Fueled by technological change, fantasy sports have enjoyed incredible growth in the 21st Century. Since 1980, when writer Daniel Okrent explained his invention of “Rotisserie” major league baseball (“MLB”) to a few friends in an eponymous New York restaurant,1 fantasy sports has grown into a global business with over 35 million participants in North America alone.

As originally designed by Okrent and those who followed, a fantasy sports participant acted as a “make believe” general manager who selected real MLB or NFL players for his or her fantasy roster, made trades and other roster moves during the season, determined success from the input statistics generated by real MLB or NFL players in real games, and competed for pride and relatively small cash prizes awarded on a one-time basis at the end of the season.2

Since the enactment of the Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”) and the “fantasy sports” exemption contained therein,3 a new model of fantasy sports has emerged: the “daily fantasy sports league” or “daily league.4 "Instead of engaging in trades and other transactions over the course of a full MLB or NFL season, a daily league—such as www.fanduel.com (“FanDuel”) and www.starstreet.com (“StarStreet”)—involves selecting players and receiving a payout or winnings at the end of just one day. Unlike the traditional fantasy sports model, a daily league exhibits the hallmark element of almost all other regulated markets—daily market action.5

On April 22, 2013, Atlantic City casinos may offer daily leagues or partner with current providers such as FanDuel to offer daily leagues pursuant to regulations promulgated by the state’s Division of Gaming Enforcement on March 18, 2013.6 Notwithstanding weak arguments that the UIGEA exemption legalized daily leagues,7 New Jersey’s regulations8clearly are the first legal authorization and regulation of both daily leagues and of an exchange wagering scheme based in the United States that relates to any sport other than horse racing.9

A daily league is neither pure fantasy sports nor is it pure gambling. Rather, a daily league is a hybrid that includes elements of traditional fantasy sports (real player statistics) and traditional sports gambling (daily market action). A daily league is structured as a sports exchange wagering platform that uses mark-to-market scoring to account for player performance as opposed to the accrual scoring system used by the traditional fantasy model.

Because a daily cash-based league is structured as both a sports exchange wagering platform that generates daily action and a fantasy sports game, a daily league likely must comply with both state law and the UIGEA to be legal. Thus, some states may determine that a particular daily cash-based fantasy sports exchange wagering platform is legal providedthe platform is authorized and regulated by a state casino commission or gaming control board or division. 

  1. Trade Exchange Network: The Original Sports Exchange Wagering Platform

Founded in 2000 by John Delaney, Trade Exchange Network (“TEN”) pioneered exchange wagering in the United States. On the TradeSports platform, U.S. citizens could engage in exchange wagering on real U.S. sports events such as NFL games, political elections and other events. At this same time, Betfair established itself as the leader in sports exchange wagering in Europe.

On November 17, 2005, TEN notified the Commodities Futures Trading Commission (“CFTC”) of its intention to operate as an exempt board of trade known as the InTrade Board of Trade. In January of 2006, TEN reported it had 60,000 users, enjoyed 165 percent growth since its inception, and reached a licensing agreement with Trading Technologies International, Inc. (“TTI”) to use TTI’s MD Trader patents on its platforms.10

But that all changed on October 13, 2006. On that day, President George W. Bush signed the UIGEA, which restricted Internet gambling by making it impossible (or at least very difficult) for banks and other financial service providers to assist in processing online gambling transactions. The UIGEA effectively killed TEN’s TradeSports platform by cutting off U.S. residents from the platform and TEN divested itself of TradeSports effective January 1, 2007.11

TEN maintained the InTrade trading platform until March 2013 when TEN shut down InTrade after the CFTC filed a complaint in federal court alleging that TEN violated the Commodity Exchange Act “by offering for trading to U.S. customers, confirming the execution of, and soliciting and accepting orders from U.S. customers for the trading of, commodity option contracts (“options” or “binary options”) prohibited by the Commission’s ban on trading off-exchange options."12

  1. FanDuel: The Next Generation Sports Exchange Wagering Platform

While the UIGEA killed TEN’s TradeSports exchange wagering business in the United Sates, the UIGEA’s fantasy sports exemption gave birth to the daily league business model. Daily leagues did not exist at the time Congress enacted the UIGEA. Fantasy Day Sports Corporation launched the first daily leagues in mid-2007.13 In early 2008, the daily leagues began to takeoff. FanDuel launched in the spring of 2010 and reportedly averaged 20,000 users per month by the fall of that year.14 Thus, the historical record is clear that Congress was not blessing daily leagues when it enacted the UIGEA; rather, daily leagues developed in response to the UIGEA to exploit the exemption Congress included for the traditional fantasy sports model.

