The Business Of Fantasy Sports: UIGEA - Defining Federal Fantasy Sports

Published: Apr 29, 2024

Updated: Jun 03, 2024

In August 2006, Allstar Stats, including Sandbox, Rotoworld, the B2B division, and the daily fantasy sports platform SnapDraft, was sold to NBC Sports. I was now the Director of Business Development for NBC Sports Digital.

IN OCTOBER 2006, THE UNLAWFUL INTERNET GAMBLING ENFORCEMENT ACT (UIGEA) PASSES, GIVING US A CLEAR DEFINITION OF THE DIFFERENCE BETWEEN FANTASY SPORTS AND GAMBLING!

In the summer of 2004, at Allstar Stats, I watched the daily battle between Yankees superfan Rich Pike and Red Sox superfan Rick Cordella. The deep knowledge about their teams was riveting. The trash talking was WAY better. Nothing was safe. The destruction was both brilliant and brutal. I chanted “19—18” and took the New York side. The curse of the Bambino loomed large over the Red Sox fan. I would eat my words when the Red Sox would win their first World Series in 86 years. The atmosphere in the office was electric. High energy. Get SH-T done! We all were having a ton of fun.

Rotoworld.com’s news had every bit of information in it for us to talk about and we marveled at the prolific nature of Matthew Pouliot, churning out 100+ news items a day and adding insight that was, in a word, snarky. There would have been no Rotoworld without Matthew. It would not have been possible. His worst characteristic - Red Sox fan. Gregg Rosenthal was a more serious reporter and delivered that for our NFL coverage. UGH - Red Sox fan. Matthew Berry was hilarious, poignant and interesting in every column. I was a stats guy, but I read every column! He always weaved in pop culture for his cross over audience and grew a huge following in a Yahoo! group. He was blowing up. We would part ways before we were bought by NBC Sports. Twenty years later, that would be rectified.

Every night, we played Party Poker. We played multiple tournaments at a time while we used AOL instant messenger to stay connected and talk fantasy baseball or bad beats. I was also handicapping horses, usually at Mountaineer, a West Virginia track and using TVG to make the wagers. A jockey named Dana Whitney would bring 20-1 horses into the money. In between races or sit-and-go tournaments, I would code things to help Allstar, Sandbox.com or Rotoworld.com. I had work flexibility to manage parenting three sons. It was so much fun. Time of my life!!

DEFINING FANTASY & BET OR WAGER

In October 2006, the federal government passed the Security and Accountability for Every Port Act which contained Title VIII, UIGEA. This section of the law attempted to stop illegal gambling by defining what a “bet or wager” was. The federal law limited financial institutions from processing transactions related to online gambling activities.

For poker and fantasy sports, it made a difference. I felt I had to stop playing poker as I had too much to lose now that I was an NBC employee. Many online poker companies got around this law by maintaining that poker was a game of skill. Poker remained popular until 2011, when the DOJ came down against the poker industry by unsealing indictments of executives at Full Tilt Poker, Poker Stars and Absolute Poker. G2G explained it well in this article.

Understanding this law is critical to understanding the politics that occurred for the decade that followed with both poker and fantasy sports. It is important to note that the legislators decided not to have this law have supremacy over the states so if the states had their own laws governing fantasy games, sweepstakes, games of skill, etc., those would take supremacy over UIGEA. That is critically important as to what the FSTA tried to accomplish in 2015 and what actually happened. Stay tuned for next week.

So, let’s look at Title VIII, UIGEA from the Port Act which will help us understand why this was important.

It states:

“(1) Bet or wager.—The term "bet or wager"—

(A) means the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome;

(B) includes the purchase of a chance or opportunity to win a lottery or other prize (which opportunity to win is predominantly subject to chance);

(D) includes any instructions or information pertaining to the establishment or movement of funds by the bettor or customer in, to, or from an account with the business of betting or wagering; and

(E) does not include—

(i) any activity governed by the securities laws (as that term is defined in section 3(a)(47) of the Securities Exchange Act of 1934 ¹ for the purchase or sale of securities (as that term is defined in section 3(a)(10) of that Act);

(ii) any transaction conducted on or subject to the rules of a registered entity or exempt board of trade under the Commodity Exchange Act;

(iii) any over-the-counter derivative instrument;

(iv) any other transaction that—

(I) is excluded or exempt from regulation under the Commodity Exchange Act; or

(II) is exempt from State gaming or bucket shop laws under section 12(e) of the Commodity Exchange Act or section 28(a) of the Securities Exchange Act of 1934;

(v) any contract of indemnity or guarantee;

(vi) any contract for insurance;

(vii) any deposit or other transaction with an insured depository institution;

(viii) participation in any game or contest in which participants do not stake or risk anything of value other than—

(I) personal efforts of the participants in playing the game or contest or obtaining access to the Internet; or

(II) points or credits that the sponsor of the game or contest provides to participants free of charge and that can be used or redeemed only for participation in games or contests offered by the sponsor; or

(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.”

In order to have a “bet or wager” under federal law, this is the definition. The important part for fantasy sports is E (ix). This defines what is necessary for a fantasy, simulation or education game or contest so that it is not defined as a bet or wager.

In order to not be a “bet or wager” a contest, simulation or game:

Cannot involve a team or teams
Must be based on amateur or pro players or entities
Must establish prizes in advance
Must be predominantly skill based
Must have winners determined by results of entities/athletes in real-world events
Must have winners not be based on score, point-spread or single real-world team(s)
Must have winners not be based solely on any single performance of an entity in a single real-world event

Simple right? WRONG. The fact that UIGEA did not choose to make the law have supremacy over the states meant that each state could decide the laws. Many states had dealt with fantasy games as part of their game of skill laws in the late 1990s. Notice that the length of time that you need to have a “fantasy team” is not part of the carve out.

For years, I believed that Greg Ambrosius was talking with Clay Walker who was running the NFLPA to make sure that fantasy sports stayed legal with a strong carve out like what is above in E (ix). The other day, I asked Greg about it, and he reminded me that we were all surprised. I remember now. There were people who immediately realized that…

DAILY FANTASY SPORTS WAS NOW LEGAL ON A FEDERAL LEVEL

When this law was passed, Rick Cordella immediately understood that DFS was now legal on a federal level. In 2004 while his Red Sox were breaking an 86-year-old curse, he convinced the owners of Allstar Stats to buy an early company doing daily fantasy sports. It was called Instant Fantasy Sports, owned by Chris Fargas (above).

Next week, we will break down how this critically important law started daily fantasy sports and what led up to the attacks that followed in 2015.

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