CAN DAILY FANTASY SPORTS OVERCOME THE ODDS?

Author:Larson, Daniel J.
 
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  1. Introduction

    In November of 2015, New York Attorney General Eric Schneiderman ordered the daily fantasy sports ("DFS") giants, Fan-Duel and DraftKings, to stop accepting bets from New York residents. (1) This announcement was a significant detriment to the multi-billion dollar industry of DFS, with New York users making up 12.8% of the industry's market. (2) Today, the legal status of DFS sports continues remain uncertain. (3) This uncertainty is a result, ironically, of an anti-gambling statue passed by Congress in 2006 titled the Unlawful Internet Gambling Prohibition Act ("UIGEA"). (4) Written into the UIGEA are two clauses of particular importance, both of which have complicated the issue. (5) The first clause provides an exemption for all fantasy sports from federal regulation, while the second gives states the ability to ban or regulate such games within their borders. (6) As DFS companies continue to expand, state lawmakers across country will be forced to decide whether such contests are predominately based on chance, rather than skill; an important distinction because, if states determine they are chance-based games they are likely to be deemed illegal gambling. (7) Massachusetts, home to one of the biggest daily fantasy operators, FanDuel, has spearheaded the problem by enacting regulations as an alternative to a complete ban. (8)

    First, this Note will outline the gaming culture in America and its expansion over the years. (9) Second, this Note will illustrate how that aforementioned culture has evolved into the phenomenon that is fantasy sports. (10) Third, this Note will discuss how regulators have responded to fantasy sports in the Internet age and how federal laws have been applied to DFS specifically. (11) This Note will then discuss how and why Massachusetts has regulated DFS in the wake of the federal exemption for fantasy sports. (12) The analysis section will examine how DFS games are played and whether the elements of skill are primarily more material than the elements of chance. (13) Finally, this Note will conclude that although DFS contests involve some inherent element of chance they are predominantly skill-based, therefore, states should take steps, like Massachusetts has done, to regulate DFS rather than ban it.

  2. History

    1. Lotteries in America

      Gambling was first introduced to the United States in the early 19th century in the form of public lotteries. (14) States greatly benefited from the use of the lotteries as a means to raise revenue for civic projects, such as canals, roadways, bridges, and even educational institutions. (15) Lotteries during this time up until concerns over the morality and social impact of gambling spread throughout the local communities." (16) Public opinion rapidly declined once it was revealed that the lottery administrators were growing increasingly wealthy through dishonest means. (17) In 1860, when efforts to regulate the lotteries failed scrutiny reached its peak and all but three states banned lotteries altogether. (18) The ban remained intact for take over a century before states began to reintroduce lotteries; New Hampshire being the first. (19) Today, however, lotteries are present and thriving in over forty states. (20)

    2. The Rise of Sports Gambling

      Once the public began betting on sporting events, the landscape of gambling transformed considerably. (21) The earliest sports gambling can be traced back to horse racing in the 19th century. (22) Sports gambling evolved as sports, such as baseball, became increasingly popular and provided a new and exciting opportunity for gamblers to explore. (23) In 1919, the sports gambling phenomenon received national exposure during the World Series of Professional Baseball between the Chicago White Sox and the Cincinnati Reds, known today as the "Black Sox Scandal." (24) Even today, many consider the White Sox team as the greatest assembled baseball team in American History. (25) Although they were favored to win the World Series, powerful and crafty gambling con artists successfully convinced a few players to throw the series in order to rig the odds in their favor. (26) The massive scandal caught the world's attention; and once again the public opinion of gambling plummeted. (27) But it wouldn't take long before the sports gambling craze regained its grip; viewership in sports such as boxing, college football, basketball, and horseracing peaked in the 1920s and sports gambling made a comeback. (28) At this point, the Great Depression was looming and televisions were entering the homes of millions of Americans across the country; the stage was set for another gambling craze. (29) Then, when the American economy finally collapsed, people desperately turned to sports gambling, attracted to a glimmer of wealth, hope, and a better life. (30)