Based on the publicly available factual allegations in the pending case of Langone v. Kaiser & FanDuel, Inc.,15 FanDuel is a sports exchange wagering platform that uses mark-to-market scoring to account for player performance as opposed to the accrual scoring system used by the traditional fantasy model. 

  1. FanDuel Is A Sports Exchange Wagering Platform. 

In The Prohibition of Betting Exchanges is in Breach of EU Law, Betfair’s director and legal compliance officer, Justin Hubble, and Betfair’s legal advisor, Martin Lycka, summarized how a sports exchange wagering platform is structured financially:

Online exchange betting is a market-driven gambling system which enables customers to request bets on either side of the market. Every exchange customer may place either side of the market. Every exchange customer may place either a request for a “back” bet (i.e., a bet that something will happen—for example, that Manchester United will beat Barcelona in the Champions League final) or a request for a “lay” bet (i.e., betting that something will not happen). Using the same example, a winning lay bet against Manchester United would mean that at the end of the regular time, the “Barca” players have won the game or the game goes to overtime.

Exchange customers request the odds at which their bets may be placed, but (depending on the model and legal terms governing the betting contract) that request may or may not be accepted by either the exchange operator itself (acting as counterparty to all bets) or by another customer. At the end of every match, the exchange betting provider matches the two sides of the market and pays out the winnings to the winning customers, having first deducted a commission in the form of a percentage of the winning bet. In this sense, an exchange operator is indistinguishable from a traditional bookmaker (except it perfectly manages its risk) or a pari-mutuel or tote operator (except that fixed odd bets can be secured on the exchange). The unmatched bets, i.e., those requests for bets that have not been accepted by the exchange operator or by the customers, are voided, and the money is returned to the customer, once again becoming available for that customer to bet.

In Langone, the plaintiff alleged that FanDuel’s financial structure is nearly identical to a exchange wagering structure:

  1. For example, on www.fanduel.com, the winning wager is determined by the number of participants multiplied by the wager minus “vigorish” or “rake.” See Fan Duel Chart below.

Click here to view table.

  1. According to FanDuel, Inc., rules, if the game is not completely filled by the maximum number of participants at the start of the game then all entries on that game are voided and the entry fees returned to the users accounts.16

In other words, just as BetFair matches two sides on Champions League matches, FanDuel matches two-to-ten sides on a fantasy sports match and pays out the winnings to the winning customers, having first deducted a commission in the form of a percentage of the winning wagers.17 Also, like BetFair, FanDuel voids unmatched wagers.

Financially, FanDuel is “indistinguishable” from a sports exchange wagering platform. But FanDuel is distinguishable from the traditional fantasy sports model offered by ESPN and Yahoo! where, “[w]hether or not a participant is a successful league manager, their entry fee never hangs in the balance in any way in connection with their participation in the league.”18

  1. FanDuel Uses Mark-to-Market Scoring. 

In defending itself in the Langone case, FanDuel has taken the position that the only difference between its daily leagues and the traditional fantasy sports model is the “duration of the games.”19 That is one way to state the difference. More precisely, FanDuel uses a mark-to-market scoring system to account for player performance that is fundamentally different than the accrual system the traditional fantasy sports model uses as its scoring system.

