The Unlawful Internet Gambling Enforcement Act of 2006, which was an amendment to the larger and unrelated SAFE Port Act, included "carve out" language that clarified the legality of fantasy sports. It was signed into law on October 13, 2006 by President George W. Bush. The act makes transactions from banks or similar institutions to online gambling sites illegal, with the notable exceptions of fantasy sports, online lotteries and horse/harness racing.
The bill specifically exempts fantasy sports games, educational games, or any online contest that "has an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance), and, in the case of a fantasy or simulation sports game, has an outcome that is determined predominantly by accumulated statistical results of sporting events, including any non-participant's individual performances in such sporting events..."
However, all prizing must be determined in advance of the competition and can not be influenced by the fees or number of participants. Fantasy sports are considered gambling and therefore illegal if the competition does not meet this rule: "prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants
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