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Fantasy Sports: Investment Gold Mine or Legal Minefield

It is estimated that over forty-one million people have played fantasy sports in the United States or Canada this year.1  In addition to nearly nine hours per week,2 these players are spending vast sums of money on this increasingly popular pastime.  It is estimated that as much as eleven billion dollars will flow through the fantasy football market this year, which is more than the annual revenue of the NFL.3  As the market has steadily grown,4 creative investors have devised new ways to make money from fantasy sports.

Some are investing directly into fantasy sports leagues.  One fantasy sports website, DraftKings, recently raised forty-one million dollars in a round of financing lead by the Raine Group.5  This investment is expected to be used to purchase competing sites, expand its mobile platform and improve contest prizes.6  Some of these prizes will pay as much as one million dollars to the winner of various fantasy sports contests.7

Other companies have created money-making opportunities less directly tied to the fantasy sports world.  This April, Fantex, a San Francisco start-up, began selling stocks linked to the future earnings of NFL players.8  The first I.P.O. was linked to the future income of Vernon Davis, a tight end for the San Francisco 49ers.9 In exchange for payment from Fantex upfront, Davis and E.J. Manual, quarterback for the Buffalo Bills and player linked to Fantex’s second I.P.O., agreed to pay Fantex ten percent of all future playing contracts, endorsement deals and related pursuits following their retirement from the league.10  The model has been successful enough to lead to a third I.P.O. tied to a professional football player,11 as well as plans to expand to athletes in other sports and even actors and musicians.12

Though there are various ways to cash in on the fantasy sports craze, neither is without potential legal sticking points.  Various states are seen as having “an elevated risk” of running fantasy football leagues for prizes.13  One state’s Gaming Commission website declares that under state law, a fantasy sports league, like other illegal forms of gambling, is prohibited if there is a prize, an element of luck, and consideration.14  Because, according the site, luck predominates over any element of skill in winning a fantasy football league, “if a fantasy sports league has a buy-in (no matter what it is called) for its managers and gives a prize, then all three elements of an illegal lottery are satisfied.”15  Fantasy sports websites have responded by blocking participants from certain states.16

The Fantex model is not without potential pitfalls either.  The selling of their stocks requires compliance with securities laws, and Fantex currently has a preliminary prospectus noting that the SEC has neither approved nor disapproved of the securities involving their latest NFL player I.P.O.17  This prospectus additionally notes that those purchasing their stocks will not have any direct investment in the athlete or brand contract, but rather in Fantex itself.18  This will expose shareholders to risk associated with other stocks that Fantex may establish.19  And while the market may be strong now, there may be evidence of rough times ahead.20

As fantasy sports continue their climb to omnipresence, investment opportunities are out there for the creative investor.  It will be up to her to remain mindful of lingering legal issues already surrounding the market.

  1. Industry Demographics,, (last visited Aug. 7, 2014). 

  2. Id. 

  3. Brian Goff, The $70 Billion Fantasy Football Market, Forbes (Aug. 20, 2013, 10:01 AM), 

  4. See  M. Christine Holleman, Note, Fantasy Football: Illegal Gambling or Legal Game of Skill, 8 N.C. J.L. & Tech. 59, 61 (2006) (estimating that the number of fantasy football players may grow by as much as seven to ten percent annually). 

  5. Michael J. De La Merced, DraftKings, a Fantasy Sports Site, Raises $41 Million, N.Y. Times, (Aug. 24, 2014, 12:52 AM), 

  6. Id. 

  7. Id. 

  8. William Alden, Fantasy Football, Stock-Market Edition, N.Y. Times, (Aug. 26, 2014), 

  9. Id. 

  10. Id. 

  11. Fantex Brokerage Services Accepts First Reservations for Initial Public Offering of Fantex Mohamed Sanu, Market Watch (Aug. 4, 2014 9:01 A.M.), 

  12. Alden, supra note 8. 

  13. Marc Edelman, Kansas Takes Steps To Outlaw Fantasy Football: Bad News For Yahoo!, CBS, And The NFL, Forbes (Aug. 24, 2014), 

  14. Illegal Gambling – Frequently Asked Questions, Kansas Racing and Gambling Commission, (last visited Sept. 7, 2014). 

  15. Id. 

  16. Edelman, supra note 13. 

  17. Fantex Brokerage Services, LLC, Preliminary Prospectus (Aug. 25, 2014) available at 

  18. Id. at 23. 

  19. Market Watch, supra note 11. 

  20. See Alden, supra note 8 (statement of John C. Coffee Jr., professor at Columbia Law School) (“The market has soared over the last two years, and everything is at record levels, and that’s when you get a little bit of froth on top of the wave.  I’m not trying to predict whether there’s a bubble bursting or not, but this is the kind of froth that you see only at market peaks.”).