Intrade revival set to test boundaries of UIGEA fantasy sports exemption By Aaron Stanley May 12, 2014 at 9:39 am Where exactly is the line between sports gambling and fantasy sports contests? While it must exist, no one seems to be able to pin it down. Last week, Intrade, a popular but controversial website that formerly offered wagering on everything from presidential elections to weather, re-emerged in a new, beta version. Now it is a US-based sports wagering site, and the distinction between sports gambling and fantasy sports contests has become even more blurry. The new site, known as Tradesports, will offer real-time wagering during an actual sporting event. But don’t call it gambling, says Tradesports CEO and former Intrade co-founder Ron Bernstein. Rather it’s a new form of fantasy sports website, which he dubs a “sports prediction market”. The product could be wildly popular among sports fans, assuming that it avoids the legal and regulatory problems that led to Intrade’s closing last year. The Commodity Futures Trading Commission sued Intrade in late 2012 for offering illegal futures contracts, forcing the site to close to U.S. customers. Since most of Intrade’s business came from the U.S., the ensuing cash shortage resulted in the site shutting down altogether in March 2013. By any measure, the collapse was ugly and calamitous. Many customers were unable to retrieve their deposits. It gave Intrade a degree of infamy in the eyes of regulators and other authorities. The 2006 Unlawful Internet Gambling Enforcement Act (UIGEA) classifies fantasy contests as games of skill rather than chance. By setting up shop as a fantasy sports operator, Bernstein is attempting to avoid both the commodities regulators that brought down Intrade and the U.S. prohibition on sports gambling. The fantasy sports industry is less than thrilled about this development, and is not welcoming Bernstein with open arms. Paul Charchian, president of the Fantasy Sports Trade Association, warned that there were several “red flags” surrounding Tradesports. He said that his industry was very protective of the UIGEA exemption and would not hesitate to push back against operators deemed to be overstepping its boundaries. Such rogue activity could draw more scrutiny from regulators, for an industry that many feel already straddles the fine line between fantasy play and illegal sports betting. For example, a new subset of “daily” fantasy games offer wagering on “seasons” that reset each day. These types of games have quickly become the fastest growing and most lucrative portion of the industry. The parameters of the fantasy sports exemption have yet to be defined by the courts, resulting in what amounts to an “anything goes” grey area that operators will continue to test until the federal government brings a challenge, according to Kevin Braig, an attorney who has advised the fantasy sports industry. Such a challenge, if successful, could potentially wipe out the daily games subset and their profits. Not wanting to risk government intervention, the FSTA devotes a substantial share of its resources to self-regulating and protecting its exemption. That has become such a priority that some members who operate outside of the “daily games” arena are growing frustrated. Justin Baggott, CEO of the fantasy start-up Jockbrokers, which operates a stock market where players can buy and sell shares of athletes, says he is considering not renewing his membership for that reason. The FSTA’s concern is well grounded. Once Tradesports is fully up and running, the fantasy sports community will have their hands full should the Department of Justice not buy into Bernstein’s contention that his site is a fantasy sports prediction market rather than (illegal) sports gambling. Bernstein insists that he has done his legal homework and is exercising caution – Tradesports will only operate free games in 10 states with tighter gaming regulations, for instance. But Intrade’s dodgy past could be enough to attract the attention of regulators and law enforcement officials. They are unlikely to be sympathetic to Bernstein’s insistence that his site is providing a public good in the form of data compilation that harnesses the “wisdom of the crowd”. Even Robin Hanson, an economist at George Mason University and a pioneer in the field of prediction markets, who worked closely alongside John Delaney, the late co-founder of Intrade, is sceptical of Bernstein’s scheme. He argues that the site does not pass the smell test and looks like just another way to get around the U.S. sports gambling ban. He adds that a controversy surrounding Tradesports could detract from the real benefits that prediction markets provide. Real benefits occur, he says, when the events being wagered on have some sort of public policy implication. “(Sports wagering) information just isn’t very useful to the rest of us”, he said.