III. Analysis

The only games that fall under the gambling statutes are those classified as games of chance rather than games of skill.69  In this case, the court must decide whether fantasy football is a game of skill or a contest determined by chance in order to determine if it falls under the gambling statutes.  This suit is the first to challenge the legality of fantasy sports, and therefore the court has no on-point authority in any American jurisdiction to follow in making its determination.70  However, video poker machines have been the topic of several court cases discussing games of skill and games of chance.71  The discussion and analysis by the courts in those cases is helpful in understanding the issue here.

A. Fee and Prize vs. Wager and Winnings?

For the court to hold that the facts of this case bring it under the Gambling-Loss Recovery Acts, it must first decide that the actions promoted by the defendants in the case are, in fact, gambling.72  New Jersey, for example, only allows recovery of “wagers, bets or stakes made to depend upon any race or game, or upon any gaming by lot or chance, or upon any lot, chance, casualty or unknown or contingent event.”73  Other jurisdictions involved in this case have similar requirements.74  Therefore, for the plaintiff to recover, the money paid to the defendants must be deemed wagers, bets, or stakes.75  The defendants in this case claim that entry fees paid to play in their leagues are not bets or wagers.76  In support of this assertion, the defendants explain that the amount of entry fees is fixed and unconditional, the prizes are guaranteed regardless of the number of participants,77 and “the party offering the prize . . . is not also competing for it.”78

B. Games of Skill and Chance

In most states “[t]he test of the character of the game is not whether it contains an element of chance or an element of skill, but which is the dominating element that determines the result of the game.”79  In general, the rule for determining whether an activity is gambling rests on the answers to two questions:  “Is the result of an activity separable from the element of chance, so that skill can be determinative, at least in some cases?  Or is the result always sufficiently affected by the operation of chance that chance could always account for the result?”80  In determining Humphrey v. Viacom, Inc., these are the questions the court will be forced to decide regarding fantasy football.81  The plaintiff asserts that fantasy sports are games of chance, just like betting on actual sporting events, and therefore are illegal.82  Supporters of fantasy sports leagues are adamant in their belief that the elements of skill involved in drafting players and setting lineups make it a game of skill, and hence a legal activity.83  

C. Fantasy Sports-Much More Than a Toss of the Dice

The plaintiff in Humphrey v. Viacom claims that fantasy sports fundamentally involve predicting the outcome of a future event over which the player has no control.84  He notes that the winners are determined by the statistics of the players playing in sporting events and asserts that this activity is analogous to betting on the teams.85  The plaintiff also focuses on the variety of factors that have an effect on the outcome of a fantasy contest that are out of the fantasy team owner's control.86

No other court in any jurisdiction has decided the issue of whether fantasy sports are games of chance or skill.87  However, an analogous issue has been litigated concerning the legality of video poker machines.88  In this line of cases, courts in several federal and state jurisdictions have made similar “chance versus skill” determinations, examining each case on a game-by-game basis.89  While many of the video poker machines with fee and reward systems have been deemed games of chance, even these cases have noted that a “showing of a large element of chance, without more, is not sufficient”90 to classify the activity as gambling per se.  “Nor must the outcome of a game be wholly determined by skill in order for the machine to fall outside the per se category.”91  

While the factors involved in video poker are very different from those involved in fantasy sports, the test is the same.  As in video poker machine cases, the Humphrey court must decide whether fantasy sports are games of skill or games of chance.  

The defense will attempt to prove that fantasy sports are games of skill.  Numerous authorities on the subject came forward to offer support to this position.  One such authority, Glenn Colton of Wilson Sonsini Goodrich & Rosati, pointed out that there are many “ways in which someone can skillfully and intellectually predict how a player is going to perform.”92  A fantasy football player can control many of the factors that determine the outcome in a fantasy football contest.93  For instance, “a fantasy football player can study offensive coordinators' techniques, evaluate who gets the ball more often-wide receivers or running backs-or study a quarterback's performance.”94  These are all examples of using skill to control the outcome of the contest.

The NFL agrees that fantasy sports are a game of skill.  In 2003, Evan Kamer, the NFL's senior director of news media told reporters, “[y]ears back, there was a misconception of what fantasy football really was.”95  Kamer went onto explain that:

[Fantasy football] had gambling connotations, and for a long time that put us off a bit.  But once we took a good look at what the game actually involved and the kind of information that was required to be successful, we realized it wasn't a gambling activity, and that helped move us past some hurdles. 96  

The NFL goes a step further in support of fantasy football by allowing active players to participate in fantasy football.97  Although the league is aware that significant sums of money are at stake in many of these leagues, the NFL has no rules keeping players, officials, or anyone else from participating in fantasy football.98  In an interview with the Washington Post, NFL spokesman Brian McCarthy said “players are not warned about playing and that the league draws a strict delineation between fantasy sports and betting on games.”99  McCarthy said that line is based specifically on the fact that “fantasy football is a game of skill, and gambling is not.”100

Many sports industry authorities support the assertion that fantasy sports are games of skill.  Moreover, the general population seems to echo these sentiments.  Since the filing of the complaint in Humphrey v. Viacom, various blog101 sites have been inundated with posts describing the extensive research and effort involved in preparing for fantasy football games.102  

D. Public Policy Considerations

Even if fantasy football is held to be a combination of skill and chance with neither being sufficiently dominant, the court should still find fantasy football to be a legal activity on the basis of public policy.  The primary reason cited by legislatures in passing laws creating both criminal and civil consequences for participating in illegal gambling is that gambling is seen as a detrimental activity.103  Courts have condemned gambling due to its “anti-social effects” that result from the “lure of the chance for 'easy money.'”104  They note that gambling preys on “the weakness of those whom the statute aims to protect, primarily for the benefit of society in general.”105  In other words, legislatures and courts have largely deemed gambling illegal because of the social ills it creates.  

