Nelson Mullins partner Katherine Baker and associate Joshua Kirschner recently presented on the regulation of fantasy sports in the United States as fantasy sports and sports betting continue to drive a shift in the gaming industry’s regulatory landscape. Most states have already legalized some forms of gaming such as casinos and sports betting.

The gaming industry is highly regulated, consisting of robust licensing processes, substantial fees and taxes, and strict regulation by state officials. While gaming is primarily regulated at the state level, companies also need to be aware of and abide by the federal legal framework.

States with legalized sports betting have their own regulatory scheme, usually governed by a sports-betting-specific statute, accompanied by regulations and criminal anti-gambling laws strictly enforced by a gaming agency.

Sports betting operators, key employees, and material shareholders are generally required to obtain licenses. The application process may include fees and undergoing investigation by gaming regulators to ensure the applicant has sufficient moral character and fitness (generally, no history of fraud, deceit, gaming violations etc.), which involves extensive background checks and submitting documentation. The degree of regulation varies from state-to-state.

In some states, the regulation of sports betting, a form of gambling, is driving further regulation of fantasy sports betting, a growing sector of the gaming industry that’s regulated in around 25 states. The similarities between sports betting and fantasy sports continue to spark debate over the line between the two.

The primary differentiator is that fantasy sports is typically categorized as a game of skill where participants pay an entry fee, while sports betting is categorized as a game of chance that requires a bet or wager. According to the Unlawful Internet Gambling Enforcement Act, a fantasy sports contest includes the following elements:

• All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.
• All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.
• No winning outcome is based —
  • on the score, point spread, or any performance or performances of any single real-world team or any combination of such teams; or
  • solely on any single performance of an individual athlete in any single real-world sporting or other event.

State regulators play an increasingly active role in drawing the line between sports betting and fantasy sports. Definitions of fantasy sports contests differ from state-to-state and have evolved over time, resulting in little regulatory consistency.

As state regulators refine the scope of sports wagering and adopt standalone fantasy legislation to address policy issues, the regulation of fantasy sports will continue to be in a state of flux. Federal intervention also looms over the industry through new proposed regulations and legislation such as the Betting on Our Future Act, a bill prohibiting certain advertising of sports betting, that was introduced in February 2023.

Katherine is the chair of the Nelson Mullins Gaming Industry Group and represents businesses and individuals in a wide variety of complex civil litigation at the trial and appellate levels. A primary focus of her practice is assisting casino gaming, sports betting, and fantasy sports operators, vendors, and entrepreneurs to navigate the state and federal commercial and tribal gaming landscape, including leveraging FinTech solutions.

Joshua focuses his practice on the gaming and gambling sectors and represents businesses and individuals in a wide variety of regulatory and white-collar litigation matters. A primary focus of his practice is assisting casino, iGaming, sports betting, and daily fantasy sports operators, vendors, and entrepreneurs with state, federal, and tribal gaming regulatory compliance and legislative strategies.