Michael Lipton, Kevin Weber and Jack Tadman of Dickinson Wright explore the growing use and proliferation of fantasy sports and its undetermined legal status in Canada:
“According to the Fantasy Sports Trade Association, in 2014 over 41 million people have played fantasy sports in the US and Canada; on average, each of those spends $96 per year on related costs and materials.”
Fantasy sports have become a mainstream social activity and an integral part of North American sports culture. The League, a half-hour comedy centred around a fantasy football league and its members, recently entered its sixth season. The NFL Network has considerable programming dedicated to fantasy sports, and many announcers, particularly in the NFL, reference fantasy football during broadcasts. The Jacksonville Jaguars have set up the EverBank Fantasy Football Lounge in its arena, where fans attending Jaguars games can sit and receive fantasy sports updates. Most significant, in 2006 fantasy sports were exempted from the definition of “bet or wager” in the Unlawful Internet Gambling Enforcement Act (UIGEA).
According to the Fantasy Sports Trade Association, in 2014 over 41 million people have played fantasy sports in the US and Canada; on average, each of those spends $96 per year on related costs and materials.
Fantasy sports are lawful in the US, provided that operators comply with the UIGEA and state laws. In Canada, no legislation specifically exempts fantasy sports from gaming and betting laws, and no criminal law cases involving persons offering fantasy sports to players located in Canada have been reported by the national courts.
This article explores the proliferation of fantasy sports and the issues that must be analysed in order to determine the legality of fantasy sports in Canada.
United States: Fantasy Sports Exemption in the UIGEA
2006 saw the enactment of the UIGEA, which among other things prohibits businesses from knowingly accepting payments, in connection with the participation of another person, in a bet or wager that takes place online and is unlawful under US law. Fantasy sports, however, were specifically exempted from the definition of “bet or wager” in the UIGEA. Such games meeting certain criteria are exempted from the UIGEA. The criteria are set out in §5362(1)(E)(ix) and are as follows:
(1) The term “bet or wager”
(E) does not include
(ix) participation in any fantasy or simulation sports game or educational game or contest in which (if the game or game involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization (as those terms are defined in section 3701 of title 28) and that meets the following conditions:
(I) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.
(II) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sporting events) in multiple real-world sporting or other events.
(III) No winning outcome is based –
(aa) on the score, point-spread, or any performance or performances of any single real-world team or any combination of such teams; or
(bb) solely on any single performance of an individual athlete in any single real-world sporting or other event.
Thus, provided that the fantasy sports competition meets certain conditions, and complies with all other national laws, it is legal in the US to offer such fantasy sports games for money.
The Proliferation of Fantasy Sports
Fantasy sports operators operating lawfully may: be based in the US; use any financial services provider to process transactions; and advertise in any medium. Unlike with other forms of gaming, fantasy sports operators are not subject to a separate system of licensing and regulation – anyone can set up a fantasy sports website (and need not go through the due diligence procedures required by a gaming regulatory authority).
Until around six years ago, fantasy sports competitions were generally conducted over a season. For example, a “traditional” fantasy baseball competition would last from opening day (in late March/early April) until October. Contestants submit an entry fee at the start of the season, and, depending on the league rules, the top teams win prizes.
While “traditional” fantasy sports are still popular, the clarification by US lawmakers of the legal status of fantasy sports has led to a proliferation of offerings in this area: for example, the daily fantasy sports league. Instead of a league lasting the length of the sports season, daily fantasy sports games only last a day. These became popular in late 2008 when Fanball.com launched the game Snapdraft.
The lobby of an online daily fantasy sports website resembles the lobby of an online poker room. Information is available on the type of game offered, the prizes, the entry fee, the number of current entries, the number of total entries and the deadline for entering the fantasy contest.
Fantasy Sports in Canada
Clearly the American UIGEA is not applicable to Canadian residents. Further, there is no Canadian legislation similar to the UIGEA which specifically “exempts” fantasy sports from federal laws.
