Online sports fantasies get dose of reality

In the case of Humphrey v. Viacom (PDF), the plaintiff sued the CBS Corporation, CBS Television Network, SportsLine.com, the Walt Disney Company, ESPN, the Hearst Corp., Vulcan, Vulcan Sports Media and The Sporting News. The gist of his complaint was that the defendants allegedly operate fantasy sports sites in violation of various state gambling laws. He sought to recover losses incurred by the residents of the states who participated in these sports games.

The plaintiff claimed that the registration fees paid by fantasy sports leagues' participants are tantamount to wagers or bets, and he believed that he is entitled to recover these fees under state gambling loss-recovery statutes. The defendants moved to dismiss the plaintiff's complaint, arguing that it does not state proper claims under governing law. Before addressing how the court just ruled on the request for dismissal, it is worth explaining how fantasy sports leagues work, as accurately captured by the judge in his ruling.

These leagues permit participants to manage virtual teams of professional players in a sport during a particular season and to compete against other participants based on the actual statistical performance of those players. Fantasy sports leagues have become very popular recently as a result of supporting services offered on Web sites like those operated by the defendants. Such sites provide real-time statistical updates and tracking, message boards and even expert analysis.

In essence, fantasy sports leagues enable participants to use their knowledge of players, strategy and statistics to manage their own virtual teams premised on the true performance of professional athletes during a given season. Participants pay a fee to purchase a fantasy sports team and the supporting services.

The fantasy team with the best performance at the end of the season, premised on true statistics of players chosen by the participant, is named the winner. Minor prizes, like T-shirts, are given to participants whose team wins a league. Managers of best teams across leagues are given larger prizes, such as flat-screen TVs. Such prizes are disclosed prior to the commencement of a fantasy sports season and do not depend on how many managers participate or the total registration fees received by the defendants.

In this context, the federal judge sided with the defendants and shot down the plaintiff's complaint on several grounds. First, the plaintiff failed to identify any participants who lost money to the defendants. Therefore, there is nobody in particular on whose behalf he can recover.

More importantly, the judge recognized that it would be absurd to conclude that the combination of an entry fee and a prize constitutes gambling. Indeed, if that were the case, spelling bees, beauty contests, golf tournaments and the like also would have to be gambling. When an entry fee is paid unconditionally and the prize is for a certain amount and is guaranteed to be won by a participant, a contest does not morph into gambling under the law.

In addition, the Unlawful Internet Gambling Enforcement Act of 2006, which broadly prohibits Internet gambling, establishes that fantasy sports leagues are not gambling operations. This is because all prizes are announced in advance and do not depend on the number of participants and the amount of fees paid by them, the winning outcomes reflect knowledge and skill of participants and are based on accumulated statistical results of the performance of individual athletes, and winning outcomes are not based on the score, point-spread or any performance of a single real-world individual or team.

Thus, fantasy sports leagues that operate in this fashion do not need to worry about gambling accusations. If anything, the plaintiff's lawsuit has helped the fantasy sports leagues by leading to a clean bill of health from a federal judge.

Of course, it is imperative that the operators of fantasy sports leagues not take so much comfort from this ruling that they alter their business plans such that they stray into what could be perceived as actual gambling activities. As long as they stick to the formula outlined by the judge, they should be fine.

So, let's get on with it. Perhaps I will consider joining in next basketball season. I want LeBron James, Kobe Bryant, Tim Duncan, Kevin Garnett and Dirk Nowitzki. Can I have Steve Nash, too? That sounds fair.