How is FanDuel Legal? What States is it not Allowed?

By Steve Beauregard

Online poker is gone. You can’t legally play craps or bet on sports over the internet. So how is FanDuel legal? Or is it legal?

First the basics: FanDuel is 100%, completely legal under federal law. Unlike playing slots online, or internet poker, fantasy sports, including daily fantasy football, baseball and basketball, is considered (by the United States government), to be a game of skill.

But how is FanDuel legal?

For answer we turn to the UIEGA. Officially known as the “Unlawful Internet Enforcement Gambling Act” the UIEGA was a bill passed by both houses of the United States Congress and signed into law by President Bush in October of 2006.

As many people already know, it was the UIEGA that effectively killed online poker sites like PokerStars and FullTilt in the United States. It also reinforced and strengthened the illegality of sports betting online and internet casino gambling in the United States.

What fewer people realize, however, is that the bill included specific exemptions, or “carve outs” for both horse racing and fantasy sports. These exemptions weren’t really highlighted or advertised, or even featured on the news, but they are there.

Why? Because apparently the 4 major sports leagues and the horse racing industry have better lobbyists. It is as simple as that. Major League Baseball itself asked for the fantasy sports carve out.

Jim Leach is the respected congressman (now retired), who co-authored the UIEGA. He explained the fantasy sports carve out to the Washington Post: “The carve-out, as I recall, was considered a kind of footnote. It was never much discussed during consideration of UIGEA because it was considered like horse racing, already part of the American betting scene.”

(Related: Is online horse racing betting legal in the United States?)

Carve Out Wording that Makes Playing on FanDuel legal:

The UIEGA specifically states that their definition of an illegal wager does not include: “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 team is based on the current membership of an actual team that is a member of an amateur or professional sports organization.”

Chunky wording to be sure, but it says, basically that fantasy sports for money is OK as long as you cannot bet on a team. This reinforces the notion that online sports betting is illegal. Wording in the UIEGA made sure you couldn’t get around this law by betting on all of the players on a team, which would effectively be betting on a team to win.

The UIEGA went on to state that the fantasy sports game is acceptable under the following other conditions:

1) 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 fees paid by participants.

2) 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 a multiple real-world sporting or other events;

3) No winning outcome is based [either]:

(a) on the score, point spread, or any performance or performances of any single real world team or any combination of such teams; or
(b) solely on any single performance of an individual athlete in any single real-world sporting or other event.”

To recap this wording in terms that guys like me can understand:

1) The prize pool must be set in advanced, and not be based on the number of people playing in the pool.

2) The outcome must be based on both skill and the statistical results of individuals playing in sporting games.

3) Winners cannot be determined by a team’s score, or point spread, or by the single performance of an individual athlete.

Oddly enough, the UIEGA made daily fantasy sports legal, even though at the time of the bill’s passage, there was no such thing as daily fantasy sports. The carve out only seemed to apply to the old-school, traditional season-long fantasy leagues. However a few years later, when the FanDuels and DraftKings starting appearing, the same UIEGA language that made season-long fantasy football legal, for example, made weekly fantasy football legal as well.

(Related: Is DraftKings legal?)

One caveat should be mentioned here. Playing on FanDuel is not against federal law, however that does not prohibit individual states from passing their own laws against the game. And in fact, some have.

Individual State Law and FanDuel

FanDuel does not accept payment from players in Alabama, Arizona, Hawaii, Idaho, Iowa, Louisiana, Montana, Nevada, Texas and Washington.

It is generally accepted that it is not legal to play daily fantasy sports in these states. However these are the only ten states where there is any question at all about playing on FanDuel. Residents of the other 80% of the country are good to go.

But please don’t take my word for it. I’m just an anonymous guy on the internet. I’ll just say that if there was any question at all about the legality of FanDuel, you would not see the participation of the major sports leagues into these sites.

In fact, the NBA owns part of FanDuel. Salvatore LaRocca is the NBA’s president of global operations and merchandising. According to Washington Post, “NBA lawyers reviewed the laws pertaining to daily fantasy sports,” and that, accordingly to LaRocca, “We got comfortable pretty quickly.”

If it’s good enough for NBA lawyers, it’s good enough for me. So, if you’re as paranoid of breaking the law as I am, you can rest easy when it comes to FanDuel and be confident in the legality of playing daily fantasy sports for real money in the United States.

Photo courtesy of Alan Kotok via Flickr