Business Counselor February 15, 2016 Michael J. Huff

What Do Daily Fantasy Sports Have to Do With Your March Madness Pool?

Sports gambling has been a popular topic for the past few months with Fan Duel and Draft Kings bombarding the market with a barrage of messages beginning with the commencement of the NFL and NCAA College football seasons. Remarkably, for a few weeks, the fantasy sports brands felt even more ubiquitous than the ever present soft drink and beer advertising which litters fall Saturdays and Sundays. More recently, messaging from Fan Duel and Draft Kings has come to a crashing halt as the entities have faced legal investigations and challenges across the country.

Even as Fan Duel and Draft Kings have lost the attention of sports fans over the past few months, the laws applicable to them remain relevant and important to Michigan businesses as March Madness approaches. Every year, there are always some questions from business owners regarding whether they should sponsor an office pool during March Madness.

This past fall, Fan Duel and Draft Kings furiously thrust conversations and debates regarding what constitutes sports gambling and how the same should be regulated to the forefront among American sports fans and legislatures. The landscape is unclear. There is Federal Law, the Professional and Amateur Sports Act, which prevents a person from sponsoring or operating a betting or wagering scheme based on one or more competitive games in which athletes participate (this law also prevents betting on individual athlete performances). However, there is also Federal Law, the Unlawful Internet Gambling Enforcement Act, which, while preventing the use of the Internet for certain transfers of money, excepts out participation in fantasy sports games which comply with certain requirements.

In the State of Michigan, the Michigan Penal Code regulates gambling. The law explicitly prohibits one from accepting any money or other value from someone with the understanding that money or value may be paid out to any person based upon the result of a game or contest when the result of the game or contest is uncertain. There are certain exceptions to this law, including the payment of prizes for participants in a contest, but the exception does not apply when the outcome of the event is uncertain and the parties participating in the contest do not render service directly related to the underlying event.

Fan Duel and Draft Kings determined there was enough ambiguity in the law that they could boldly operate in various states across the country. However, enforcement actions against both companies have arisen across the country and legislatures are beginning to examine fantasy sports.

In Michigan, State Senator Curtis Hertel (D) introduced a bill in the Michigan State Senate which would incorporate the language from the Unlawful Internet Gambling Act into the Michigan Penal Code to except fantasy sports from the definition of illegal gambling. However, based on currently pending actions across the country, it is unclear if incorporating such language would clearly protect the business model of Fan Duel and Draft Kings.

The exercise of determining what constitutes illegal sports gambling is not only academic.

The office pool is a hallowed tradition throughout the month of March in many workplaces. Often, being the victor of the company pool results in more than just bragging rights. However, as can be deduced from the law cited above, sponsoring an office pool where employees pay something of value with the expectation that winners will receive something of value in return runs afoul of applicable law. The same laws which are causing problems for Fan Duel and Draft Kings also may limit how you can structure contests you wish to hold at your workplace.

There is a lot of energy and passion in sports. As a lawyer who has worked in the sports industry, I love following March Madness and enjoying numerous upsets throughout the NCAA tournament. I certainly don’t fault clients who want to bring some of the passion surrounding sports into the workplace – however, you may want to think twice before sponsoring an office pool for value.

Michael Huff is an associate attorney in the business and real estate groups and a member of the Sports Lawyers Association. He joined Mika Meyers from a Detroit-based law firm in August of 2015.