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Las Vegas • The U.S. congressman who drafted the 2006 legislation used by DraftKings and FanDuel as proof of their legitimacy says is it "sheer chutzpah" for the daily fantasy sites to pretend the law makes them legal.
Former Rep. Jim Leach said lawmakers had no idea daily fantasy sports would "morph into today's cauldron of daily betting." He said his anti-gambling act was supposed to stop gambling on the Internet, not promote it.
In an email exchange with The Associated Press, Leach said the carve out for fantasy sports in the Unlawful Internet Gambling Enforcement Act (UIGEA) does not provide them with immunity against other federal and state laws that could limit their activities.
"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," Leach said. "But it is sheer chutzpah for a fantasy sports company to cite the law as a legal basis for existing. Quite precisely, UIGEA does not exempt fantasy sports companies from any other obligation to any other law."
Daily fantasy sites have long claimed that the fantasy sports provision in the 2006 anti-gambling law allows them to operate freely in the 45 states that don't have specific prohibitions on the contests. Sports betting and other types of gambling on the Internet are mostly illegal in the United States, though horse racing was also given an exception in the 2006 law.
FanDuel and DraftKings both promote themselves as offering games of skill, shying away from the label of gambling.
"The legality of daily fantasy sports is the same as that of season long fantasy sports," DraftKings says on its website.
But with millions of dollars at stake daily in contests that are centered on sporting events, Leach said there is no validity to the industry argument that the contests are a game of skill, not betting.
"There is no credible way fantasy sports betting can be described as not gambling," said Leach, an Iowa Republican who sponsored the legislation. "Only a sophist can make such a claim."
A scandal that erupted last week over a $350,000 win by a DraftKings employee on FanDuel and the ubiquitous commercials promising to make millionaires out of casual fantasy players have put a spotlight on an industry that seemingly sprouted out of nowhere to become a powerhouse in the sports community. Major League Baseball has an interest in DraftKings, and NFL teams and other leagues all have relationships with the two industry leaders.
Leach said he pushed the 2006 act, which led to the eventual shut down of online poker and other gambling sites, with the intention of stopping online betting. But the law doesn't offer a clear definition of Internet gambling, referring instead to existing federal and state laws with differing interpretations.
The law, which has been used to halt online poker, specifically prevents banks and other financial institutions from processing funds relating to illegal gambling.
Leach, who lost a re-election bid in 2006 after 15 terms in office, said there are still many laws and regulations that can be applied to the fantasy industry.
"All citizens can make their own judgment whether America is better off with or without a dominating gambling ethic," he said. "But what is self-evident is that UIGEA exempted fantasy sports from one specific law enforcement mechanism but not from the broad sweep of law itself."
Fantasy sports companies are still bound by state and federal laws on sports betting, wire transfers, anti-trust and securities laws, among others, he said.