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Are You Ready for Some Football?

For millions of Americans, the end of summer marks an important tradition: fantasy football drafts! Even with the National Football League seeing a slight downturn in television ratings for the first time in years last season (the possible causes of which are too complex to address here), fantasy football continues to grow in popularity. The Fantasy Sports Trade Association estimates that almost 60 million people in the U.S. and Canada will play fantasy sports in 2017 (with fantasy football being the most popular). Fantasy football continues to be a colossal enterprise that drives significant interest to the NFL, as well as a wide array of supporting industries looking to monetize our apparently unquenchable love of this game within a game.

One such secondary industry, which began developing several years back, is fantasy football insurance. Although some of the original companies may have fallen by the wayside, there are still a few companies selling these “insurance” policies, intended to provide coverage for a fantasy owner’s investment in the event a starting player gets hurt. Although some of the details have changed over the years, these policies continue to raise interesting questions under insurance law.

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As a starting point, let’s recap how fantasy football works. A group of participants, or “owners,” form a league to compete against one another based on the statistical performance of NFL players in real, live games. Teams are typically made up of a quarterback, some combination of running backs, wide receivers and tight ends, a defense and a kicker (with backups for key positions). More advanced leagues may also incorporate defensive players and special teams. Before the NFL season starts, the owners hold a draft – or sometimes an auction – to divide the desirable players (expected to accumulate strong statistics over the season) and build their rosters. Each week during the NFL regular season, fantasy teams square off against each other, earning points based on their players’ performance in NFL games. Whichever squad scores more points that week wins, and the teams that accumulate the most wins have a short playoff during the last few weeks of the season to name an ultimate champion.

Fantasy football is popular for countless reasons, but, for many, it’s a form of competition among friends (or even strangers), and, as with any competition, there is an opportunity for wagering. Although many leagues are simply for fun, very often leagues have an upfront buy-in (ranging from a few dollars to thousands), with the champion taking home cash at the end of the season. Fantasy football certainly combines elements of both skill and luck in ways that many more traditional gambling ventures, like slot machines or craps, can’t claim, but, in many regards, fantasy football serves as a statistics-based gambling enterprise.

The insurance products available online are intended to protect an owner’s “investment” in the league; that is, the cash buy-in. Typically, an interested owner picks a player he wants covered from a list of eligible players on the insurance company’s website and determines how much “coverage” to buy. Prices vary depending on a few different factors (coverage options, a player’s history of injuries, etc.). For example, in updating the research for this article, I was able to buy a $50 policy on one of my star wide receivers for $6.40 using a coupon code found online. If my insured player misses 8 or more games due to injury, the policy will pay me $50 to make me whole for my league buy-in.

But what am I really insuring? All insurance policies require an insurable interest, which means that a policyholder must have a valid legal or financial interest in the thing he wants to insure. People buy insurance policies to cover lots of things: their body, home, car, business, life. We buy insurance for these things because we have an insurable interest in them – if something bad were to happen to them, it would harm us. In most states, to form a valid insurance contract, the insurable interest must exist both at the time the policy is purchased and at the time of the loss. If the policyholder has no insurable interest, the insurance policy is typically deemed void (although many courts still enforce the policy against an insurance company that accepts premiums knowing that no insurable interest exists). A mere “contingent” or “expectant” interest that isn’t based on a legal interest or right is typically not enough to be insurable. Without an insurable interest, the contract essentially becomes a wager that something bad will happen to the thing insured; there is only the upside of a payout if the insured matter is harmed, without any downside to a disinterested policyholder.

These fantasy football insurance policies challenge the insurable interest requirement by expanding what kind of interest can be insured. Is owning a player on a fantasy football team, and betting on that team, a sufficient legal interest to be insurable? Maybe, maybe not. Technically, betting on fantasy football is legal in most states, especially those that allow betting on games of skill. The betting also likely complies with federal law: The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), which attacks funds transfers associated with internet gambling websites, specifically carves out fantasy sports from its reach. (In recent years, the rise in prominence of daily fantasy sites, such as Draft Kings and FanDuel, has brought the legality of betting on fantasy sports into question, but this article assumes that ordinary participation in a season-long fantasy league with a cash entry fee complies with the statute.) But even if legal, it is undeniable that a fantasy football owner’s sole monetary interest in his players is the league entry fee, which is a wager against the other owners in the league; to the winner go the spoils. The purpose of the insurable interest is to prevent using insurance policies as a form of gambling, so it would make little sense that a policyholder could have an insurable interest in a (possibly legal) wager. In this regard, fantasy football insurance is a wager on a wager, and probably lacks an insurable interest.

Another challenge for these insurance products is that the insurance companies have no way of confirming that the policyholder even has the insured player on his or her team. In years past, carriers selling these policies made actually no effort to determine if the policyholder actually had the covered player on a team. Now, at least one company is asking customers to click to confirm that the player is on the customer’s roster, but the insurance company has no way of knowing if the policyholder keeps that player on the roster throughout the season. Trades and other transaction are one of fantasy football’s most popular features, as owners enjoy managing their teams and shuffling their rosters. If I trade away my covered player in Week 2, and he has a season-ending injury in Week 3, the policy should be void, because I no longer hold an insurable interest in the player covered. The insurer also has no way of determining how much my insurable interest should be; policyholders are allowed to buy any level of coverage.

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Because of the absence of a valid insurable interest, these policies do not likely qualify as “insurance” policies under most states’ laws. So what are they? The law would probably consider them to simply be a bet that a particular player will get seriously injured. And not only is it a bet, it’s a bet made over the internet, which raises even more problems. Such bets likely violate federal law. UIGEA allows owners to bet on fantasy football because the outcome reflects the knowledge and skill of the owners and is determined predominantly by the real-world statistics of the NFL players on each owner’s team, but a bet on whether a player will get injured certainly fails this test and is likely considered a violation of the statute.

But policyholders don’t need to panic quite yet. Consumers have no liability under the UIGEA – the law solely targets the financial institutions that process the transactions for unlawful internet gaming.

In the end, fantasy football insurance companies aim to provide well-intentioned products to owners, ensuring enjoyment of their leagues and mitigation of risks. Most “policyholders” simply have a fantasy football team that they’ve spent some money on and want to hedge their bets in case a star player gets hurt. But do not be surprised to see courts or regulators step in to provide clarity on the legality of these policies if these products ever make a significant jump in popularity.