Saturday, November 8, 2008

Montana Lottery Fantasy Sports Betting In Trouble?

In 2007, the State of Montana passed House Bill 616 (HB 616) which authorized pari-mutuel wagering on fantasy sports. On August 31, 2008, the Montana Lottery began operating a fantasy sports wagering game (Montana Sports Action) under an inter-agency agreeement with the Montana Board of Horse Racing. If you're thinking that it is a little strange that a lottery would be running a pari-mutuel game for an agency well entwined with pari-mutuel wagering, you're not alone.

On September 12th, the Economic Affairs Interim Committee of the Montana Legislature discussed the implementation of HB 616. As a result of that discussion, they requested a formal audit of the Board of Horse Racing. The key excerpt from that request is below:

The Economic Affairs Interim Committee respectfully requests an audit of the Board of Horseracing and its implementation in 2008 of statutes related to fantasy sports gambling in Title 23, chapter 4. Specifically, the Committee is concerned that the approach taken by the Board of Horseracing in its rules and the use of an intra-agency agreement with the Montana Lottery Commission may run counter to the intent of House Bill 616, which authorized fantasy sports gambling in Montana to be conducted by a “pari-mutuel facility licensed by the Board of Horseracing.”

There has been some back and forth between the Lottery and the Legislature on this, with the request for an audit being the latest salvo. This is interesting enough but the game, Montana Sports Action, isn't generating the level of wagering as was predicted during the deliberation of HB 616. In addition, there is the underlying issue of whether the Montana Lottery has the statutory authority to offer this kind of game at all.

Montana Code 23-7-102 states:

Purpose

  • (1) The purpose of this chapter is to allow lottery games in which the player purchases from the state, through the administrators of the state lottery, a chance to win a prize. This chapter does not allow and may not be construed to allow any game in which a player competes against or plays with any other person, including a person employed by an establishment in which a lottery game may be played.
  • (2) The administration and construction of this chapter must comply with Article III, section 9, of the Montana constitution, which mandates that all forms of gambling are prohibited unless authorized by acts of the legislature or by the people through initiative or referendum. Therefore, this chapter must be strictly construed to allow only those games that are within the scope of this section and within the definition of "lottery game".
  • (3) The state lottery may not: (a) operate a slot machine or carry on any form of gambling prohibited by the laws of this state; or (b) carry on any form of gambling permitted by the laws of this state but which is not a lottery game within the scope of this section and within the definition of "lottery game".

Montana Code 23-7-103 (4)(a) states:

  • A "Lottery game" means any procedure, including any online or other procedure using a machine or electronic device, by which one or more prizes are distributed among persons who have paid for a chance to win a prize and includes but is not limited to weekly (or other, longer time period) winner games, instant winner games, daily numbers games, and sports pool games.

The key here is the meaning of chance. Generally, chance is viewed with regard to lottery and other numbers games in the spirit of pure chance, randomness and equal probability, such as the odds of a coin flip, roll of a die or lottery numbers. In a game conducive to pari-mutuel wagering, although each contestant in the field has a non-zero probability of prevailing, it cannot be said that each contestant has an equal chance of prevailing.

This difference is important and tends to question the ability of a fantasy sports game to be viewed as a lottery game, where the wagering public has the ability to place bets on players with unequal chances of winning. For example, it is not realistic to assert that a quarterback that is on injured reserve or on a bye week would have an equal chance of having the best statistics for the week compared with quarterbacks taking the field. The case of chance would be stronger if the only option of betting was a random "quick pick," where the wagering system randomly selected the wager.

According to 23-7-102 (2), the chapter must be strictly construed to allow only those games that are within the scope of this section and within the definition of "lottery game".

Assuming the meaning of chance is what likely was intended when the Montana Lottery was authorized in 1985 (pure chance), if the Montana Lottery is claiming that Montana Sports Action is a pari-mutuel game, how does that align with the statutory restriction of the Montana Lottery to only offer certain games of chance (pure chance)? As any horse handicapper can tell you, horse racing (pari-mutuel wagering in the USA) isn't a game of pure chance.

Neither is fantasy sports.

When the Lottery came to the Board of Horse Racing in May 2008 and offered to implement a pari-mutuel fantasy sports wagering game, you would think they had to be aware of the restrictions they were under with regard to games eligible to be offered?

Montana Code Section 23-4-301 8(a) states that it is unlawful to conduct pool selling or bookmaking or to wager on a fantasy sports league other than by the parimutuel system and by being physically present at the licensed parimutuel facility.

By observing the evolution of the documents from the Montana Lottery regarding this game, the phrase "pari-mutuel" is dropping out of sight. The June 2008 Montana Sports Action "How To Play" document had 3 mentions of the term "pari-mutuel." The July 2008 Montana Sports Action "How To Play" document had no mentions of the term. Also, an August Wall Street Journal article reporting on Montana Sports Action referred to the game as a "fantasy football lottery game." That article was also mentioned in the same terminology on the Montana Sports Action website.

If the Montana Lottery is claiming that Montana Sports Action is a lottery game, how does that align with the prohibition of 23-4-301 8(a)? Why the change? Hard to say with certainty. Could it have something to do with the Legislature questioning the authority of the Lottery to operate a pari-mutuel fantasy sports wagering game?

It seems that the Montana Lottery might be blowing hot and cold on the same set of facts. That may work temporarily, or with audiences with short memories, but possibly not with audiences that are focused on the issue and have a strong bias toward proper implementation of statutes, like the Legislature.

What if the audit finds that the Montana Lottery is not allowed by statute to offer fantasy sports wagering? Would that mean that any fantasy sports wagers made with the Montana Lottery were illegal and void, and that all wagers need to be refunded? Not sure how any finding of this kind, if ever pursued, would turn out, but it would indeed be interesting to watch.

In a future post, we'll examine the financial performance of the game compared to estimates and attempt to determine who (if anyone) is making money with Montana Sports Action.


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2 comments:

Anonymous said...
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jhon said...

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