At its foundation, scoring in every fantasy sports game—whether a daily or traditional league—is based on accounting principles.20 For the purposes that are relevant here, there are two types of accounting: mark-to-market accounting—which is also known as “fair value accounting”—and historical cost accrual accounting.21

Consistent with its business model, FanDuel uses mark-to-market scoring to account for player performance and generate daily market action. This mark-to-market scoring system is quite similar to the accounting principles first developed among traders on futures exchanges22 and used by traders of over-the-counter or “OTC” derivatives such as interest rate swaps.23 Mark-to-market accounting requires “continuous reevaluation of assets.”24However, mark-to-market accounting can make it difficult to calculate long-term earnings. Because mark-to-market does not define the cause of change in earnings expectations, mark-to-market accounting alone does not provide enough information to form expectations of long-term future earnings.25

FanDuel’s scoring system clearly is based on mark-to-market accounting principles that are characteristic of markets with daily market action such as commodity futures markets and OTC derivatives markets. Pursuant to those principles, a FanDuel participant “continuously reevaluates” his or her players and “books” both player statistics and profit or loss that he or she realizes on the same day or week that the daily fantasy contest is played.

By using mark-to-market scoring to account for player performance, FanDuel generates daily market action for those who participate in its contests. Further, because a FanDuel participant is not concerned with his or her players’ accruing statistical “earnings” over an entire year, the limitations of mark-to-market scoring are irrelevant to FanDuel participants.

FanDuel’s mark-to-market scoring system contrasts vividly with the accrual scoring system that defines the traditional fantasy sports model. Traditional accrual accounting uses the realization principle as its bedrock.26

Likewise, the traditional fantasy sports model’s bedrock is an accrual scoring system to account for player performance that waits until all the events of a baseball or football season are completed to determine who earned a prize.27 A participant in a traditional fantasy sports game does not act like a futures trader. Rather, he or she acts like the Oakland A’s executives in the book Moneyball: General Manager Billy Beane and his former assistant Paul DePodesta.

Author Michael Lewis described the role in Moneyball as follows:

Before the 2002 season, Paul DePodesta had reduced the coming six months to a math problem. He judged how many wins it would take to make the playoffs: 95. He then calculated how many more runs the Oakland A’s would need to score than they allowed to win 95 games: 135 … Then, using the A’s players’ past performance as a guide, he made reasoned arguments about how many runs they would actually score and allow. If they didn’t suffer an abnormally large number of injuries, he said, the team would score between 800 and 820 runs and give up between 650 and 670 runs. From that he predicted the team would win between 93 and 97 games and probably would wind up in the play-offs.28

In contrast to FanDuel, the traditional fantasy sports model is based on historic accrual accounting principles that mirror the interests of real-world baseball executives like Beane and DePodesta.29 Pursuant to those accrual principles, a traditional fantasy sports participant “books” player statistics as they accrue or accumulate throughout a full season and only at the conclusion of the season does a participant determine whether the season is a profit (prize won > transaction fees + administrative/statistical services fees expended) or a loss (prize won < transaction fees + administrative/statistical services fees expended).30


The purpose of legitimate government regulation is not to meddle in the operation of private business activity. Rather, the purpose of legitimate government regulation is to encourage the private business activity that is subject to the regulation.31

Congress exempted fantasy sports from the prohibitions contained in the UIGEA in 2006. But Congress did not encourage fantasy sports providers to innovate because Congress failed to provide for any regulation of fantasy sports in the UIGEA.

New Jersey has moved to fill the void. By promulgating regulations pursuant to which Atlantic City casinos can provide fantasy sports games—including daily fantasy sports exchange wagering32—to persons who patronize those casinos both physically and virtually over the internet, New Jersey is encouraging fantasy sports platforms to innovate and provide new offerings while simultaneously benefitting the consumers of those new offerings. Further, other states can use New Jersey’s regulations as a template and authorize their casinos to provide fantasy sports exchange wagering if they choose to do so.

Consumers of daily fantasy sports exchange wagering will benefit in at least two ways from New Jersey’s encouragement of daily fantasy sports exchange wagering. First, consumers will know that the exchanges on which they wager are being held accountable to maintain fair and honest daily fantasy games. Second, consumers should see the 10 percent commission that FanDuel currently charges drop by at least half and possibly more as competition between casinos and their partners—including, perhaps FanDuel itself—drives down the price that daily fantasy sports exchange wagering platforms can demand from consumers.

It is state regulation’s consumer benefits that support the conclusion that a particular daily fantasy sports exchange wagering platform is legal provided the platform is authorized and regulated by a state casino commission or gaming control board.