What’s Skill Got To Do With It?

Why Fantasy Sports Aren’t Gambling and Why Some States Beg to Differ

Two logos that have plastered on every stadium and TV ad thanks to one obscure Federal law

In the final days of the 109th US Congress, the House and Senate rushed to pass a bill that would prevent foreign companies from owning US ports and shipyards. Attached to the bill, known as the SAFE Port Act, was an unrelated section that had nothing to do with port security. This section, known today as the UIGEA (Unlawful Internet Gambling Enforcement Act), was uncontroversial at the time, but a decade later it’s pitting state governments and fantasy sports sites in a fierce legal battle.

The bill was directed at banks and credit card companies, aiming to stop the flow of money to offshore poker sites and casinos. The burden would now be on Visa or MasterCard to ensure that their customers weren’t depositing funds on websites which skirt US law by operating overseas. While the effectiveness of the law has been challenged, its lasting impact has nothing to do with credit cards.

Tucked away in a list of exceptions and technicalities, the act excluded “participation in any fantasy or simulation sports game” from its definition of bets or wagers. It would be legal to enter money in a fantasy contest as long as the winner was based on “the relative knowledge and skill of the participants,” rather than chance, like the final score or spread of a basketball game. This separated fantasy sports from traditional sports betting, and paved the way for “Daily Fantasy Sports” like FanDuel and DraftKings that often seem to blur the line.

But, what do chance and skill really mean in the world of fantasy sports and gambling? It all comes down to how states define what constitutes gambling, a matter where very few jurisdictions agree. Gambling is defined by three elements; chance, consideration (ie: bets or wagers), and prize. More simply put, gambling is risking something for a prize where the outcome depends on chance. Remove any of these three elements and a game is no longer gambling. Take away consideration and you’ve got a sweepstakes—where we get “no purchase necessary.” Take away chance, and you’re left with a game of skill, where the better player wins (at least most of the time).

Yelling at the ball won’t help in a game of skill, Happy Gilmore

In a game like golf, we would expect a professional player to beat an amateur every time, meaning skill is the dominant factor. The dominant factor test tells us that when skill determines the majority of outcomes, even though chance may play a minor role, the game is one of skill. Across the country, most states employ the dominant factor test in their courts; however, alternative views remain. States like New York and Florida use tests that ask whether chance is present, not if chance is dominant. Certain states have issued warnings to DraftKings & FanDuel that their contests are in fact gambling, due to the presence of chance involved in picking fantasy players and their outcomes.

This has led to legal battles across the country, with fantasy sites sticking to the UIGEA and states looking to their own laws on gambling. This tension between federal and state law is unlikely to be resolved without an amended UIGEA or new Fantasy bill, like the one proposed today by longtime sports betting advocate, Rep. Frank Pallone. While the bill is still far from being passed, it would re-define what DFS sites call “entry fees” to be “bets or wagers,” which makes fantasy contests much more like gambling.

DraftKings & FanDuel aren’t the only sites offering games of skill for real money, though. Companies like Jackpot Rising give gamers a way to play the games they love for real money and turn their skills into cash. Developers can add the tournaments into their existing mobile or PC games for a new source of revenue when players pay entry fees, increasing their ARPU.

Jackpot Rising’s games involve purely skill, avoiding the troubles of Daily Fantasy Sports

Games equipped with Jackpot Rising’s SDK have no randomness in play, meaning every player in a contest faces exactly the same course, obstacles, or enemies, allowing skill to be the only factor between players. With the growth of esports in recent years and the legal difficulties faced by companies offering fantasy sports, it appears these pure-skill contests offer a way for players to compete for real money while avoiding the legal uncertainties where DraftKings or FanDuel operate.

Read more about the intersection of esports, money, and skill gaming here.