Hoping to avoid the problems they’ve had in New York, FanDuel and DraftKings representatives told California legislators they welcome “common sense” regulations on daily fantasy sports and that they will work with the state to legitimize their business.
“We want to work with you to ensure that fantasy contests are legal, safe for consumers and continue to provide the same great entertainment value that has driven our growth over the past few years,” Cory Fox, FanDuel’s counsel for policy and government affairs, said during testimony at a hearing on daily fantasy sports held in the state’s capitol, according to a report in the Sacramento Bee.
California is seen as the second largest state market for daily fantasy sports behind New York.
New York Attorney General Eric Schneiderman ordered the two DFS companies to cease operations in the state—saying daily fantasy sports violates the state’s gambling laws—and a New York Supreme court backed up that order by issuing a temporary injunction. The two companies, however, received a stay from a Supreme Court Appellate division and can still accept players from New York.
That stay is good through January 4, when a panel of judges will decide whether the injunction stays in place. New York Supreme Court Justice Manuel Mendez—who issued the temporary injunction—is still expected to rule on Schneiderman’s case against the sites.
The situation in New York has overshadowed moves in a number of states to also examine and possibly regulate the industry. Nevada, for example, has ruled that DFS companies must receive a gambling license in the state to operate, and both companies suspended play there.
In California, a week before Schneiderman ordered the sites to exit New York, state Assemblyman Marc Levine, sent a letter to California Attorney General Kamala Harris asking her to take a similar action “until California law is made clear and consumers are protected.”
California Assemblyman Adam Gray, who chairs the committee that regulates gaming issues in the state has also introduced a bill to license daily fantasy sports operators.
“In California, all gaming activities are regulated down to church bingo,” Gray said in an interview, with CBS News. “It struck me with the big push and the incredible growth in the industry that it’s going to be in need quickly of some regulatory oversight.”
California’s public hearing gave the two companies another chance to say that they welcome consumer protections for the industry, but still feel daily fantasy sports are legal under U.S. law.
“This is a matter of public policy that belongs before the legislature, not the courts, which lack the benefit of input from constituents and the sort of public dialogue we are seeing here today,” said Griffin Finan, DraftKings’ counsel for lobbying and government affairs according to the Bee.
According to the paper, DFS officials provided no specific proposals but suggested that lawmakers might focus on areas such as taxation, restricting access for underage players and providing resources for problem gambling.
“We’re not saying don’t do something. We’re just saying take it in a reasonable, careful way to make sure you understand the business,” said Martha Coakley, a former Massachusetts attorney general who is now working as legal counsel for DraftKings. “What are the things you’re concerned about? And that’s where you should regulate.”
Levine, however, was present at the hearing and again said he believes daily fantasy sports are gambling. He also challenged that company’s on their marketing, which suggests any player can win when their own arguments in court say most games are one by a small group of skilled players.
Though no action was taken at the hearing, it underscores the microscope daily fantasy sports is now under. According to the National Conference of State Legislatures, bills seeking to oversee the industry have been introduced in about a dozen states.
Meanwhile, the Massachusetts Gaming Commission held a daylong information only workshop to learn more about Daily Fantasy Sports and to help it draft a letter of advice to the legislature and governor on whether the state should regulate the practice.
The main question before the commission is to decide whether fantasy sports is a form of gambling. Fantasy sports sites allow players to run fantasy sports teams. The teams’ performance is based on the actual playing abilities of real players. Players “draft” players and win prize money based on how their players perform in actual games. Unlike gambling, the games use entry fees and customers are not playing against each other. Critics say this is suspiciously similar to betting on actual games, which is illegal in most states.
The regulators got a briefing on DFS from industry experts, including DraftKings and FanDuel. They advised against over regulating the industry in order to avoid crippling it.
DraftKings and FanDuel representatives said they support transparency and consumer protection safeguards so that players know that their funds are safe. They said they use technology to prevent minors from playing and to prevent people from outside of authorized jurisdictions from playing.
