How, If At All, Does Tuesday's Sports Gambling Ruling Affect The Fantasy Sports Industry?



On Tuesday, the U.S. Court of Appeals for the Third Circuit upheld a district court ruling that the State of New Jersey's attempt to partially repeal its ban on sports gambling violated the Professional and Amateur Sports Protection Act.

On Tuesday, the U.S. Court of Appeals for the Third Circuit upheld a district court ruling that the State of New Jersey's attempt to partially repeal its ban on sports gambling violated the Professional and Amateur Sports Protection Act ("PASPA"). In doing so, the court recognized that PASPA is still good and binding law.

The clear implications of Tuesday's ruling is that states other than Delaware, Montana, Oregon and Nevada cannot sanction any form of sports gambling. However, the decision also may impact America's rapidly growing fantasy sports industry.

Here is a brief overview:

1. PASPA should not affect most forms of "fantasy sports" as long as these contests are games of skill. Although PASPA makes it unlawful for "a person to sponsor, operate ... a lottery, sweepstakes, or other betting or gambling, or wagering scheme based ... on one or more competitive games in which amateur or professional athletes participate," Congress in 2006 created a safe haven under the Unlawful Internet Gambling Enforcement Act ("UIGEA") for payment processors that fund any "fantasy or simulation fantasy sports game" where (1) all winning outcomes are based on the relative skill and knowledge of the participants; (2) all prize amounts are made known before the contest begins; and (3) no winning outcome is based on the scores or performance of a single-real world event or the performance of any real world team. A logical reading of this carve-out presumes that these protected activities for payment processors also lie outside of the purview of PASPA.

2. Nevertheless, a limited number of games that call themselves "fantasy sports" may violate PASPA. The types of fantasy sports games that most likely run afoul to PASPA are those that do not fall within the Unlawful Internet Gambling Enforcement Act's carve-out for fantasy sports. Three types of fantasy sports contests that seem to be at highest risk under PASPA are single-tournament games, against-the-house games, and games that lack the requisite skill-to-chance ratio in states of operation. Of highest order risk, fantasy golf contests based on only a single real-world golf tournament seem to create high likelihood of violating PASPA because these contests are based on just a "single event" and thus seem to lie outside of the UIGEA safe haven. Similarly risky are fantasy sports contests played 'against the house' because when each participant competes against the house, there is, by definition, no "relative" competition among participants, and thus these contests also may lie outside of the UIGEA safe haven.

3. The PGA Tour is perfectly positioned to challenge single-tournament fantasy golf contests under PASPA. If the PGA Tour wishes to challenge single-tournament fantasy golf contests under PASPA, it has legal standing to do so. Oddly enough, the Professional and Amateur Sports Protection Act grants "[a] civil action to enjoin a violation of [PASPA]" to " [any] professional sports organization or amateur sports organization whose competitive game is alleged to be the basis of such violation." Thus, much as the NCAA and the four premier professional sports leagues brought suit to enjoin New Jersey from allowing sports gambling, the PGA Tour has the same standing to shut down single-event fantasy golf.

4. Overall, Tuesday's ruling is a big win for the fantasy sports industry, outside of its outermost fringes. Despite these undeniable problems along fantasy sports's outermost fringes, Tuesday's ruling that the Professional and Amateur Sports Protection Act remains good law is overall a big win for the fantasy sports industry. Outside of the fringe

This is a reprint from forbes.com. to view the original, click here.


Sign-up for the OSGA Newsletter!

Every week get news and updates, exclusive offers and betting tips delivered right to you email inbox.