Fantasy sites FanDuel and DraftKings‘ use of  2006 federal money processing legislation as the lone validation for their legitimacy is “sheer chutzpah” according a former U.S. congressman who co-sponsored the law.

Former member of the U.S. House of Representatives from Iowa, Jim Leach said that the anti-gambling act was not intended to promote gambling on the Internet, but to stop it. He said that at the time the anti-gambling act was drafted lawmakers had no idea fantasy sports would “morph into today’s cauldron of daily betting.” According to Leach, the carve out in the Unlawful Internet Gambling Enforcement Act (UIGEA) does not exempt them from state laws or other federal laws.

He said, “The only unique legal basis provided fantasy sports by UIGEA is its exemption from one law enforcement mechanism where the burden for compliance has been placed on private sector financial firms,” but that citing the law as a legal basis for their existence is presumptive, and that the “UIGEA does not exempt fantasy sports companies from any other obligation to any other law.”

The longstanding claim by daily fantasy sites that the 2006 anti-gambling law provision allows them to operate unencumbered in all but five states (Montana, Washington, Iowa, Arizona, and Louisiana) attempts to further distance themselves from other types of gambling and sports betting on the Internet which can be illegal in the United States. More specifically, the UIGEA is a federal law which regulates and proscribes bets and wagers, whereas fantasy sports supposedly meet the safe harbor requirements and are termed contests and tournaments which is how both DraftKings and FanDuel promote themselves. DraftKings makes no distinction, on that level, between daily fantasy sports and season long fantasy sports.

Most states’ gambling laws are antiquated and state by state deal with the skill-chance continuum; some distinguish by something being predominantly chance or chance on any level. So the five states where fantasy sports are illegal haven’t necessarily made them illegal, but because their gambling laws are so old and so strictly defined it’s not worth the risk to operate in them. One exception being Montana where fantasy sports are legal, you just can’t use the Internet to participate in them.

According to Leach, considering the large amount of money at stake centered on sporting events, the industry argument that the tournaments are a game of skill and not betting has no validity.

A slew of events including last week’s scandal over an employee of DraftKings $350,000 win on rival site FanDuel, the revelation by both companies that their employees were allowed to participate in contests on each others sites for the same cash prizes available to the general population, and promises that casual players can become millionaires by playing, have all contributed to the spotlight that has been aimed at the unregulated industry.

The 2006 act led to online poker and other gambling sites eventually being shut down, which Leach says is the reason why he pushed the act, to stop online betting. However, the law refers to existing state and federal laws with differing interpretations and fails to present a clear definition of Internet gambling. Leach says that while the UIGEA is being used to exempt fantasy sports and now daily fantasy sports it precludes the latter and there are still regulations and laws that can be applied to the industry and cannot be excluded from the broad sweep of the law.

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