Fantasy Sports Leagues Challenged as Illegal Gambling

By Moorman, Anita M. | Sport Marketing Quarterly, December 2008 | Go to article overview

Fantasy Sports Leagues Challenged as Illegal Gambling


Moorman, Anita M., Sport Marketing Quarterly


Introduction

The fantasy sports industry continues to present interesting legal issues for sport managers. Last year, this column featured a discussion of C.B.C. Distribution and Marketing, Inc. v. Major League Baseball Advanced Media, L.P. (2006, 2007) which held that an operator of a fantasy sports league was not infringing on the players' state law publicity rights and that the 1st Amendment to the United States Constitution preempted the players' state law publicity rights (Grady, 2007). The case that is the subject of this column identifies yet another issue surrounding fantasy sports. In Humphrey v. Viacom (2007) the plaintiff, Humphrey, alleged that online fantasy sports leagues were engaged in an illegal gambling enterprise prohibited by state wagering and gambling laws.

History of the Case and Factual Background

Charles E. Humphrey filed his lawsuit in 2006 against numerous online fantasy sports league providers, including Viacom, CBS, Sportsline.com, ESPN, and Vulcan Sports Media (hereinafter referred to as "the league defendants"). Online fantasy sports providers allow individuals to pay an entry fee in exchange for participation in a fantasy sports league. Participants' fee purchases a fantasy sports team and the related services necessary to manage the fantasy team, including access to "real-time" statistical information, expert opinions, analysis, and message boards for communicating with other participants.

The online leagues mimic actual professional leagues. Participants select players for their virtual teams and pit them against opposing virtual teams. Winners accrue points after each game and the participant with the most points at the end of the season receives a set prize. The success of a fantasy sports team depends on the participants' skill in selecting players for his or her team, trading players over the course of the season, adding and dropping players during the course of the season, and deciding who among his or her players will start and which players will be placed on the bench. The virtual team with the best performance is declared the winner at the season's end and typically receives small prizes, such as T-shirts or bobble-head dolls. Managers of the best teams in each sport across all leagues are awarded larger prizes, such as flat-screen TVs or gift certificates. All prizes are predetermined and announced before the fantasy sports season begins and are guaranteed to be awarded.

Humphrey's Legal Arguments

Humphrey sought recover from these fantasy sports leagues, under qui tam laws, which allow individuals to recoup losses sustained while gambling. The case challenged the fantasy leagues based upon qui tam statutes from multiple states-Georgia, Illinois, Kentucky, Massachusetts, New Jersey, Ohio, South Carolina-and the District of Columbia, but was tried in the United States District Court for New Jersey. The league defendants filed a motion to dismiss Humphrey's case for failure to state a claim. In resolving the motion to dismiss, the district court only discussed the qui tam statute for the State of New Jersey since it was determined that the essential elements of the New Jersey law was the same in the other states.

England originally established qui tam laws in 1710. The United States subsequently adopted comparable statutes, and New Jersey introduced its own in 1797. The statute's intended purpose was to protect gamblers and their families from debilitating gambling losses, which could lead to the families seeking financial assistance from their local governments. The laws permitted gamblers to pursue reimbursement from the winning parties. States introduced qui tam laws during a time when governments offered only limited protection to individuals experiencing gambling losses.The district court advised that for Humphrey to succeed under the qui tam laws, he needed to 1) demonstrate that paying an entry fee to a league equated to incurring a gambling loss, 2) provide details for every individual represented in the suit, and 3) file within six months of when each individual first suffered the loss. …

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