Daily fantasy sports controversy: Questions of regulation, legality

Since I embarked on my Star Tribune-sponsored $50 daily fantasy game experiment a few weeks back, one of the biggest questions on my mind — and the most frequent question I've been asked — is simply: how is this legal?

(Quick aside: For those who want an update on the nitty gritty of how I'm doing, I've played 6 different games, won small amounts on a couple of them, and have $30 of my original $50 still in my account. I'll probably play a big NFL game this weekend to keep the experiment going, though I haven't done anything with my account in over a week).

But yes, back to legality. Many people, myself included, have a hard time with the idea that these daily fantasy games are legal (at least in 45 states … Arizona, Iowa, Louisiana, Montana and Washington don't allow them). Why is it legal to wager money online on what players will do while betting on what teams will do is illegal?

The specific reason they are legal goes back to a piece of legislation that is now nearly a decade old called the Unlawful Internet Gambling Enforcement Act of 2006. I've heard it described by people who understand the law better than I do as a convoluted piece of legislation, and one that is fraught with controversy.

The gist of the UIGEA is that it made certain online gambling — like online poker — illegal in the United States. But it specifically created an exemption for fantasy sports. The act is said to have been "rammed through Congress" and one senator says nobody even saw the final version of the bill before it was passed. A piece in the Economist also alludes to a "hastily" approved law.

This 2011 Q&A with gambling law expert Anthony N. Cabot also notes that the law and fantasy exemption passed thanks in large part to intense lobbying from the NFL. That entire Q&A is fascinating and covers some ground I won't get to in this post. But essentially, fantasy games were deemed "games of skill" and not games of chance, and are therefore legal. You can decide whether you buy that or not, but that's the reason.

So what we appear to have is a law that passed nearly a decade ago that was controversial from the outset. But that's how fantasy games — including daily games — are legal, even if few could have imagined how massive they would become thanks in large part to technological advances and major money/backing from some big hitters.

Both companies have temporarily prohibited their employees from playing daily fantasy games on other sites (they were already prohibited from playing on the sites for which they work). But it raised all sorts of questions about a tilted playing field, since having information about how many people are using players X, Y and Z can dramatically improve the odds of winning a fantasy game in which everyone has access to the same players in a salary-cap style draft.

This is massive business. The New York Times, in reporting on the scandal, noted: "Eilers Research, which studies the industry, estimates that daily games will generate around $2.6 billion in entry fees this year and grow 41 percent annually, reaching $14.4 billion in 2020. So high are the potential financial rewards that DraftKings and FanDuel have found eager partners in NFL teams, even as league executives remain staunch opponents of sports betting. Jerry Jones of the Dallas Cowboys and Robert K. Kraft of the New England Patriots have stakes in DraftKings."

So yes, it could very well be ripe for regulation based on how much money is at stake. Then again, do you trust a system of government that allowed this to be legal without apparently even seeing a final version of the law to do so?

That's a much bigger question than the one at hand. For now, it's up to a lot of individuals to decide what they trust, what they think and how they want to proceed. My hunch is that this controversy will barely register a ripple with the players who are seduced by the prospect of a million dollar payout, even if there exists the possibility that the playing field is stacked against them.

The lure of money is driving both ends of this train. I felt it when I entered a contest with a $2 million top prize. The top of the food chain is dealing in billions, not millions, as noted above.

"As advertising has grown, there's been a lot of scrutiny," Peter Schoenke, President of Rotowire.com and Chairman of the Fantasy Sports Trade Association, told me in a recent interview. "But the industry is confident that when people look at it and see it's a game of skill, there will be a similar outcome as there was in Kansas."