Is Fantasy Sports Insurance Legal?
People have been playing in online fantasy sports leagues for a long time. When the federal government created a specific carve-out for fantasy sports in the Unlawful Internet Gaming Enforcement Act (UIGEA) in 2006, paid money leagues became legal on a federal level for the first time and the ability to collect monetary prizes in paid money leagues was left to the discretion of the individual States. Recently, a new wrinkle involving fantasy sports has come to prominence: fantasy sports insurance…but is it legal?
Legality of Online Fantasy Sports Betting
In order to fall within UIGEA’s exception provisions, the fantasy sports game must:
- have an outcome that reflects the relative knowledge and skill of the participants, but not chance;
- be determined predominantly by accumulated statistical results of multiple athletes participating in multiple real-world sporting events; and
- offer prizes that are not influenced by the amount of fees paid by, or the number of, participants.
Under the laws of many States, season-long and even multi-week online fantasy sports tournaments are not considered ‘gambling’. The regulatory trend in these states is to categorise fantasy sports as games of skill based on the sports knowledge of each league participant. The skill involved in fantasy sports betting exempts online fantasy sports leagues from the gambling laws of these States, which only regulate games premised on chance or luck. As we have previously addressed, daily fantasy sports leagues may introduce a higher degree of chance than season-long or multi-week leagues and, as such, invite allegations of illegal gambling.
Fantasy Sports Insurance
A relatively new aspect of fantasy sports has developed, which allows fantasy sports participants to purchase insurance policies for the athletes on their fantasy teams. The insurance policies will pay out an agreed upon amount of money, should the policyholder’s fantasy sports athlete(s) be injured. The concept of fantasy sports insurance ensures that a player may recover some or all of his/her fantasy sports league entry fee should a member of his/her fantasy sports team be put out of commission due to injury.
Legality of Fantasy Sports Insurance
Whether fantasy sports insurance is legal under Federal and State law is an unresolved issue and requires an examination of the nuances of insurance law, specifically the concept of insurable interest. In order for any insurance policy to be valid, the policyholder must have a monetary or ownership interest in the thing he or she is looking to insure. This monetary/ownership interest is called an ‘insurable interest’. Without an insurable interest, the policy is void.
An insurable interest must exist at the time the insurance policy is purchased and exist throughout the policy period, including the time the subject injury is incurred. Without having an insurable interest in the thing being insured, it could be argued that one is making a bet that the insured property will be damaged or destroyed in order to collect the insurance money.
The threshold question relating to fantasy sports insurance is whether a league entry fee is considered an insurable interest in one’s fantasy sports athletes. While it is true that fantasy sports league participants usually pay an entry fee and, therefore, have some monetary interest in their fantasy sports athletes, their league entry fee is used to create a fantasy sports team based on a wager of skill. It follows that obtaining fantasy sports insurance could be construed as a wager of chance upon a wager of skill. The concept of insurable interest is meant to guard against wagering on an undesired outcome.
While the legality of fantasy sports insurance is still unclear, fantasy sports participants should use caution before purchasing a policy to insure their fantasy sports athletes.
David O. KleinKlein Moynihan Turco LLPdklein@kleinmoynihan.com
This article was originally published on the internet site of Klein Moynihan Turco LLP. To view the original article, click here.