In trying to figure out how to close his state’s expected budget gap, New Hampshire governor John Lynch is considering the addition of a fantasy-style game to the state lottery.

According to New Hampshire Public Radio, those familiar with the proposal — details of which have yet to go public — believe the game could deliver as much as $25 million in revenue for the state in fiscal year 2011.

It is believed that the game would work along the lines of what Montana rolled out back in 2008, allowing participants to select their players on a lottery ticket and then score according to real-game performance.

Montana has reportedly collected just $750,000 in sales from its NFL- and NASCAR-based games in two years of existence. The reason that New Hampshire’s projections dwarf that number is that the state would seek to offer it’s game online — enabling non-residents to take part as well. Montana’s fantasy lottery, on the other hand, is open only to folks in Montana (pop. 974,989, as of 2009).

New Hampshire’s primary obstacle here could be federal law. Whereas Montana was grandfathered into exemption (along with three other states) from the federal ban on sports gambling, New Hampshire is among the 46 that are restricted. This obviously doesn’t mean the state has to skip out on any fantasy plans, but it does mean that such a game would have to adhere to the specific carveout in the Unlawful Internet Gambling Enforcement Act that keeps fantasy sports payouts legal.

Should New Hampshire decide to head down this road and launch such a fantasy contest, it would likely replicate the daily and weekly formats that have been exploding in popularity throughout the fantasy sports industry over the past couple of years. In addition, it would obviously present a draw for sports fans throughout the state and beyond.

We all know that in a typical lottery game, you either pick some numbers or let a machine do it for you and then sit back and hope that your 1-in-a-trillion shot pops out of some machine filled with air, ping pong balls and disappointment. In the fantasy contest, knowledge of the sport at play would provide an inherent advantage over many other entrants, and payouts could be quite large (according to the highway lottery billboards).

FSB.com will keep you posted on any further developments we come across with this story.

One lingering thought from yesterday’s post about the FantasyThunder.com owner who has been charged with supporting illegal gambling …

If you clicked through to the report in the first link from that article, you might have noticed that it was a post from an actual gambling site. You might also have noticed that it referred to FantasyThunder.com as a “fantasy sports gambling site.”

This wouldn’t be a big issue were it an isolated reference. After all, the trouble surrounding the now-dead racing site is that a state investigation uncovered illegal gaming practices.

However, in our tracking of fantasy material throughout the Web, FSB.com comes across way too many articles that refer to “fantasy sports gambling” as a regular practice. Often, such material appears on gambling and/or casino portals.

Now, it’s understandable why such outlets might want to paint that kind of picture. The federal UIGEA has severely restricted what they are able to do online, while specifically carving out true fantasy sports online practices as legal. If your interests center on hosting online poker, virtual slot machines, etc., you’d likely try to align your efforts with those of fantasy sports sites. After all, if you could convince lawmakers that your games are just like those legal fantasy contests only without the athletes, then maybe they’d relax the regulations and give you more online flexibility.

Well, it’s crap. The federal government has clearly drawn the lines between illegal gambling and legal fantasy sports. Is there some luck involved in our games? Sure. Is there near the amount that you’d find in blackjack or even Texas Hold ‘Em? Nope.

The only thing accomplished by trying to cast fantasy sports as gambling is sullying the “fantasy” label for folks who might not be that familiar with the games or the UIGEA. What can we do about it? Unfortunately, we probably can’t do a whole lot other than to be aware of the practice and try to make sure the average consumer knows the difference.

That’s the job of fantasy-game operators and a site like FSB.com.

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.)

Fantasy-game operators are keenly aware of the handful of states that still either don’t allow or make it tricky to send monetary prizes to their inhabitants. Four Maryland delegates are trying to remove their state from that list.

House Bill 750 was presented to state legislators on Feb. 5 for, among other things, “the purpose of exempting certain fantasy competitions from gaming prohibitions.”

The bill defines “fantasy competitions” this way …

“1. Participants own, manage, or coach imaginary teams;

2. All prizes and awards offered to winning participants are established and made known to 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;

3. The winning outcome of the game or contest reflects the relative skill of the participants and is determined by statistics generated by actual individuals (players or teams in the case of a professional sport); and

4. No winning outcome is based:

(I) Solely on the performance of an individual athlete; or

(II) On the score, point spread, or any performances of any single real-world team or any combination of real-world teams.”

Though I don’t recall seeing a copy of the previous attempt, I would have to guess this bill is similar to the one presented by Democratic state delegate John Olszewski a year ago. Olszewski is again listed as the lead presenter of the bill.

Should it pass, the bill seeks to take effect on Oct. 1. We’ll be pulling for it.