Why Draft Kings, a $900 million site that allows gambling on fantasy sports, is legal

When Draft Kings, a daily fantasy sports site that allows users to bet real money on their teams, was reported to have raised $250 million at a $900 million valuation last week, many asked the same question: is online sports betting legal?

Yes, because fantasy sports is considered a "game of skill."

How is this possible, when sports gambling is illegal in states outside of Nevada, Delaware, Montana, and Oregon?

In 2006, the federal government passed a law called the Unlawful Internet Gambling Enforcement Act that establishes fantasy sports as a "game of skill" and not a "game of chance." The law states that it's legal if it:

• (I) is not dependent solely on the outcome of any single sporting event or non-participant's singular individual performance in any single sporting event;
• (II) 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 sports events

In fantasy sports, users put together their own teams based on real-life players. The outcome of the game is determined by how each player performs, accumulating points based on real-game performances.

So unlike regular sports gambling, where you purely bet on the outcome of games, the law is classifying fantasy sports as a form of game where actual skills matter to win.

That's a debatable idea. But regardless of which side you sit on, daily fantasy sports sites are completely legal under current laws - and will continue to flourish, racking up hundreds of millions of dollars in revenue.

Here's how Draft Kings explains it on its website:

"The legality of daily fantasy sports is the same as that of season long fantasy sports. In 2006, the US Federal Government passed a law called the Unlawful Internet Gaming Enforcement Act (or UIGEA), which was designed to prevent gambling over the internet. The law included a carve out that clarified the legality of all fantasy sports...Daily fantasy sports is a skill game and is not considered gambling."