The future of the daily fantasy sports Industry has become a hodge-podge of state-by-state battles for legality and a steady flow of good news/bad news in each separate state.
This week the industry got a fair share of good news as legislative attempts to legalize daily fantasy sites advanced in California, Florida and Indiana.
The bad news came in Hawaii where yet another state attorney general has ruled the contests illegal in their state and in Oregon where a class action suit was filed claiming that FanDuel and DraftKings—the two largest DFS sites—have been operating illegally in the state.
First, the bad news.
In Oregon, the class action was filed in Portland and charges that FanDuel and DraftKings are both operating as illegal online sports betting sites in the state.
According to OregonLive.com, Brandon Peck, a resident of Polk County, brought the suit on behalf of himself and more than 100 other Oregon players who lost money in the past three years while playing on the two sites.
The federal suit seeks to have the court halt the companies’ operations and have each business pay players back double the amount they’ve “wrongfully lost,” seeking more than $5 million, according to the website.
More than 30 class action suits have now been filed in 10 different states against the daily fantasy sports industry.
The Oregon suit argues that both sites violate Oregon law, which expressly prohibits “gambling” and “betting.” It also points to the numerous legal battles the industry is facing in several states, including New York where that state’s attorney general is seeking to shut down the sites in the state and is seeking restitution for players.
The sites have longed maintain that daily fantasy sports is a game of skill dominated by knowledgeable players and not gambling. The sites also say they offer contests where a large number of players enter and win prizes, rather than head-to-head betting.
In Hawaii, a state known for its gambling restrictions, the state attorney general’s office issued an advisory opinion that daily fantasy sports violates the state’s gambling laws.
“Gambling generally occurs under Hawaii law when a person stakes or risks something of value upon a game of chance or upon any future contingent event not under the person’s control,” Hawaii Attorney General Doug Chin said in a statement. “The technology may have changed, but the vice has not.”
Playing in a league with friends or colleagues, considered “social gambling,” is legal in Hawaii, but daily fantasy sports contests often involve hundreds or thousands of people, bets of up to $1,000 and top prizes of up to $1 million, the statement said.
The Department of the Attorney General is weighing next steps, including civil or criminal enforcement, consistent with its opinion, according to the statement.
With the ruling, Hawaii joins attorneys general in New York, Illinois, Texas and Vermont in ruling the games are illegal in their respective states, though only New York is seeking to shut down the sites.
The Hawaii legislature is also considering competing bills on the industry. One would make the games illegal in the state, while the other would legalize them, but subject them to consumer protection regulations.
DraftKings released a statement on the ruling.
“We respectfully disagree with the Attorney General’s opinion,” the statement said. “We intend to continue our constructive work with lawmakers in the state to see to it that fans are able to continue to enjoy the fantasy sports contests.”
California Connection
The California Assembly voted 64-1 last week to approve regulations for the daily sports fantasy industry (DFS). The bill next goes to the Senate.
AB 1437 by Assemblyman Adam Gray would allow the games while requiring state licenses and regulatory fees. Operators would be vetted and report winnings to the state so they can be taxed. They would also be required to prevent minors from playing.
FanDuel and DraftKings have reacted to the vote by targeting the one Golden State lawmaker who voted against the DFS bill in committee, Assemblyman Marc Levine, who opposed it because he said that voters of the state must amend the state constitution to allow it.
Levine insists that DFS is a form of gambling, not a game of skill as its adherents maintain. The California forbids gambling except for certain cases, such as Indian casinos and card rooms.
The Fantasy Sports Trade Association has being running advertisements online and on the radio hitting Levine. The spots are running in the San Francisco Bay area. This is in anticipation of another vote on the Assembly floor. One such ad declares: “State legislators are working to protect your rights to play fantasy football—but not Assemblyman Marc Levine. He’s the politician who wants to ban fantasy football in California.”
Another ad declares, “We work hard during the week and sometimes it’s just fun to play fantasy sports with our friends. If Assemblyman Marc Levine wants to vote no on fantasy football, maybe we should vote no on Marc Levine.”
California’s Attorney General Kamala Harris has so far not ventured an opinion as to whether the games are a form of gambling.
Levine was sanguine about the attacks, opining that the companies have “hit the panic button.” He added, “They realize that I’m right and they’re operating illegally in California, and they want to muscle their way through the legislature by putting fear in lawmakers who would like to do the right thing.”
He said that the industry wants to “run over anyone” who opposes it. “Whether we like it or not, the California Constitution is clear that gambling must first be approved by voters.”