    3. The Birth of Fantasy Sports

      The birth of fantasy sports occurred in the early 1960s and can rightfully be attributed a man named Wilfred Winkenbach. (31) Winkenbach, an avid sports fan and businessman, is most famous for being the father of fantasy football, and coincidentally creating fantasy sports. (32) Winkenbach's first fantasy sport concept began with golf, wherein each fantasy team "owner" would select a group of professional golfers participating in a tournament, and the winner would be the owner whose team had the lowest combined score at the close of the tournament. (33) Shortly thereafter, Winkenbach would create the concept of fantasy football from inside a Manhattan Hotel room. (34) After a discussing the idea with his trusted friends, a fantasy football league was developed whereby fans would draft a number of players from professional football teams to ultimately create an imaginary team to compete in weekly games against each other. (35) Shortly after, Winkenbach returned home to Oakland and put his new idea into action by creating the first ever fantasy football league called the Greater Oakland Professional Pigskin Prognosticators League ("GOPPPL"). (36) In fact, two of the original members of the GOPPPL, Ron Wolf and Scotty Stirling, went on to become general managers for the National Football League ("NFL"). (37) Today, thanks to Winkenbach, fantasy football includes more than twenty million participants. (38)

      The emergence of fantasy football encouraged the development of many more fantasy sports concepts; one, in particular, was Rotisserie Baseball. (39) William Gamson, a sociology professor at Boston College, planted the seeds of Rotisserie Baseball through his innovative idea known as the Baseball Seminar. (40) The Baseball Seminar, which Professor Gamson developed in his apartment with the help of friends, was an auction game whereby each player is given a $100,000 budget to create a roster of Major League Baseball players. (41) The seminar tracked games and players by four statistics Professor Gamson saw fit: batting average, runs batted in, earned run average, and wins. (42) Shortly after he created the Baseball Seminar, Professor Gamson moved to the University of Michigan. (43) At Michigan, he was introduced to Robert Sklar; the two colleagues soon became very close. (44) Sklar, who was a faculty advisor to students at Michigan, also had a great fascination for fantasy sports, particularly a game called Strat-o-Matic. (45) However, once Sklar learned of Professor Gamson's Baseball Seminar, he quickly jumped on board. (46) One evening, when Sklar was planning his bid for the seminar one day, a student named Daniel Okrent visited him in his office for academic advice and the rest is history; Okrent would later be known as "The Founding Father" of fantasy baseball. (47)

      Okrent, an undergraduate student at Michigan, learned about the seminar from Sklar and took the initiative to build his own concept of fantasy sports to more accurately reflect live play on the field. (48) Okrent used the same auction format used in the seminar, but made the following important changes: the rosters were limited to twenty-three players; every position had to be filled, including the catchers and second basemen; and the statistical analysis was expanded to incorporate stolen bases, innings-pitched ratios, and earned run averages. (49) Okrent met regularly with friends to discuss baseball at La Rotisserie Francasie, an old French Restaurant in Philadelphia, and it was at this establishment where the first draft took place, subsequently acquiring its name, "The Rotisserie League". (50)

    4. The Rise of Internet Gambling

      In the 1990s through the early 2000s, the Internet was rapidly advancing and its popularity was soaring. (51) It did not take long before entrepreneurs and pioneers of the Internet industry realized the potential business opportunities in online gambling. (52) In 1995, the first form of online gambling emerged with free games where players used imaginary money for contests similar to those played at casinos, such as poker. (53) Sports gambling online emerged next, with companies such as the World Sports Exchange ("WSE") operated sites that transmitted odds and allowed consumers to place wagers on sports contests. (54) By the early 2000s, online gambling was flourishing and state legislatures started to take a closer at the social impacts on their community. (55) Some states, like New Jersey, conducted extensive studies to investigate the societal impact, while others like Nevada, simply enacted laws requiring that such online operators to secure a gambling license. (56)

    5. Interstate Wire Act

      In 1961, Congress passed the Wire Act in an effort to curb the growth of organized crime and illegal gambling enterprises sprawling throughout the United States. (57) The statute, which targeted wire communications between gamblers and gambling organizations states:

      [w]hoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or...

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