Lost in the deal between daily fantasy sports giants FanDuel and DraftKings to temporarily stop taking entries in New York—giving time for the state Legislature to possibly adopt a DFS law—has been the effect it would have on smaller DFS sites.
Those smaller operators have now formed their own trade association and oppose at least one plan proposed in the state that would set a $500,000 licensing fee and tax DFS revenue at 15 percent.
The new trade association, called Small Business of Fantasy Sports, said “mom and pop type businesses” make up most of the industry, according to a report by the Associated Press. The 35-member associations include companies providing daily or season-long games, or both.
“Small businesses have been the lifeblood of the fantasy industry for decades,” Alex Kagonovsky, managing partner of Fantasy Football Players Championship told the AP. “In fact, smaller daily fantasy sports and season fantasy sports businesses have been operating in New York for many years with thousands of New York customers who have been enjoying our products.”
Kagonovsky said the group has met with key lawmakers in the state and proposed a lower 5 percent tax rate. He said the group is optimistic about getting the proposed legislation changes, but doesn’t yet have commitments from lawmakers.
Virginia and Indiana are the first two states to adopt DFS regulation, but both set licensing fees at $50,000. Even at one-tenth the New York proposal, some analysts feel smaller companies—some of which have only a handful of employees—will still be priced out of those states.
DraftKings and FanDuel have agreed to stop taking bets in New York until court hearings on the site’s legality in the state are held in the fall. That deal also gives lawmakers time to consider legalizing the games.
New York’s state Senate included DFS legislation with the $500,000 licensing fee in its budget proposal for the upcoming fiscal year. In the Assembly, J. Gary Pretlow, who chairs the committee with gambling jurisdiction, said his chamber will pass a bill before legislators adjourn in June, allowing time to craft a law that will survive any legal challenges, the AP reported.
Other Developments
Yahoo announced it will no longer accept credit card payments on its DFS sites in an e-mail to users.
The company did not provide a reason for the move, but said it will now only accept payments through services such as PayPal.
Yahoo voluntarily stopped taking bets in New York after the state’s deal with FanDuel and DraftKings was announced, but the credit card policy is in place in all states. Many credit card issuers have been concerned about accepting DFS payments while legal battles are being fought out in states such as New York. Some payment processing firms have also stopped taking DFS payments.
In Tennessee, the state Senate approved a DFS bill by a 29-1 vote.
State Senator Jack Johnson said he and other proponents have been working with state Attorney General Herbert Slatery. The bill established that that fantasy sports gambling involves some skill and therefore isn’t a lottery. The Tennessee Constitution bans lotteries except for the state lottery.
Slatery has not issued a formal legal opinion on fantasy sports
“We provided guidance that they did not see fantasy sports as a lottery. That means the constitution’s [issue] is OK,” Johnson told the Chattanooga Times Free Press. “Then you have to deal with it in statute. Some might argue it does violate state anti-gambling laws. Some might argue it doesn’t.”
The bill would legalize DFS contests and require the Tennessee Secretary of State’s office to set up guidelines for companies to register and charge fees and possibly tax revenue.
In Colorado, the state became the latest to introduce DFS legislation.
A bipartisan bill would create a Colorado Office of Fantasy Sports to draft rules that ensure the games are not illegal gambling.
The Fantasy Trade Association estimates 800,000 people play fantasy sports in the state, but only 150,000 play in the daily fantasy sports leagues.
Under the bill in the state’s House of Representatives, DFS sites would undergo licensing and background checks. Players would have to be 18 years old and the sites must offer a self-exclusion option.
“My bill is an effort to codify important industrywide standards to protect consumers and ensure the integrity of all fantasy sports,” House Democratic leader and sponsor Crisanta Duran told the Denver Post. “Enacting this important legislation will ensure that all providers are taking the necessary steps to protect fantasy sports fans, and will give consumers peace of mind about the integrity of the games they love. It’s the legislature’s job to ensure that Coloradans who enjoy fantasy sports are playing in a regulated, safe environment, where they can be sure that they have a fair shot.”
In Massachusetts, Attorney General Maura Healey filed the regulations her department has created to govern DFS. The regulations ban DFS based on college sports and limits the games to those 21 and older. They also include consumer protections.
Her regulations do not require the assent of the legislature.
The state also sets standards to protect security of players’ data and segregate player accounts that will be maintained by an independent corporate entity. The websites must include information so that players who have a gaming addiction can seek help and limit players to spending no more than $1,000 per month without being able to demonstrate the financial ability to withstand higher losses.
Operators will also be required to offer “beginner” games that seasoned players will not be able to enter.
DFS operators such as DraftKings and FanDuel have until July 1 to implement the new regulations. The Bay State is now one of three states to regulate DFS.
The AG announced last November that she would be putting together regulations. The final regulations were basically the same as the draft regulations she announced at that time.
The DFS operators indicated satisfaction with the regulations. FanDuel called them a deliberate, comprehensive approach.” FanDuel said it wouldn’t wait until July 1 to beginning complying.
The Fantasy Sports Trade Association, based in Chicago, praised the regulations’ consumer protections and called them a good example for other states.
And the Connecticut legislature is considering a bill that would legalize and regulate daily fantasy sports websites that are already operating in the Nutmeg State.
DFS websites such as FanDuel and DraftKings enable users to build teams of professional players and compete against other players using their players’ actual statistical performances. The two operators reportedly paid $3 billion in cash prizes last year.
Rep. David Baram, one of the supporters of Senate Bill 192, says the law could generate as much as $7 million a year in state taxes annually.
The bill was introduced last month in the Joint Committee on General Law, which Baram is a co-chairman of.
He told the Hartford Business Journal, “Right now they are operating without any regulation. It’s happening and it’s nationwide.”
The current bill defines daily fantasy sports as not being gambling. The law lowers the legal age to play to 18 and requires a registration fee of $50,000 by operators, and $10,000 to renew each year.
The Finance, Revenue and Bonding Committee, which is now studying the bill, is considering adding a per transaction fee or taxing winnings.
Although for many critics DFS both walks and quacks like gambling, the operators vehemently deny that they are, because that would put them afoul of the federal Unlawful Internet Gambling Act of 2006. That would make it illegal for U.S. financial institutions to transfer funds to and from their websites.
Baram is convinced that DFS is a game of skill. He told the Hartford Business Journal “Here, you’re actually researching it and you’re combining players on teams. It was fairly convincing that this was much more than buying a lottery ticket.”
He realizes that many, including the Mohegans and Pequots, who operate the Mohegan Sun and Foxwoods, may not concur. “There is tremendous concern by the state that if we regulate and legalize fantasy sports that it not violate the compacts” between the state and the casinos, he said.
