Why Draft Kings, a $900 million site that allows gambling on fantasy sports, is legal

When Draft Kings, a daily fantasy sports site that allows users to bet real money on their teams, was reported to have raised $US250 million at a $US900 million valuation last week, many asked the same question: is online sports betting legal?

Yes, because fantasy sports is considered a “game of skill.”

How is this possible, when sports gambling is illegal in states outside of Nevada, Delaware, Montana, and Oregon?

In 2006, the federal government passed a law called the Unlawful Internet Gambling Enforcement Act that establishes fantasy sports as a “game of skill” and not a “game of chance.” The law states that it’s legal if it:

  • (I) is not dependent solely on the outcome of any single sporting event or non-participant’s singular individual performance in any single sporting event;
  • (II) has an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance), and, in the case of a fantasy or simulation sports game, has an outcome that is determined predominantly by accumulated statistical results of sporting events, including any non-participant’s individual performances in such sports events

In fantasy sports, users put together their own teams based on real-life players. The outcome of the game is determined by how each player performs, accumulating points based on real-game performances.

So unlike regular sports gambling, where you purely bet on the outcome of games, the law is classifying fantasy sports as a form of game where actual skills matter to win.

That’s a debatable idea. But regardless of which side you sit on, daily fantasy sports sites are completely legal under current laws — and will continue to flourish, racking up hundreds of millions of dollars in revenue.

Here’s how Draft Kings explains it on its website:

“The legality of daily fantasy sports is the same as that of season long fantasy sports. In 2006, the US Federal Government passed a law called the Unlawful Internet Gaming Enforcement Act (or UIGEA), which was designed to prevent gambling over the internet. The law included a carve out that clarified the legality of all fantasy sports…Daily fantasy sports is a skill game and is not considered gambling.”

NOW WATCH: Mark Cuban Tells Us Why Some Sports Teams Always Suck

NOW WATCH: Tech Insider videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.