Hypothetical
Exam 07 QUESTION
Grid Iron trading cards, the largest maker of professional football player trading cards, has called to asked you to analyze certain federal gambling law risks associated with a current issue they are facing and a proposed enhancement to their online fantasy football player card game.
The Current Season Long Fantasy Games:
Currently Grid Iron runs online fantasy sports leagues that mix its trading card business with fantasy sports. Players pay a $50 entry fee to Grid Iron for each fantasy football team they wish to build and manage. Once a player purchases the right to build and manage a fantasy football team they are randomly assigned to a league consisting of up to 9 other Players. Players build their teams by purchasing digital versions of football player trading cards prior to the start of the real NFL football season. Each card costs $5.00 and each Player's team can have up to 16 digital cards at any one time. Each week during the NFL season the online site sets up fantasy sports match ups between players from within the same league. While each player's team may have up to 16 digital players cards in their deck, they are only allowed to play 8 players each week in their intra-league matches (1 Quarterback, 2 Running Backs, 3 Receivers, 1 Kicker and 1 NFL Team Defense). Scoring follows standard fantasy football scoring. Each week the players may use the graphically rich Grid Iron online system to revise their line ups, trade cards with other players, drop cards from their deck into a free agency pool or add cards from the free agency pool; however, each transaction costs the players involved a $2 transaction fee. At the end of the season winning players from each league are announced on the web site, and every player receives physical custom trading cards in the mail of their digital playing cards with the season long fantasy statistics of the player imprinted on the back and the players' chosen team name on the front. No prizes are awarded.
Last year, prior to offering or announcing the contest, Grid Iron received opinion letters from two law firms that the current contest was not gambling in any state because no prizes are awarded. Therefore, the contest is offered in all 50 states, including Utah and Hawaii (2 states with no legal forms of gambling).
Shortly after the contest was announced last year, the client was approached by BETDUCK.COM, an online sports wagering site to promote the BETDUCK.NET and BETDUCK.COM sites. BETDUCK.NET is a site that is functionally identical to the BETDUCK.COM site; however, the BETDUCK.NET site does not allow any money wagering. The BETDUCK.NET site is labeled as a training site that teaches online users how to wager though simulations of wagers, but does not offer any real wagering. Accounts created at BETDUCK.NET site are accessible on the BETDUCK.COM site when players decide that they want to wager for real money. The BETDUCK.COM site is licensed and run from the island nation of Vanuatu. Pursuant to Vanuatu licensing, the BETDUCK.COM site displays a disclaimer that players from jurisdictions where online gaming is illegal should not place wagers on the site. The BETDUCK.COM site gets about 70% of its wagers from U.S. players despite the disclaimer. The promotion with Grid Iron was to offer BETDUCK.NET and BETDUCK.COM banner adds with current play for free wagering lines in the banner advertisements. Grid Iron agreed to run these banner ads to offset the costs of developing and running the site. In return, BETDUCK.COM compensated Grid Iron by subsidizing the entire cost of developing and operating the Grid Iron fantasy sports league site.
Last month, Grid Iron received a letter from the U.S. Department of Justice regarding the BETDUCK.NET and BETDUCK.COM advertisements. The letter looked much like the letter to the National Association of Broadcasters and mentioned that running such advertisements violates U.S. law in the view of the Department of Justice. Grid Iron is concerned that without the BETDUCK advertisements, the fantasy sports league will be unprofitable.
The marketing department believes that they can increase the popularity and profitability of the Grid Iron digital players card fantasy sports site by offering prize contests. They have approached the management and general counsel of Grid Iron with two possible prize contest implementations as follows:
New Ideas:
1. The Premium League
In the Premium League, players pay an entrance fee of $1500 for each team they build and manage. The contest is identical to the current contest, however, at the end of the season, the winners of each premium league are entered into a random drawing to receive travel, lodging and two tickets to the NFL Super Bowl, and the physical players cards the winner receives at the end of the season will be signed by the actual NFL players. The approximate value of this prize is $15,000.
2. The Quick Pick Weekly Fantasy Game
The Quick Pick Game is an optional game to the standard season long fantasy contest. The Quick Pick Fantasy Game allows players to purchase an entry into a 1 week quick format fantasy sports contest for $5 per entry. Each entry has a list of 16 of pre listed NFL players. For example, the entry may have the following players pre-listed, Tom Brady, Peyton Manning, Rex Grossman, John Kitna, Brett Favre, Drew Brees, Jason Campbell, Jay Cutler, Jeff Garcia, Tavaris Jackson, Eli Manning, Donovan McNabb, Carson Palmer, Philip Rivers, Tony Romo, and Vince Young. On each entry, players select their predicted placement order of the NFL player's fantasy scores for the next week. Player's entries are scored by weighting the order of their correct picks. For example, if a player selects the correct order of the NFL player with the highest score, the third highest score and the lowest score, they would have an entry score of 31 points (16 for the highest scorer, 14 for the third highest, and 1 for the lowest). Each week the player with the highest score wins 80% of the value of the total entries for the week (if more than one player has the highest score, then the pot is split evenly among the winners). In order to participate in the Quick Pick Weekly Fantasy Game a player must be part of a season long fantasy league with Grid Iron.
