The explosion in popularity of fantasy sports has been awesome, but one unfortunate effect is the accompanying emergence of frauds trying to make a buck (or a million) by leveraging the “fantasy” label to front a concept it clearly doesn’t fit.

Washington state officials charge that is just what has been going on with the man behind FantasyThunder.com.

David B. Watkins was arrested Thursday in Spokane, Wash., after police raided his home. The raid resulted from an investigation triggered by complaints from Fantasy Thunder users about not getting paid their winnings.

Authorities say Watkins may have operated his site for as long as 10 years, but both reports linked to above seem to highlight the wrong factor in describing the gambling charges . The accusation that Watkins kept 50 percent of the fees paid by his users doesn’t make for an attractive game setup, but it also doesn’t constitute gambling on its own.

To avoid being classified as gambling, any online pay-to-play game must clearly define its prize amounts before the contest start and guarantee those amounts. That’s according to the federal Unlawful Internet Gambling Enforcement Act, whose Section 132.2(c)(5)(ix) specifically states:

Participation in any fantasy or simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization (as those terms are defined in 28 U.S.C. 3701) and that meets the following conditions:

(A) All 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.

(B) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.

(C) No winning outcome is based-

(1) On the score, point-spread, or any performance or performances of any single real-world team or any combination of such teams, or

(2) Solely on any single performance of an individual athlete in any single real-world sporting or other event.

“Consumers need to be very careful,” said Jeff Thomas, CEO of World Fantasy Games and former president of the FSTA. “In my 18 years in the fantasy sports industry, I’ve seen many fly-by-night companies come and go and they hurt the entire industry with their actions. Consumers and companies considering operating a fantasy game should learn an important lesson from this situation: Work with experienced operators and never use or quote percentage payouts — it’s just the wrong message.”

Thomas points out that FantasyThunder.com is not a member of the Fantasy Sports Trade Association, an organization that tries to look out for the integrity of fantasy games and provide guidance for new game operators that might be unfamiliar with gaming regulations.

“The FSTA supports the UIGEA and encourages our companies to follow it,” Thomas said. “Experienced game operators know how to structure games to follow all federal and state laws.”

The Fantasy Thunder site has been shut down (hence the tiny images toward the top of this story being the best we could retrieve), and Watkins reportedly could face five years in prison if convicted.

(Note: World Fantasy Games owns and operates FantasySportsBusiness.com.)

Tags: fantasy sports, fantasy sports business, fantasy sports industry, fantasy thunder, fsta, jeff thomas, uigea

This entry was posted on Sunday, March 28th, 2010 at 4:12 pm and is filed under Lead Stories. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.