New Jersey Legislators Consider Bills that Would Regulate Online Fantasy Sports

baseballBusinesses that engage in new types of business activity, particularly those on the internet, often face scrutiny from regulators. The New Jersey Legislature is considering at least two bills that would regulate daily fantasy sports (DFS). “Fantasy sports” refer to games in which participants create imaginary sports teams based on real players and earn points based on those players’ actual performance. DFS games typically take place on a more accelerated basis online and involve cash awards to whomever has the most points. Multiple state regulators have concluded that this violates laws prohibiting sports betting and online gambling. The two New Jersey bills are under consideration at a time when the state is also challenging the constitutionality of a federal law that bans sports betting.

Two federal statutes could apply to DFS. The Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006, 31 U.S.C. § 5361 et seq., essentially prohibits many forms of online gambling by prohibiting online gambling companies from accepting transfers of money from anyone they know to be making a “bet or wager” via the internet. 31 U.S.C. § 5362(10). The law had a devastating impact on some online gambling companies. It also led to a complaint against the United States by Antigua and Barbuda before the World Trade Organization (WTO), which built on a previous complaint regarding online gambling laws. DFS companies have argued that they are not subject to this statute because DFS is a “game of skill” rather than a “game of chance.”

The Professional and Amateur Sports Protection Act (PASPA) of 1992, 28 U.S.C. § 3701 et seq., created a rather uneven national standard for the legality of sports betting. It generally prohibits sports betting but exempts states that established sports lotteries during a specified time period. At the time of the law’s passage, this included Delaware, Montana, Nevada, and Oregon.

New Jersey has enacted laws allowing regulated sports betting and has challenged the constitutionality of PASPA when various sports associations have filed suit to enjoin these laws. The Third Circuit Court of Appeals has ruled against the state at least twice. See Nat’l Collegiate Athl. Ass’n v. Gov. of N.J., 730 F.3d 208 (3rd Cir. 2013); No. 14-4546 (3d Cir., Aug. 25, 2015). The court held an en banc rehearing in the most recent case in February 2016, but it has not yet issued a ruling.

The two leading DFS companies became household names in a very short time period in 2015, thanks to massive advertising campaigns. They quickly came under massive scrutiny, however, after at least one employee won about $350,000 in under a week on a competing DFS site, allegedly by using inside information obtained through his job. Regulators followed just behind the public attention.

The two bills pending in the New Jersey Legislature are intended to address many of the concerns raised by the events of the last year involving DFS. One bill, S.1927, would require DFS companies to obtain a permit from the state, renewable annually. The other, A.872, would prohibit employees of a DFS company from playing fantasy sports on their own employer’s or any competitor’s site.

Business formation attorney Samuel C. Berger represents entrepreneurs, business owners, and businesses in New York and New Jersey. Our fixed-fee legal-service packages address a wide variety of legal matters, enabling our clients to identify the services that best meet their needs. Contact us online, at (201) 587-1500, or at (212) 380-8117 today to schedule a confidential consultation to see how we can help you and your business.

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