Internet Gambling and Fantasy Leagues Come Under Fire

Internet gambling and on-line fantasy leagues have recently come under attack by a variety of sources, including federal and state authorities as well as a private individual. These actions are yet another warning that games that require an entry fee and provide a monetary reward to the winner remain a high risk proposition.

Fantasy Leagues Challenged

Lotteries have three elements - prize, chance, and consideration (typically the payment of money). While it is illegal for a private party to offer a lottery or a raffle without state approval, private parties can generally offer games of chance (such as a sweepstakes) if there is a no-purchase alternative method of entry and skill contests (which do not contain an element of chance). Fantasy sports leagues are generally believed not to violate the lottery laws because they are recognized as skill contests as participants select and build teams from a list of players and score points depending on the performance of those players in professional sporting events. Because of the benefits of computer tracking and the ease of communication, fantasy sports leagues have flourished on the Internet.

Not so fast, according to a lawsuit recently filed by a private individual, Charles Humphrey, a Colorado attorney. Humphrey has sued in federal court in New Jersey against some of the leading names in fantasy sports: CBSSportsline.com, ESPN.com and SportingNews.com alleging that they are promoting on-line gambling. The crux of his class action lawsuit is that the determination of winning a fantasy league is based predominately on chance because "fantasy team owners have no control [over whether] players drafted remain healthy and available to play." Humphrey contends that the fantasy games are illegal because chance plays an important element.

While it is clear that at least some element of chance is present in a fantasy league due to the inability of participants to control players' on the field performance. Many, but not all, jurisdictions follow the dominant factor doctrine to determine whether a game is one of chance or skill to determine whether chance or skill is the dominant factor that decides the winner. Fantasy leagues will likely take the position that overtime, the impact of chance on the ultimate outcome is largely negated and the participant with the most skill will likely prevail. Stay tuned.

More Indictments and arrests in Internet Gambling

In a separate but related industry, following up on the federal indictment and arrest of individuals associated with Betonsports.com, the Chairman of Sportingbet Plc Peter Dicks was arrested on state criminal charges of illegal Internet gambling. Dicks is being held on a warrant filed in May in Louisiana as part of an investigation of illegal gambling, said, a spokesman for the Louisiana State Police.

And earlier this summer on July 17 David Carruthers the CEO of BetOnSports PLC was arrested in Dallas on charges of racketeering, conspiracy and an illegal online gambling enterprise. Also included in the indictment was Gary Kaplan, the company's founder and 9 others, as well as principals associated with the advertising and marketing of its gambling services.

These actions highlight the modern risks associated with conducting Internet games and gambling that have a financial component. The outcome of each of these cases should have a significant impact on these industries.

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