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An upcoming federal ruling in New Jersey could pave the way for professional sports gambling to become legal throughout the U.S.

By Cyrus Sanati
June 25, 2015

The increasing legitimacy of “fantasy” sports betting by professional sports leagues could ironically end up bolstering New Jersey’s federal appeal seeking to fully legalize sports gambling in that state. Judges set to rule on the state’s case as early as this Friday will need to consider, among other things, if the leagues’ attempt to block full legalization of sports gambling has more to do with protecting their newly minted fantasy gaming profits than it does with protecting the “integrity” of the game.

Given how blurry the line has become between fantasy and reality betting these days, the courts may end up granting New Jersey its wish, potentially opening up a pathway to the full legalization of sports gambling across the United States.

Once just a game reserved for serious sports nerds, fantasy sports have morphed into a multibillion dollar enterprise. Fantasy gaming companies, including FanDuel and DraftKings, as well as new upstarts, such as Game Sports Network’s “HotRoster,” have the backing of the major league sports associations, as well as a number of Wall Street investors, including private equity powerhouse KKR KKR , among others. Even the Walt Disney Co. DIS , owner of sports mega-broadcaster, ESPN, is getting in on the action, announcing just Wednesday a lucrative partnership deal with DraftKings (though it won’t be investing $250 million in DraftKings’ gaming app as was previously believed).

Fantasy sports betting probably wouldn’t be that popular in the U.S. if people were allowed to bet on the real thing, as they are allowed to do in many other countries. Gambling on sports is illegal in America thanks to a 1992 federal law passed by Congress, the Professional and Amateur Sports Protection Act (PASPA), which deemed sports betting unlawful, except in a handful of places, one being in the casinos of Las Vegas.

The law came about thanks to the lobbying efforts of the major league sports associations including the NBA, NFL, MLB and NHL, which argued at the time, that sports gambling destroys the “integrity” of the game. Congress agreed, killing legal sports betting across the country. That irked many in the legal gaming community, especially those in New Jersey, who like to think of themselves as the East Coast alternative to the casinos in Vegas.

Fantasy sports gaming, though, wasn’t banned under PASPA, allowing states to decide whether or not to allow it. So what is the difference between fantasy sports and regular sports? A fantasy sport is a game where participants act as “owners” to build out make-believe teams based on real players and teams, which then compete against other fantasy owners throughout a season. While the teams are technically make-believe, the statistics generated by the real individual players and teams are used to determine winners and losers.

At the time PASPA was put in place, fantasy sports gaming was a small-time industry made up of sports nerds who were more interested in facts than winning cash. It was seen as a game of skill and not a game of chance and was thus allowed to continue on in the basements of man-children all across the country.

But all that has changed thanks to the advent of mobile gaming. FanDuel, DraftKings and Game Sports Network’s “HotRoster” have taken fantasy sports gaming out of the basement and into the mainstream by allowing people to bet daily on a variety of fantasy sports matchups via their mobile phones. There’s no need to wait until the end of the season to see how your “team” has done—just pick a player and go. More and more people are getting sucked in thanks to the explosion in cash payouts offered up by the fantasy gaming apps. FanDuel, for example, expects to pay out more than $1 billion in cash prizes in 2015, double what it paid out last year.

Avid fantasy sports fans and the companies that facilitate fantasy sports wagering say that this type of fantasy sports betting, known as Daily Fantasy Sports (DFS), is still not gambling in the traditional sense because a person must still intently study the various statistics and data generated by the sport in order to be successful. Blindly picking teams or players at random on a gut feeling isn’t going to get you very far, they argue.

Others aren’t so convinced. “Are daily fantasy sports sites gambling? Yes; it isn’t even a debate,” Dr. Timothy Fong of the UCLA Gambling Studies Program, told ThinkProgress. “You’re putting money up on an event of uncertain outcome in expectation or hope of winning a larger reward. That’s the definition of gambling.”

If fantasy sports is gambling, then is gambling really that bad? NBA Commissioner Adam Silver shocked the sports establishment last year when he penned an op-ed in the New York Times advocating for the full legalization and regulation of sports gambling. David Stern, his predecessor, who was in charge of the NBA when PASPA was put in place, recently reversed his once-conservative position on the matter and says he backs Silver’s view on legalization.

This brings us back to New Jersey. Its citizens voted in 2011 to allow full sports gambling at racetracks and casinos in the hope of perking up the state’s sad gaming industry centered in Atlantic City. The sports leagues, though, fought the rule, lobbying the federal government, as they did in 1992, that sports gaming is bad for the industry. The federal courts agreed, overriding the New Jersey law, thus keeping sports gambling locked up.

But New Jersey didn’t back down. Even after the Supreme Court failed to take up an appeal from the state, Gov. Chris Christie, along with the New Jersey Thoroughbred Horsemen’s Association, which owns Monmouth Park racetrack in Oceanside, earlier this year filed an appeal in the U.S. Third Circuit Court arguing that PASPA violates states’ rights. In a briefing, the NJTHA accused the sports leagues of having “unclean hands” in their attempt to block the state because they “make millions, directly and indirectly, from both actual and so-called fantasy sports betting on the outcome of their games as well as the performances of their players in their games.”

The NJTHA went on to say that DFS is open to the same sort of integrity-killing game-fixing that the leagues say they want to avoid, and it noted that DFS offers “a myriad of manipulative schemes by which players and bettors can ‘fix’ the outcome of a fantasy bet, without even being noticed or without affecting the ultimate outcome or score of the game.”

It is unclear how the judges will rule on the New Jersey case, but that isn’t stopping the fantasy world from prepping for the transition. After all, who would want to bet on a fantasy sports team when they could potentially bet on the real thing?

Dan Orlow, the president of Game Sports Networks gives the state’s chance of success at around 50/50 but says he is ready just in case they win. He notes that unlike his competitors, DraftKings and FanDuel, his company’s app, HotRoster, is future-proofed and can make the transition from fantasy to reality in no time.

“The question is, does their [DraftKings and FanDuel] game play actually lend themselves to straight odds wagering? The answer is no. They’d have to reengineer their entire business line,” Orlow said. “We can make the switch immediately—all we’re talking about is changing the data feed, and we have the patent on it.”

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