According to a recently conducted national study, “[i]n the past, reasons for outlawing or limiting gambling included its negative impact on character and concern about promoting the myth that 'lady luck' was more likely to improve one's situation than would hard work, education, and perseverance.”106  The general perception is that the more vulnerable segments of the population, such as immigrants and the poor, are more susceptible to the temptation of gambling.107  There is also the “wide-spread perception among community leaders that indebtedness tends to increase with legalized gambling, as does youth crime, forgery and credit card theft, domestic violence, child neglect, problem gambling, and alcohol and drug offenses.”108  A recent study of the effects of gambling found that it correlates to an increase in the suicide and divorce rates in communities in which it is legal.109  Evidence also exists that gambling contributes to homelessness and an increase in rates of domestic violence in communities in which legalized gambling is prevalent.110  However, the correlation between gambling and social ills, such as drug use and crime, have not been clearly proven.111  Despite the inconclusiveness of the empirical data in these areas, the perception of government officials and communities is that gambling causes significant societal ills and specifically preys on the economically disadvantaged.  This perception remains the driving force behind many of the anti-gambling laws that exist in this country.112  The legislature's desire to protect the community from these social ills should not be overlooked in determining the purpose or scope of the anti-gambling statutes.113

However, the public policy rationale for outlawing gambling simply does not apply to fantasy sports.  Although some variation exists among sources of demographic information, the average fantasy sports player is a forty-one-year-old male who has a bachelor's degree or higher, and makes almost $90,000 per year.114  They devote only $500 annually to their fantasy sports endeavors-an investment less than one percent of their annual income.  Fantasy players are educated professionals who live in the suburban United States.115  On average, they have played fantasy sports for nine years and are involved in six leagues per year.116  They typically spend between one and a half and three hours each week managing their teams.117  They are typically sports fans who buy tickets to games and play fantasy football for enjoyment rather than to make a quick buck.118  The people who play fantasy sports are typically normal and well-adjusted people who do not allow this activity to have an impact on their daily lives.  It seems that the majority of fantasy sports players do not fall into the vulnerable segment of society that the anti-gambling laws have sought to protect.

In addition to the demographic differences between gambling and fantasy sports, there is a difference in the perceived moral value that distinguishes these two activities as well.  Michael Mann of the Mississippi College School of Law argues, “[f]antasy sports just don't strike people as immoral.  Even if [Humphrey's] argument is technically correct, it lacks the moral weight that is so crucial in many other litigations.”119  He also comments that the term “fantasy” attempts “to suggest that it's not real, that there's an innocence to it.”120

A bill has passed the House of Representatives and is pending in the Senate in which Congress acknowledges the difference between gambling and fantasy sports.121  The Unlawful Internet Gambling Enforcement Act is aimed at outlawing Internet gambling, mainly poker, but the Act specifically carves out an exception for fantasy sports.122  The proposed legislation states that fantasy or simulation sports games are legal as long as the “winning outcomes reflect the relative knowledge and skill of the participants.”123  The court deciding Humphrey v. Viacom should not strike down fantasy sports in clear violation of Congressional intent shown in this act.  While the passage of the Unlawful Internet Gambling Enforcement Act by Congress with the fantasy sports exemption does not prevent the New Jersey state legislature from outlawing fantasy sports, the exemption does send a strong signal that the fantasy sports industry has the support of the federal government.  By specifically creating this exemption, Congress indicates that fantasy sports do not fall into the category of illegal gambling activities.

The plaintiff claims this pending legislation still does not exempt fantasy sports because fantasy sports are predominantly games of chance, and do not reflect the skill of the participants.124  However, the bill's language clearly assumes that a vast majority of fantasy sports fall under the fantasy exemption, otherwise the exemption is moot.  The fantasy sports exemption was carved out at the request of Major League Baseball and fan organizations125 and it has the backing of the NFL, NHL, and NBA.126  The support of these organizations is an indication that the fantasy games based on their leagues are intended to fall within the exemption.

In addition, holding pay-to-play fantasy sports to be an illegal gambling activity would cut off a significant revenue stream for the government.  As mentioned previously, fantasy sports currently have an estimated $1.65 billion total economic impact each year and this number is still growing.127  Companies bringing in these revenues, like the defendants in this case, pay considerable taxes on their earnings.  New Jersey, like many states, has significant budgetary concerns.128  For the 2005 fiscal year, New Jersey had a $3.5 billion deficit despite a $2.4 billion increase in tax revenue from the previous year.129  The federal government is experiencing similar financial difficulties, projecting the 2007 deficit at $354 billion.130  The taxable revenues from an industry as large as fantasy sports are significant in preventing further deficits and should not be eliminated without considerable justification.  Grouping fantasy sports into the class of illegal gambling, in the face of contrary congressional intent, does not provide such justification.

The government has shown support for fantasy sports, recognizing that they are not accompanied by the same social ills as other games where elements of chance are involved.  To decide the case at issue in favor of the defendants would be consistent with the actions already taken by the federal government.131  Furthermore, to decide that fantasy sports constitute illegal gambling would cut off a significant revenue stream for the government and unnecessarily end a fun and harmless activity for millions of people.