The federal government passed the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006, which was created to prevent online gambling. The aforementioned law includes a carve out specifically for fantasy sports, which is classified as a game of skill and thus receives a specific exemption from this law. Daily fantasy sports are 100% legal under federal law in the United States and is also legal in Canada excluding Quebec. There are five states that prevents residents from participating in fantasy sports contests where they risk their own cash including Montana, Louisiana, Washington, Iowa, and Arizona.
The UIGEA of 2006 specifically states:
[The UIGEA does not include] 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 section 3701 of title 28) and that meets the following conditions:
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.
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.
No winning outcome is based on the score, point spread, or any performance or performances of any single real world team or any combination of such teams; or solely on any single performance of an individual athlete in any single real-world sporting or other event.