IANAL, but my guess is it's in the same gray area that betting on sports with your local bookie or playing online poker is. More specifically, the site itself is probably illegal in the eyes of most agencies but the players participating probably aren't acting illegally.
That said, given the fact that there were a total of 14 bettors in the first two rounds, this sounds like the smallest of small fry when it comes to the world of online gambling.
I wasn't aware there was any grey-area for domestic bookies... just because it's not sports doesn't mean it's not bookmaking.
Online poker is grey-area because the poker outfit itself is generally outside the scope of US law. If it were more legal, you can be sure their servers would be hosted domestically in the US where it's cheaper and faster.
Your local bookie, however, is in the same scope as a guy running a local card room -he's taking a cut off of people's gambling habit. Whether it's sports or not, it's still going to be bookmaking, and still trouble. Extra trouble if it's over state lines.
The grey area with online poker is because it isn't explicitly made illegal in the wire act (online sports betting is explicitly illegal), but the UIGEA legislates against games of chance which there are arguments that poker is not such a game but it hasn't been tried in court. Many sites used that argument to offer online poker to US residents and had their domains and bank accounts seized, Pokerstars settled for over 700mm and bought Full Tilt Poker in the process. The US govt doesnt care where you are based if you are violating US law and attracting US customers.
That said, given the fact that there were a total of 14 bettors in the first two rounds, this sounds like the smallest of small fry when it comes to the world of online gambling.