The constant drum beat of state attorneys general coming out against daily fantasy sports may finally being taking a toll on the industry as Forbes Magazine reported FanDuel—one of the largest companies along with DraftKings—has begun laying off staff.
The magazine cited unnamed sources saying the company has begun laying of staff, which were announced by a senior executive within the company. According to the report, FanDuel officials initially denied the layoffs, but then did not respond to requests for comments after Forbes said it confirmed the report.
The magazine could not say how many layoffs were planned.
The report comes after another rough week for the DFS industry, which now faces new state battles in Texas, Vermont and Maryland.
In Texas, state Attorney General Ken Paxton ruled that both FanDuel and DraftKings were illegally taking bets in the state, marking another large market—along with New York and Illinois–that has ruled against the industry.
Texas prohibits betting on contests with results that rely on the performance of a participant in a game, Paxton said. In fantasy sports, points are awarded to players based on the performance of athletes.
“Paid daily ‘fantasy sports’ operators claim they can legally operate as an unregulated house, but none of their arguments square with existing Texas law,” Paxton said in a statement. “Simply put, it is prohibited gambling in Texas if you bet on the performance of a participant in a sporting event and the house takes a cut.”
Paxton, however, said that traditional fantasy sports leagues were legal under Texas law.
In more traditional fantasy sports, groups of friends form leagues and providers simply supply software and statistics to track play. Any betting is done among the participants. In daily fantasy sports, players pick their own teams and pay an entry fee to compete in a contest with other players for cash prizes.
Paxton, however, did not take action against the sites and wrote in his opinion that a “court would likely determine that participation in daily fantasy sports leagues is illegal gambling,” according to the New York Times.
Katherine Wise, a spokesperson for Paxton, told the paper that his role was to provide legal interpretation on existing Texas laws on illegal gambling and fantasy sports.
“We cannot speculate on potential legal actions,” she said. “We will allow the opinion to speak for itself.”
Meanwhile, DraftKings said it would continue to accept Texas players.
“We strongly disagree with the attorney general’s prediction about what the courts may or may not do if ever presented with the issue of whether daily fantasy sports are legal under Texas law,” Randy Mastro, a lawyer representing DraftKings told the Times.
John S. Kiernan, a lawyer for FanDuel, said in a statement: “Today’s advisory opinion by the attorney general of Texas is founded on a misinterpretation of the law and misunderstanding of the facts about fantasy sports. Fantasy sports has always been a legal contest of skill in Texas.”
Also expressing opposition was Dallas Maverick’s owner Mark Cuban, who tweeted “What a disappointment” after the ruling.
Cuban later addressed the annual winter meeting of the Fantasy Sports Trade Association.
“Seeing politicians just do something for skins on the wall, to try to make a name for themselves, that pisses me off, as much as anything,” he said. “That’s one of the reasons I’m here right now supporting you, because it’s wrong. It’s absolutely wrong. And if this leads the charge to really define what gambling really is, without nuanced definitions depending on what state you’re in and who’s reading it, that’s a good thing. If this leads to gambling being legalized and brought above ground, that’s a good thing.”
Texas accounted for about 300,000 unique paying players in 2015, or about 8 percent of the total market of active paying players, according to research cited by Legal Sports Report. Texas is estimated to be among the top 5 markets for both DraftKings and FanDuel.
The opinion also came after it was disclosed that the Texas lottery has been pursuing offering some type of daily fantasy sports product. The Dallas Morning News reported that lottery officials were negotiating with DraftKings to create a game for the lottery.
Though negotiations continued after the industry began attracting controversy, they have since been ordered stopped, the paper reported.
Vermont and Maryland
In Vermont, that state’s Attorney General Office has also ruled that daily fantasy sports are illegal in the state.
John Treadwell, chief of the criminal division at the attorney general’s office, urged a state Senate committee to defeat a bill currently before the state Legislature that would regulate the games and effectively legalize them, according to the Associated Press.
“Our opinion is that daily fantasy sports fall within the coverage of Vermont’s gambling statutes,” Treadwell told members of the Senate Economic Development, Housing and General Affairs Committee. “Our recommendation is that you not pass this particular piece of legislation.”
The bill before the state Senate would allow the games, but prohibit play by people under 18, professional athletes and people who work for the industry.
Treadwell did say the attorney general’s office would be willing to participate in a broader discussion of Vermont’s anti-gambling laws, but said in a later interview that the fantasy sports industry should not be singled out for a green light.
“Our concern is what it the legislation does is it takes one variety of illegal, for-profit gambling and makes it legal without any consideration for why this particular one is being chosen and others are not,” Treadwell told the AP.
The DFS industry has consistently argued that their games aren’t gambling and are games of skill. Vermont law, however, bans wagering on both games of chance and of skill, Treadwell said.
In Maryland, that state’s attorney general said DFS games may violate a recent state statute. The office of Attorney General Brian E. Frosh released an opinion urging the state’s lawmakers to clarify the industry’s standing in the state.
