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Charles E. Humphrey, Jr. v. Viacom, Inc., et al.

Case No. 06-2768 (DMC) (D.N.J., June 20, 2007)

Participants In Sports Fantasy Leagues Are Not Gamblers

Court dismisses claims brought by plaintiff under the qui tam laws of a number of states, including New Jersey, to recover as gambling losses the entry fees paid to defendants by participants in online sport “fantasy” leagues.  Qui tam statutes permit the recovery of gambling losses sustained by gamblers in various gaming activities.  The online sport fantasy leagues run by defendants permit participants, for a fee, to manage a fantasy team of professional athletes and compete against others for fixed prizes designated before the league commences.  The winner is determined based on the relative performance of the selected athletes.

The Court dismissed the suit, holding that fantasy league participants do not sustain gambling losses within the meaning of the statutes at issue.  Rather, they pay an entry fee for which they bargain for and receive a number of services.  These services include statistical tracking and analysis of the performance of both their team and those of their competitors, and access to analytical information concerning athletes, which participants may use in managing their teams.  The Court further held that the activities in question do not constitute gambling within the meaning of the statute, because “(1) the entry fees are paid unconditionally, (2) the prizes offered to fantasy sports contestants are for amounts certain and are guaranteed to be awarded and (3) defendants do not compete for the prizes.”  The Court further held that plaintiffs are neither gambling “losers” nor defendants gambling “winners” within the meaning of the statute, another ground for dismissal.  Finally, the Court dismissed the suit as a result of plaintiff’s failure to name a single participant in his complaint who had actually sustained a loss, or the amount of loss he purportedly sustained.

Fantasy League Participants Pay An Entrance Fee To Participate In The League 

Defendants ESPN, Inc., Inc. and Vulcan Sports Media each operate online sports fantasy leagues.  At the commencement of a league’s ‘season,’ participants are advised that the league’s winner will receive a fixed prize that is not dependent on either the number of participants in the league, or the amount of registration fees collected.  These prizes are often nominal, such as a t-shirt or bobble head doll.

To participate in these leagues, participants pay defendants an entry fee.  In exchange, participants receive a number of services, including statistical tracking and analysis of the performance of both their team and those of their competitors, as well as access to analytical information concerning the athletes they select for their teams.  Defendants also provide message boards for communicating with league participants concerning trades and other league matters.  The entry fee also allows the participant to participate in the fantasy league, including the league’s initial draft.

The team with the best performance – based upon the statistics of the players chosen by the participant in designated categories – is declared the winner, and receives the offered prize.  According to the Court “the success of a fantasy sports team depends on the participants’ skill in selecting players for his or her team, trading players over the course of the season, adding and dropping players during the course of the season and deciding who among his or her players will start and which players will be placed on the bench.”

Claiming that fantasy league participants are engaged in gambling, plaintiff commenced this suit, seeking recovery under the qui tam statutes of New Jersey, the District of Columbia, Georgia, Illinois, Kentucky, Massachusetts, Ohio and South Carolina.  Under these statutes, a plaintiff is permitted to recover gambling losses sustained by participants in various gaming activities.  These activities include losses incurred “by playing at cards, dice, billiards, tables, tennis, bowls, shuffle-board, or other game or games, or by betting on the sides or hands of such as do play at any game or games or by betting at cock-fighting, or other sports or pastime.”  The statute permits a gambling “loser” or other permitted plaintiff to recover from “a winner, depositary or stakeholder” money lost by a “wager, bet or stake.” 

Plaintiff contends that online fantasy leagues constitute gambling, in which the participant wagers the entry fee for a chance to win a prize.  According to plaintiff, the winner is largely determined by chance due to the potential injuries to players and the vicissitudes of sporting events in general.

On defendants’ motion, the Court dismissed the complaint in its entirety.

The Entrance Fee Is Not A Wager Or Bet

First, plaintiff’s claim failed because the participants in online fantasy leagues were not engaged in gambling and did not, by paying an entry fee, make a wager or bet.  Said the Court:

As a matter of law, the entry fees for Defendants’ fantasy sports leagues are not “bets” or “wagers” because (1) the entry fees are paid unconditionally; (2) the prizes offered to fantasy sports contestants are for amounts certain and are guaranteed to be awarded; and (3) defendants do not compete for the prizes.

Fantasy League Participants Do Not Suffer Gambling Losses

The Court also held that league participants did not sustain gambling losses, another prerequisite to recovery under the qui tam statutes. 

A qui tam plaintiff like Humphrey has no right to recovery unless a participant in gambling activity wins money from one who loses money in that activity. … No fantasy league participant suffered any such “loss.”  To the contrary, participants pay Defendants a one-time, non-refundable entry fee to participate in the leagues, and receive in consideration for that fee the benefit of Defendants’ extensive administrative, statistical and analytical services throughout the relevant sports season. … [P]articipants simply do not lose anything and certainly suffer no cognizable “gambling” loss.

Plaintiff’s claims also failed because the defendants are not “winners” within the meaning of the statute.  Rather, they receive a fee in exchange for their provision of bargained for services.  To be a “winner” within the meaning of the statute, the defendant must participate in the game at issue, which defendants admittedly did not do.  Said the Court:

Defendants plainly are not “winners” as a matter of law, but merely parties to an enforceable contract.  Defendants provide substantial consideration in the form of administration of the leagues and the provisions of extensive statistical and analytical services, in exchange for the entry fees paid for participation in the fantasy leagues.  As no time do Defendants participate in any bet.  Absent such participation, Defendants cannot be “winners” as a matter of law.  … To suggest that one can be a winner without risking the possibility of being a loser defies logic and finds no support in the law. 

Furthermore, Defendants are not “winners” under the plain terms of the qui tam statutes.  The statutes make clear that the “winner” must be a participant in the card, dice or other game at issue. … Defendants do not compete … and do not “win” anything …

Finally, the Court held that plaintiff’s claim failed because he failed in his complaint to identify an actual fantasy league participant, or plead the amount of the loss he sustained.  Plaintiff also failed to plead that this unidentified league participant had failed himself to bring a claim to recover his own gambling losses, or that plaintiff’s own suit was brought within 6 months of the expiration of the time limit for the loser to bring suit himself.  These pleading failures, held the court, provided an independent ground to dismiss plaintiff’s complaint.

In determining that online fantasy leagues do not constitute actionable gambling, the Court noted that the Federal Government had made a similar determination in enacting the Unlawful Internet Gambling Enforcement Act of 2006, 31 U.S.C. Section 5361, et seq.  According to the Court, this “law confirms that fantasy sports leagues such as those operated by Defendants do not constitute gambling as a matter of law.  See 31 U.S.C. Section 5362(1)(E)(ix).”

Left for another day was the question of whether online fantasy leagues constitute illegal lotteries, the hallmark of which are the presence of ‘prize, chance and consideration.’  Because plaintiff did not, in his pleading, claim that fantasy leagues ran afoul of state prohibitions on lotteries, the court declined to consider this question on defendants’ motion to dismiss.

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