Client Questions (this is what you should answer)
1. The client is concerned with the letter from the Department of Justice. The client is asking for advice to assist them in determining whether or not they should continue running the BETDUCK.NET and BETDUCK.COM advertisements. Specifically, they want to know whether or not continuing to run the BETDUCK.NET and BETDUCK.COM advertisements will violate any federal gambling laws or whether running such advertisements is protected commercial speech. They also want to know if only running the BETDUCK.NET advertisements changes your analysis.
2. With the Premium League, the General Counsel wants to know if there are any federal gaming law risks to adding the premium league to their current offerings.
3. The marketing department believes the Quick Pick Weekly Fantasy Game could significantly enhance the revenue of the site by collecting weekly Quick Pick Weekly Fantasy Game entrance fees. Marketing studies show that there is a large demand for this product. The legal department is less enthusiastic and asks to let them know if there are any criminal gambling law risks with the Quick Pick Weekly Fantasy Game that are not present in the basic fantasy sports contest they have been running for the past year.
Exam 08 QUESTION
HOSTEX, a web site hosting and development company, has been a long time client of your firm and in the past you drafted hosting agreements that were used often for hosting sites for real estate agents (the primary market for HOSTEX). As with most companies involved with real estate, HOSTEX has watched business decline dramatically in the last year. PROPERTYMAX, the largest client of HOSTEX has asked HOSTEX to work on an online raffle product where PROPERTYMAX will offer certain listed properties as prizes in raffles. PROPERTYMAX wants the site to permit entrants to purchase $100 raffle tickets for a house and when sufficient raffle tickets have been purchased (equal to the original listing price) the raffle will be drawn and the house will be conveyed. PROPERTYMAX is willing to pay for the development of the site up to $30,000 and additionally HOSTEX will be entitled to retain 1% of revenue collected for raffle ticket sales once the raffles begin. HOSTEX sees this as a possible way to save its dwindling business and they desperately want to do this deal.
The manager of HOSTEX asks you answer the following questions:
A. Is this gambling and if so why and if not why ? (8 Points)
B. If HOSTEX builds and operates the site, will this present a risk of violating the Federal Wire Act? If so, explain how the activities present such risk. If not, explain how the Federal Wire Act does not apply. (5 Points)
C. If HOSTEX builds and operates the site, will this present a risk of violating the Illegal Gambling Business Act? If so, explain how the activities present such risk. If not, explain how the Illegal Gambling Business Act does not apply. (5 Points)
While HOSTEX was taking to you, PROPERTYMAX consulted with another attorney in town that handles most of their real estate and broker transactions. Based on their discussion with the other attorney, PROPERTYMAX wants to change the promotion discussed in the last question to have the raffle automatically run when 120% of the home's list price is reached and 20% of the income earned on each raffle will go to Kids Kamp of Las Vegas, a local charity that provides a day camp for children with severe illnesses.
The manager asks that you answer the following questions:
A. Does the fact that 20% of the proceeds will go to charity impact any of the federal gaming law risks you have identified in the prior discussion and if so how and if not, why not? (4 points)
PROPERTYMAX again consulted with another attorney in town that used to work on their financial transactions. Based on the consultation with the new attorney, PROPERTYMAX wants to change the promotions above from a raffle to a trivia contest. The contest would work by taking $100 from each contestant online, then providing a series of trivia questions to the contestants. The winner will be the first person that can answer 100 trivia questions correctly within two hours. Until the entry fees for the contest exceed the original listing price of the house, the trivia questions 1-49 will be general pop-culture trivia questions and questions 50-100 will be mathematical questions that would likely take a mathematics PHD more than an hour to solve, though contestants will have 30 to 60 seconds to enter a correct answer. Once the entry fees for the contest exceed the original listing price of the house, the mathematical questions will be removed for random players and replaced with general trivia questions from Trivial Pursuit Bring on the 90s edition.
The manager of HOSTEX asks you answer the following questions based on the new contest:
A. Is this gambling and if so why and if not why not? (8 Points)