push that could hypothetically result in some alteration of the UIGEA.
That scenario is a long shot. But interest from the DoJ could plausibly lead to an opinion from the OLC regarding the applicability of the UIGEA to certain forms of daily fantasy sports.
If that happens, we could have identical statutory language regarding DFS at the state and federal levels, each with unique – possibly starkly different – underlying meanings.
That clash wouldn’t necessarily be the end of the world for DFS.
But, at a minimum, it would add another layer of confusion and complexity to our already-absurd law regarding gambling. And the resulting ambiguity might make payment processors, investors, and other critical stakeholders nervous about ongoing involvement with DFS.
The relevant section of the UIGEA
Below is the text of 31 USC 5362(1)(E)(IX), which is the portion of the UIGEA generally invoked around the topic of daily fantasy sports.
The section describes an exemption from the definition of “bet or wager” found in the UIGEA.
(ix) participation in any fantasy or simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization (as those terms are defined in section 3701 of title 28) and that meets the following conditions:
(I) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.
(II) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.
(III) No winning outcome is based—
(aa) on the score, point-spread, or any performance or performances of any single real-world team or any combination of such teams; or
(bb) solely on any single performance of an individual athlete in any single real-world sporting or other event.
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