Nonetheless, as of September 2014, the top two fantasy sports sites accept players located in Canada (though one does not accept residents of Quebec) and as far as the authors are aware, neither site has had any issues with Canadian authorities. Leaving aside jurisdictional matters and the question of whether Canadian law enforcement considers it worth pursuing fantasy sports sites, does this mean that offering fantasy sports to players located in Canada is legal?
The legality of fantasy sports in Canada turns on whether they are caught by the gaming and betting provisions contained in Part VII of the Canadian Criminal Code (the Code).
The Code doesn’t define “gaming”, but it does define “game” as “a game of chance or a game of mixed chance and skill”. This implies that none of the offences relating to an unlawful “game” apply to a game of skill alone. Additionally, under common law, consideration, prize and chance were held to be essential elements of gaming.
In certain US states, such as California, “chance” refers to a game dominated by chance (as opposed to a one dominated by skill). The definition of “chance” in Canada, according to the Supreme Court in R v Ross et al, does not refer to “the unpredictables that may occasionally defeat skill” but rather to “the systematic resort to chance involved in many games such as the throw of dice, the deal of cards.”
“Bet” is defined in the Code as:
... a bet that is placed on any contingency or event that is to take place in or out of Canada, and without restricting the generality of the foregoing, includes a bet that is placed on any contingency relating to a horse-race, fight, match or sporting event that is to take place in or out of Canada.
Thus, the definition of “bet” in the Code is circular, in that it gives its meaning as “a bet”. (The Code does not define “betting”.) Therefore, the common law is of assistance in clarifying the meaning of “bet”, and distinguishing “bet” from “game”.
An often cited common law definition of “bet” is:
... the backing of a forecast by offering to forfeit, in the case of an adverse issue, a sum of money or article of value to one who maintains the opposite opinion and who backs his opinion by a corresponding stipulation; it is the staking of money or other value on the event of a doubtful issue… The payment of money for the right to participate in an event is not a “bet”, even where the entry monies form a prize pool to be paid out to winning players.
To determine the legality of fantasy sports, the first question we must ask is whether fantasy sports is a “bet”. In other words, is playing in a fantasy sports competition the backing of a forecast, or is it the participation in an event? If fantasy sports is determined as a “bet,” an operator is prohibited from offering fantasy sports to players located in Canada.
If fantasy sports is not a “bet”, the next step is to determine whether fantasy sports is a “game” as defined in the Code (ie, a game of chance or a game of mixed chance and skill), or whether fantasy sports is a game of skill. In other words, does the “chance” involved in fantasy sports competitions refer to the “unpredictables that may occasionally defeat skill” or the “systematic resort to chance involved in many games such as the throw of dice, the deal of cards”?
If fantasy sports is determined as a game of chance or mixed chance and skill, an operator is prohibited from offering it to players located in Canada. If fantasy sports is a game of skill, an operator is not prohibited by the gaming and betting provisions of the Code from offering it to players located in Canada.
Fantasy sports are structured in increasingly diverse ways. Whether a Canadian court determines that a particular fantasy sport is a bet, a game (of mixed chance and skill) or a game of skill may depend on factors including the structure of the game, and the strength of the legal analysis employed by the defence. An important factor is whether the judge hearing the case participates in fantasy sports, and therefore considers them to be a harmless diversion that should not attract criminal liability.
Clearly, strong arguments can be made to promote the idea that the long-term success of a fantasy sports player is based on the skill and knowledge, acquired by said player, of the various aspects of a fantasy sports competition. Data from fantasy sports websites concerning the performance of individual players may support this argument. To the extent that a fantasy sports player is able to achieve long-term success, and such success is rooted in the relevant skill and knowledge acquired by the player, a good foundation would be established for the notion of fantasy sports being a game of skill.
The status of fantasy sports in Canada is currently undetermined, and will remain so unless and until a Canadian law enforcement agency determines to initiate a prosecution relating to fantasy sports activities. Should that occur, the defence will be tasked with establishing that the fantasy sports activity in question is a game (and not “betting”), and a game of skill alone, involving no systematic resort to chance. The evidence for this, and the strength of the defence’s legal analysis, will bear heavily upon the conclusions drawn by a court.