June 20th, 2006 a Colorado man filed a Complaint in a lawsuit against ESPN, Sporting News and CBS Sportsline seeking to recover money lost by players in the pay-to-play fantasy sports leagues sponsored and operated by them.  These defendants filed motions to dismiss with supporting memoranda of law and he filed a Reply Brief disputing those motions.  On June 20, 2007, the Federal District Court in Newark, New Jersey ruled in favor of the defendants and dismissed this suit.  Here is a copy of the ruling on the motion to dismiss.

Players pay $1-1/2 Billion dollars a year to play in these leagues. The operators contend the leagues do not violate most state anti-gambling laws because they involve contests of skill.  It was my contention that the contests are games of chance because the outcome is primarily determined based on the ever-present human element involved.  The Court, in this case, rejected that argument on numerous grounds that it detailed in the ruling.  The Court’s ruling is the first such ruling of its kind.  While I do not agree with several of the points of the Court made, I have decided not to appeal this decision.  The ruling is a victory for the operators of pay-to-play fantasy sports leagues and for the sports leagues that are heavily involved in these activities, such as the NFL and MLB.

Previous Discussion of the Complaint:

In this type of gambling, the sponsoring companies often keep 40% to as much as 60% of the money that players pay to play in the leagues.  That is a lot as compared with what admittedly illegal online poker and casino websites charge.  It is really a lot as compared with rake-free home poker games that are getting raided and closed down in places like South Carolina and elsewhere these days.  It is even a lot as compared with the amounts kept by legally authorized State lotteries, which range from 20% to 50%.  Here is an example: these companies do not accept pay-to-play wagers made by players from the State of Montana, even though that state has a law specifically authorizing fantasy leagues.  This is apparently because that law limits the amount the sponsor can keep to 15% of the bets made.

I regularly consult with clients who point to selective anti-gambling legislation and selective enforcement and ask me why “those things” are legal or do not get prosecuted.  I am at a loss to give a validation, except to lamely refer to the power of the legislature to legislate and the power of law enforcement authorities to select how they will use and apply their limited resources.  The operation of the fantasy sports leagues is an example of league promoters getting rich from telling a big lie and telling it often.  They say the leagues are skill games.  That position is not supportable in view of the variable, unpredictable human element that always is the basis for determining the outcome from game to game and week to week.

The Internet Gambling Prohibition and Enforcement Act, H.R. 4411, passed by the U.S. House of Representative (317 to 93) and presently pending a vote in the U.S. Senate, continues this practice of selective legislation.  The proposed law purportedly carves out an exemption for fantasy sports leagues.  The exempting language is not a model of clarity, and arguably may not result in an exemption for these leagues if chance, rather than skill, predominates in determining outcome.

The Complaint in the case lays out the reasons why these contests are games of chance.  Recovery of such gambling losses is specifically permitted under a number of state statutes that allow a “private attorney general” to sue to recover gambling losses incurred by players who do not themselves sue within the applicable statute of limitations, which are usually from three to six months after the loss is determined.  These statutes stem from the English gambling laws codified in the Statute of Anne passed in the mid 1700’s and imported into the U.S. as the “common law,” which permitted recovery of three times the amount lost.  Professor I. Nelson Rose presents a fascinating description of the common law of gambling in his book Gambling and the Law (Gambling Times Inc, 1986) beginning at page 68.

The modern gambling loss recovery statutes usually allow a “private attorney general,” or qui tam, plaintiff to recover half of the loss, with the other half going to the state.  A typical example is the New Jersey statute, which provides:

New Jersey Permanent Statutes: 2A:40-6.

Informer action to recover money or property lost at gaming; limitation; costs

If the person who shall lose and pay such money…, shall not sue for the money or other thing or things so lost…any person may sue for and recover the same, with costs of suit, from such winner, depositary or stakeholder as aforesaid; the one moiety [one-half] thereof to the use of the person suing for the same, and the other moiety [one-half] to the use of the state; provided the action is instituted within 6 calendar months from and after the expiration of the time [under]… section 2A:40-5… for the loser to sue for the same.

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