By Andrew Kim and Bob Crawford
The field is set, the brackets are in, and the players are ready. Welcome to March Madness, also known as America’s Least Productive Month. And much to the NCAA’s chagrin, it’s also peak gambling season—the American Gaming Association estimates that this year’s tournament will draw an eye-popping $9 billion in wagers, with more than $2 billion on brackets alone.
Most Americans gamble by partaking in casual bracket pools—by opening tip, we will collectively have filled out over 70 million brackets. Even the President of the United States has completed a bracket, although we don’t know if he has staked anything of value on his “Barack-etology.” It has been well settled that these type of paid-entry pools are technically illegal in most states. (We at the Goodwin Gaming Blog wish you the very best in your quest for the one-in-9.2-quintillion perfect bracket, one in 128 billion if you know something about college basketball.)
But the Madness has sparked other innovative contests, with some operating in a legal gray area. Free contests are generally legal, so long as they comply with applicable state laws concerning contests and sweepstakes. Participants of non-bracket paid-entry contests, however, may find themselves in foul trouble.
The daily fantasy leagues, such as DraftKings and FanDuel, run some of the most prominent paid-entry contests. These daily leagues operate like “traditional” fantasy leagues, but with a twist—prize pools are typically tied to one particular sport for one particular day. Daily-league players can hit the reset button on their rosters with every new contest that they play.
For March Madness, however, there’s a twist on top of the twist—the daily leagues’ college-basketball contests operate as survivor-style tournaments. Take FanDuel’s Survive the Madness contest. It starts with 2,870 entrants who’ve either paid $100 or won a “satellite” competition. As the NCAA Tournament progresses, so does the contest—for each day of the tournament, the number of “surviving” contest entries is cut by roughly half. By the Elite Eight, that field is whittled down to 32 entries. These tournaments provide only a small sliver of the daily leagues’ profits, but there is much room for growth. More importantly, these contests serve as a gateway for other, more profitable daily contests.
Participants often think daily contests are legal because of the so-called “fantasy sports carveout” in the Unlawful Internet Gambling Enforcement Act of 2006, 31 U.S.C. § 5362(1)(E)(ix). The Act, however, does not “legalize” fantasy gaming; it is generally state law, and not federal law, that determines whether a contest can be considered legal (or illegal) gambling. And as poker aficionados are well aware, state-law determinations of gambling typically rest on the element of chance. In most states, if chance predominates in determining the outcome of a paid-entry contest, the contest is considered gambling.
Whether daily-league contests can be considered games of chance is up for debate, though their proponents and proprietors are eager to classify them as games of skill. The legal concerns arising from these contests are even more salient in the context of a paid-entry contest tied to the NCAA Tournament. This is for one simple reason: college playoff games (and players’ performance therein) involve a great deal of chance. March Madness is the tournament of Cinderellas, the time when the unexpected is expected. Past statistical performance—the usual justification for calling fantasy sports “games of skill”—can be less reliable during the Big Dance. The “survivor” nature of these tournaments only adds to the chance element.
When it comes to March Madness, online paid-entry contests are still a relatively new phenomenon. Contest organizers should take great care in designing games that comply with both state and federal law. Otherwise, they run the risk that One Shining Moment will result in one large legal bill.