Both allow self-exclusion, and both track and store customer activity.
Zakary Cutler, Director of Product management for Boston’s DraftKings and Stephen Martino, an attorney for FanDuel said that Attorney General Maura Healey’s proposed regulations are “reasonable” and “thorough.”
They made the point that their industry is not the same as physical casinos or other forms of gaming. They need more than self-regulation, without needing a dedicated regulatory agency. They seek predictable, consistent regulations that will allow them to be viable business entities.
Marino added, “There’s a real commitment that’s come from the very top of FanDuel to see the right thing done.”
Among Healey’s proposals are to limit players to 21-years-old and older, to not allow college sports, to have programs for problem gamblers and to have strong player data protections.
On the question of whether fantasy sports is a form of gambling companies themselves argue that a provision in the 2006 federal law that does not allow online gaming allows them to operate in states that don’t specifically ban them. Five states have such bans.
The Bay State’s former attorney general, Martha Coakley, now works for DraftKings as legal counsel. She told the commission, “We firmly believe this is a game of skill that’s legal in Massachusetts and should be subject to reasonable regulations.”
Recently retired commissioner Jim McHugh suggested that the commission should focus on five goals: 1) preventing criminal conduct, 2) consumer protection, 3) revenue generation, 4) economic development, and 5) mitigating adverse consequences. He said that the legislature should provide a mechanism that would allow the commission, or some regulatory agency, to individually evaluate companies before allowing them to operate.
Massachusetts is among several states trying to find a legal niche for fantasy sports. In California one bill would place the industry under the same agency that regulates casinos and card rooms. Nevada and New York are studying banning the games as illegal online gambling.
Last week attorneys for the same two fantasy sports companies told California Assemblyman Adam Gray, “These are games of skill, skill that rewards knowledge of sports.” Gray is holding hearings on fantasy sports. He proposes that the State Department of Justice license fantasy sports providers. One member of Gray’s committee, Assemblyman Marc Levine, was skeptical that a game where anyone can win is based on skill.
“How do you justify the marketing? Unless you are pretty sophisticated, you are going to lose your money,” he declared.
Peter Schoeneke, president of RotoWire.com, which syndicates the fantasy content to online companies such as NFL.com, said players can improve as they learn more and play more. Winning requires “judgment-making skills similar to a coach or a general manager,” he said.
Some legal experts caution that California is veering near violating federal law. Daniel Wallach of Becker and Poliakoff told the State House News Service in Massachusetts, “One thing a state cannot do is license a sports-gambling, sports-wagering scheme.” It can only regulate it, he said.
Thinking ahead of the commission’s offering advice to lawmakers, Crosby commented, “Would it make sense for the Legislature to try to craft an omnibus regulatory bill for all of these new electronic gaming technologies – because there’s so many of them?” He added, “If they could craft a bill, which incorporated regulatory priorities, fundamental values, whatever, that could be applied to all of these games.”
Soon, Maryland’s legislature will be the next state to hold a hearing on daily fantasy sports, with a hearing before the state’s Joint Committee on Gaming Oversight scheduled for this week, according to the Associated Press.
In 2012, Maryland enacted a law legalizing fantasy sports betting, but it was meant to apply to season-long leagues, not daily fantasy sports.
Daily fantasy sports is also gaining attention in Canada and calls are beginning to emerge that the industry may hurt the country’s provincial lotteries.
“The scandal in the U.S. has only heightened the need for changes to the Criminal Code and for clarifying of the law,” said Paul Burns, vice president of the Canadian Gaming Association, a lobby for the regulated gaming industry according to the National Post.
Burns said that “provincial lottery corporations are hugely frustrated. They’ve watched the rise of daily fantasy sports over the past two years. Other folks have access to the market with no repercussions.”
Finally, a new poll shows two-thirds of New York voters agree with Schneiderman that daily fantasy sports games constitute gambling and are illegal in the state.
The Siena College poll of 822 registered voters found 66 percent agree with Schneiderman while 34 percent believe the games are mainly skill-based and legal.
