Need advise with regards to legal risks involved with starting online sports fantasy league website/mobile apps. The plan is to run the league website only for US. From my understanding it is legal to run online skill based fantasy game league as I have seen many being run at this time. But I think there are restrictions on what can and cannot be done as part of the service. Can the experts out here suggest what could be possible risks involved here ?
Any license/permissions to be obtained before starting the website ?
Any specific liability risks
Any specific considerations in deciding on LLC or C Corp or S Corp.
Any specific laws around handling the money received ?
Others ?
I understand I need to consult legal for more specific advise. But before I start that process I need to understand the legal risk profile of \the project that I am planning to have it bootstrapped with a very small fund.
Any pointers to the resources to understand more will be of great help.
Disclaimer:
- I am NOT a lawyer and am only providing links to resources, not legal opinions or advice.
- I have also been out of the industry for a few years and this is a fluid landscape, so continue monitoring the latest news, court cases, etc.
Quick recommendations:
- Join the Fantasy Sports Trade Association and attend one of their conferences. Their legal panel is quite knowledgable and the cost to join and attend events is reasonable. http://www.fsta.org
Quick overview:
- Fantasy sports traditionally have clear protection in federal legislation as contests of skill: http://en.wikipedia.org/wiki/Unlawful_Internet_Gambling_Enforcement_Act_of_2006
http://www.fsta.org/?page=FSandGambling
- The less luck (and therefore more skill) required for a given fantasy concept, the less likely it is to draw scrutiny.
- Laws governing cash payouts are on a state-by-state basis. Research the state laws and look at several rules/terms of use of established fantasy sports vendors for hints at what their legal counsel has suggested prior to consulting your own legal counsel.
- Make sure the legal counsel you hire has a clue about this stuff before hiring them or ask the FSTA if they can provide a referral.
- If a business is ultimately determined in court to be guilty of gambling, the legal structure is unlikely to offer protection to the owners personally.
Additional thoughts / resources:
- Generally speaking, "skill" is a combination of factors including method of selecting players, size of roster / starting lineup, ability to modify a roster via trades & free agents and the duration of the fantasy period (i.e. season, month, day).
- There are multiple lawsuits currently pending that could set precedence for daily games.
Details on the legal proceedings regarding daily fantasy:
http://www.forbes.com/sites/marcedelman/2013/02/20/did-comcast-invest-in-fan-duel-too-soon/
http://www.forbes.com/sites/marcedelman/2013/05/24/lawyer-who-sued-fanduel-brings-another-gambling-lawsuit-against-winner-of-draftday-contest/
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1907272
There are two potential outcomes - a negative decision could drastically alter the fantasy sports world while a positive decision upholding daily fantasy as a contest of skill could result in the market being flooded by daily games from the huge media companies CBS, ESPN, etc who are sitting on the sidelines in part because of the legal uncertainty.
Regarding money, I'm not clear on the specific legalities, however a pretty obvious thing is that collecting money with a promise to pay it out and then not delivering is fraud. For customers, it's a huge trust issue, therefore the contests with a long-track record or a policy of escrowing funds develop a strong following.
Regarding licensing, again the best source is FSTA.org, however a generic answer is to steer clear of trademarks (including images) of the professional sports leagues and teams. Statistics are public domain (confirmed by legal precedent - see FSTA), but you'll likely want to subscribe to a stat provider as real-time stats are pretty basic expectation by customers.
Conclusion:
- Do more research by reading the aforementioned articles and searching online for more current articles since things can change quickly.
- Talk with the FSTA if you're serious about getting into the industry - the value of their research and the panels at the conference is well worth the money, let alone the networking opportunities.
- Ultimately you're running a business and if you don't position your concept and execute well, it doesn't matter how fun & cool the industry is.
