Online Fantasy Sports Leagues: OK or Not OK?

By: Steve Outing Online fantasy sports leagues represent a nice revenue opportunity for online news sites -- and they provide a site's sports-minded users with a fun online activity. There's just one little problem: The games might be considered "gambling," and the U.S. Congress is rewriting federal gambling laws to include prohibiting gambling over the Internet.

A significant number of U.S. online newspaper sites this year have signed up to carry online sports fantasy league games. Typically, news sites sign a deal with a game vendor to carry a co-branded version of the game on the news site. Web site users can choose a limited, free version of the fantasy league play, or pay to participate in a full-fledged version that allows a participant to trade players through the sport's season. In the paid version of the games, typically online players compete for cash prizes based on their fantasy team's performance through the season.

The typical business model calls for a split of the entry fees paid by players between news site and the vendor. Sometimes, there are also banner advertising availabilities on the games, either available to the news site or shared between vendor and publisher.

Skittish attorneys

At the Dallas Morning News, the Web staff recently was looking into participating in a fantasy league deal with Fantasy Football 98. The deal looked appealing, according to director of Web site development Gerry Barker, but company lawyers were too skittish about the concept and recommended against doing the deal. Their main concern was that several states consider the games to be online gambling, and prohibit them in their jurisdictions. Since online games don't respect state boundaries and the games would be played by those outside Texas, participating in the games was deemed too risky.

(Some online fantasy sports league games, such as the football game offered by ESPN SportsZone, have rules stating that players in certain states can participate in the game, but are not eligible to receive prizes. The ESPN game applies this rule to residents of Montana, Vermont, Louisiana, North Dakota, Minnesota, Arizona, and the province of Quebec.)

Foregoing the Fantasy Football 98 deal probably cost the Morning News Web site a tidy sum of money. Barker says that in football-crazy Dallas, there was a good likelihood that the fantasy football league game could have attracted a few thousand players who would pony up $35 to play the game through the NFL season. Fantasy Football 98 returns $15 per player to partner Web sites, so in theory if the game could have attracted 3,000 paying players, that could have meant $45,000 for the newspaper's Web site. Of course, because this is the first year for Football Fantasy 98, it's hard to know what kind of numbers a site would get with the online game.

At other newspaper Web sites, legal worries aren't being taken so seriously. According to Shane McDaid, president and CEO of Esse New Media of Sacramento, California, operator of Fantasy Football 98, his company has signed up about 50 newspapers to co-brand the game. Customers to date include Media News Group newspapers, some E.W. Scripps Co. papers, some Knight Ridder papers, and some Copley papers, he says.

At the Florida Times-Union in Jacksonville, Fantasy Football 98 went up on the site last Sunday. Newsroom systems manager Mark Blanchard says he's not expecting to get rich off the game; he predicts a couple hundred players will pony up the $35 premium game fee, whereas the vendor suggested that his site might get a couple thousand paying players. Blanchard says the newspaper attorneys looked over the contract and felt comfortable with it.

McDaid admits that a few newspaper companies did shy away from the game this year because of legal uncertainties. Some companies suggested amended contracts that asked McDaid's company to indemnify them from possible legal action from states that consider the game to be gambling, but McDaid declined.

What will Congress do?

The issue of online gambling is currently winding its way through the U.S. Congress, and the fate of online fantasy sports league games is in the politicians' hands. The Senate recently agreed, by an overwhelming 90-10 margin, to add legislation by Senator Jon Kyl (R-Arizona) to a now-passed spending bill that would prohibit gambling on the Internet. A similar bill is expected to be brought up in the House of Representatives soon, after which the two measures likely will go through the conference process to reach a compromise between the two pieces of legislation. It's likely that an Internet gambling law could be passed by Congress by October 9, according to a spokesman from Kyl's office.

The initial Kyl bill was very unfriendly toward the online fantasy sports league vendors, as the original language would have basically put them out of business. Kyl's spokesman admits that many people find the games enjoyable, and says his boss was willing to accommodate permitting the fantasy leagues to continue to do business. An amendment to the Kyl bill was introduced by Senator Richard Bryan (D-Nevada), and accepted, which relaxed the language enough to permit the fantasy leagues to continue.

Getting the Internet gambling legislation through Congress is of course no sure thing, but odds (pardon the pun) are good that it will emerge in a similar form to the Senate version -- since that was passed by such an overwhelming bipartisan margin. That probably will mean some changes in the fantasy league vendors' business models.

Senator Kyl's spokesman says that the legislation as currently drafted would permit fantasy league games online to continue, but they could not offer prize money if the money came from a redistribution of game entrance fees. Prize money would have to come from donations, and players' fees could be used only for administrative costs to run the games.

That might mean some of the game vendors would have to change how they do things. The Sports Buff Network, another fantasy league game vendor that does some co-branding deals with news sites, last year offered a $15,000 top prize plus a sports championship vacation for the best performing fantasy league player. Its total prize pool is $150,000.

Football Fantasy 98 offers end-of-year prizes for best performing player of up to $3,500, and weekly prizes of up to $100. The grand prize winner also gets a free trip for two to the NFL Pro Bowl.

McDaid says that fantasy league players generally consider the games to be games of skill rather than chance, since it takes some knowledge of how real-world athletes are performing to do well in the fantasy leagues. If it indeed is a game of skill, then online gambling laws probably won't apply. That's still up in the air until final legislation is passed -- and which probably will have some language to cover the issue of online fantasy league games.

There's no reason why the vendors can't continue to collect fees for the games, since they would cover administrative costs. McDaid points out that his company actually gets less money in the revenue split arrangement with publishers than the newspaper site does -- since his company has to pay sizable licensing fees to NFL Players Inc. in order to use the NFL players' names in the games.

Likely scenario

Final legislation is unlikely to pass through Congress before the professional football season starts in the U.S., so fantasy league sites can for now operate as usual. Now is the time when news sites considering doing deals with the fantasy league vendors are signing up, in preparation for the NFL kickoff. Some publishers will continue to sit on the sidelines, awaiting final resolution of Internet gambling laws -- while others are rushing onto the virtual field despite the uncertainties.


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This column is written by Steve Outing exclusively for Editor & Publisher Interactive three days a week. News, tips, and other communications may be sent to Mr. Outing

The views expressed in the above column do not necessarily represent the views of the Editor & Publisher company


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