“We recommend that the Legislature squarely take up the issue this session and clarify whether daily fantasy sports are authorized in Maryland,” said the opinion.
Frosh said it’s not clear of a 2012 state law that allows traditional fantasy sports applies to daily fantasy sports. However, he also did not make a move to shut down DFS sites in the state. Instead, Frosh said the state’s voters should have a say.
“We have ultimately concluded,” Frosh said. “That the 2012 law should have been the subject of a referendum, but acknowledge that there are legitimate counter-arguments and that it is unclear how a court would rule if asked to address the matter. As such, we believe that the General Assembly should take up this issue to make legislative intentions known and to clear up ambiguity.”
Frosh’s statement came after the state Senate asked for clarification on daily fantasy sports last month.
Both FanDuel and DraftKings supported the opinion and praised Frosh for not taking matters into his own hands.
“We agree with the Attorney General that this is a matter for the legislature,” Jonathan Schiller, counsel to DraftKings said in a statement. “By an overwhelming majority, the Maryland General Assembly passed a law in 2012 that made it clear that fantasy sports, including daily fantasy sports, are not gambling and are legal in the state. We look forward to continued engagement with lawmakers to ensure that players in Maryland and around the country can continue to enjoy our contests.”
Nevada Revisits
Nevada Governor Brian Sandoval this month announced he is reviving the Nevada Gaming Policy Committee to review gaming issues in Nevada.
The committee is comprised of lawmakers, gaming industry officials, and others to discuss recent changes in the gaming industry and related regulatory issues. Among those changes are the rise of daily fantasy sports, which are banned in Nevada, skill-based gaming, interactive gaming, and other matters.
The ad-hoc committee will examine issues and make recommendations to the Nevada Gaming Commission and Nevada Gaming Control Board.
“Nevada has always been the epicenter for global gaming entertainment, regulation, and innovation,” Sandoval said. “The industry is constantly changing as more states and countries enter into this increasingly competitive field, and I believe the changes we are witnessing demand the attention of Nevada’s policy leaders.”
Nevada gaming regulators in October ruled daily fantasy sports is an unregulated form of gambling and outlawed it in Nevada without a license, but many sportsbooks are considering adding daily fantasy sports to their revenue streams.
The ad-hoc committee likely will make recommendations to the state’s gaming regulators to enable daily fantasy sports and other gaming innovations in the state.
The committee has 12 members, including Sandoval, a tribal representative, gaming regulators, lawmakers, and members of the public.
The committee last met in 2012, when Sandoval tasked it with examining interactive gaming, and was created in 1961 to meet when necessary to discuss changes in the gaming industry and regulatory needs.
Other Developments
In Virginia, bills have been proposed in the state legislature to legalize and regulate daily fantasy sports. At least three bills will be filed in the General Assembly that would uphold the contests as legal and put regulations in place to protect consumers.
The bills would limit the games to people 18 or older, prohibit employees of the sites from playing or sharing insider information, allow players to request self-imposed bans and require the companies to keep players’ funds separate from operational funds. Violations would bring a $1,000 civil penalty, according to Virginia’s Daily Progress newspaper.
“It’s not expansive. It’s not burdensome. But it does put in some protection for consumers,” said state Senator Ryan T. McDougle, a Republican sponsor of one of the bills.
Two of the bills would require operators to pay an annual fee of $50,000 to register with the state Department of Agriculture and Consumer Services, which would receive independent audits from each gaming site on a yearly basis, the paper said.
In Florida, a bill to legalize daily fantasy sports working its way through that state’s legislature has begun to draw opposition from both the Seminole Tribe of Florida and pari-mutuel wagering companies over what forms of gambling should be allowed, according to a report in the Tampa Bay Times.
That could stall the bill in Florida’s House, while a companion bill in the state Senate has not gained traction, the paper reported.
“It is now part of the overall gaming conversation,” State Sen. Rob Bradley, a North Florida Republican who is the Senate’s lead negotiator on a new gaming deal with the Seminole Tribe, told the Times. “You can’t talk about fantasy sports in a vacuum.”
Also in Florida, the Times reported that the daily fantasy sports industry has donated about $220,000 to political action committees and politicians in the state in the last five months as lobbies for legalization. The bulk of that money has come from the Fantasy Trade Association.
In Missouri, Governor Jay Nixon referred to the DFS industry in his state of the state message, saying the industry should be taxed and regulated in the state.
“Let’s work together to protect kids and consumers by reining in the billion-dollar fantasy daily sports industry,” said Nixon. “Let’s get real. This is gambling, kids are playing and it’s completely unregulated. There are lobbyists in this building who want to keep it that way. This industry should follow the law, play by the rules and pay its fair share.”
Finally, Wisconsin is the latest state to see a bill introduced in its legislature to establish regulations and consumer protection for DFS sites operating in the state.
The bill would classify that daily fantasy sports are not gambling, imposes a minimum age of 18 to play and prohibits employees of DFS sites to play at other sites, among other restrictions.