He added that such advocacy advertising “turns off voters, and it turns off legislators.”
Although several states are considering bills legalizing the practice, six states have banned the wagering.
Industry observers estimate that DFS could generate as much as $3.7 billion in fees nationwide, with 15 percent going to California.
Last week the Los Angeles Times called on the legislature to not only allow DFS but all online gaming. “The argument for setting up a safer environment for fantasy sports games applies in spades to online poker. It’s time for the legislature to stand up to the competing gambling interest groups and adopt safeguards that apply across the online gaming boards.”
Amaya, which supports legalizing online poker in the state, reacted to the DFS vote by declaring, “We are very supportive of the CA bill and believe it reflects the kind of consumer protections and industry standards that we support as the leading regulated online gaming company in the world.
“We also see strong correlation between the merits of this legislation and the merits in regulating online poker, which similarly has millions of Californians participating in today without the protections provided by state regulation and oversight, without the stringent licensing of operators and without the benefit of state revenue derived from the activity.”
Though the DFS industry has objected to some specifics of various proposals for regulations—such as in Massachusetts—as a whole the industry supports efforts to legalize the contests.
“California is taking a proactive approach,” Fantasy Sports Trade Association President Peter Schoenke said in a press statement. “They’re working with the industry, trying to make it an even playing field for consumers. We really support the effort. The fact that it was near unanimous shows that there’s a lot of support for fantasy sports.”
Faith in Florida & Indiana
In Florida, two bills that would legalize daily fantasy sports in that state were passed by legislative committees.
A bill regulating fantasy sports passed the state Senate Regulated Industries Committee and hours later a companion bill was passed by the state’s House Finance and Tax Committee. The second bill faces one more committee hearing in the house.
Under the bills, Florida would require fantasy sports companies that offer cash prizes to more than 750 participants to pay $500,000 each to register with the state and comply with regulations to bar children from playing and prevent employees of fantasy sports games from participating in the games their companies offer.
The key to the bill is a provision the Fantasy Sports Trade Association has fought for that would definitively declare fantasy sports games are not forms of gambling and are not subject to state gaming regulations, according to a report in the Tampa Bay Times.
The Senate bill would also create and Office of Amusements under the Department of Business and Professional Regulation—which now regulates gambling in Florida—to oversee DFS sites.
In Indiana, a bill to legalize daily fantasy sports was passed by the state Senate Public Policy Committee. The bill, however, prohibits DFS contests on college sports.
The NCAA is headquartered in Indianapolis and NCAA officials spoke against including NCAA contests in the games. According to the Indianapolis Star, a representative of the Fantasy Trade Association did not object to the carve-out in the state’s bill.
“Obviously, the companies offer college sports games now, and they’d like to continue offering it, but we understand the states are making policy decisions,” Scott Ward told the paper after the hearing. “Our goal is legal certainty for the millions of people playing fantasy sports.”
According to the Star, the bill create a regulatory structure with oversight by the Indiana Horse Racing Commission. Fantasy sports companies would have to agree to an annual audit and assure age verification of players. State revenue would come from licensing fees, which the Legislative Services Agency estimates would be $175,000 to $335,000 annually.
Other Developments
Wisconsin is the latest state to see introduction of a bill to legalize and regulate daily fantasy sports. The bill requires sites that who offers fantasy games for a cash prize to more than 750 people to register with the state Department of Financial Institutions. The initial registration fee would be $150,000. Annual renewals would cost $30,000.
The bill would also specify that fantasy sports games aren’t betting or lotteries. Current Wisconsin law prohibits making a bet, conducting a lottery or engaging in other gambling activities.
In Nebraska, a public hearing on that state’s proposal to legalize regulate the industry was heard, bringing out a fair amount of opposition, according to the Associated Press.
Nate Grasz, a lobbyist for the Nebraska Family Alliance, said most players on the fantasy websites lose money, and most of the winnings go to a small fraction of participants.
“Even if it were decided that fantasy contests were a game of skill, who benefits from legalizing it in Nebraska?” Grasz said. “Major fantasy contest sites would reap the benefits of taking millions of dollars away from hard-working Nebraskans every year.”
The bill was not voted on at the hearing.
The NFL’s players union also said FanDuel Inc. has agreed to pay for licensing rights that will allow players to appear in marketing campaigns, becoming the third fantasy sports site to strike such a deal along with DraftKings and DailyMVP.
Finally, poker pro Phil Ivey will join with iTEAM to launch his own DFS site titled PhilIveyDFS on iTEAM’s daily fantasy sports platform.
