A Congressional committee hearing on the daily fantasy sports industry showed that Congress isn’t likely to act on DFS regulations in the near term.
However, New Jersey Congressman Frank Pallone—who called for the hearing eight months ago as DFS companies bombarded the airwaves with advertising—said he was more interested in seeing sports betting in general legalized by Congress.
“The biggest thing for me is that I would like us to legalize sports betting,” Pallone told USA Today after the hearing. “I am hoping this panel and the statements that were made about why it doesn’t make sense to allow sports betting to go underground and run by organized crime would lead us to some kind of legislation. The point is allowing sports betting to be legal in states like New Jersey who want it. That’s what I was hoping this would contribute to, primarily.”
New Jersey has been waging a long court battle to allow sports betting at New Jersey casinos, and is also one of the many states to have proposed regulating the DFS industry.
Pallone has sponsored several bills to exclude New Jersey from a federal ban on sports betting, but none of the bills have moved out of committee.
The hearing was held before the House Energy & Commerce Committee’s Subcommittee on Commerce, Manufacturing and Trade and was dubbed “Daily Fantasy Sports: Issues and Perspectives.” The hearing was informational and not attached to any proposed legislation.
While daily fantasy sports was discussed extensively at the hearing, it was not attended by representatives of DraftKings and FanDuel—the two largest DFS companies—nor representatives of the major sports leagues that have partnered with the sites. Peter Schoenke, the chairman of the Fantasy Sports Trade Association, however, did attend the meeting.
Pallone said he was “disappointed” that FanDuel and DraftKings along with the leagues declined to attend the hearing.
“He wanted to show the hypocrisy in how leagues treat gambling versus their support of daily fantasy sports,” sports and gambling law attorney Daniel Wallach told USA Today Sports. “Unfortunately, there was no patient to examine since all the key stakeholders stayed away.”
Pallone did address several questions to Schoenke saying he wanted him to get replies from operators on why an internal investigation into a widely publicized “insider trading” scandal was not made public and why if DFS operators say they offer a game of skill, they have sought gambling licenses in Europe.
Schoenke said that the terminology the companies are forced to use has to do with the way European requirements are written.
“But the game is the same? They’re doing the same thing in both places,” Pallone said. “I think the difference is in one country they have a lot of smart lawyers and lobbyists that are defining things a certain way, and in another country, they’re not.”
During the hearing, committee members did raise questions about consumer protections for DFS players—especially protection against algorithms used by elite players—and the effect of differing state-by-state regulations now being considered by more than 30 states.
They also noted the lack of clear federal legislation on the games.
“At the federal level, it almost seems like an accident that daily fantasy sites are allowed to exist in the first place,” said Rep. Jan Schakowsky, an Illinois Democrat. “Keep in mind that in 2006 when UIGEA passed, fantasy sports was almost all season long fantasy—not the daily fantasy sports that we’re focusing on today. Even if daily fantasy sports companies claim to be legal under the letter of the law, that doesn’t seem to be the lawmakers’ intent.”
Several proponents of DFS also said that a patchwork of regulations for each of the 50 states was not a practical approach for the industry.
While sports betting itself was not significantly discussed, some speakers indicated that a lack of clear regulation simply creates a back market for gambling.
“These forms of entertainment will not go away if they’re made unlawful and you will develop a black market. As soon as you take money from citizens and are paying them back, you should be regulated,” said John McManus, the executive vice president and general counsel for MGM Resort International McManus.
Prior to the hearing, American Gaming Association President Geoff Freeman called for the repeal of the federal prohibition on sports betting, known as the Professional and Amateur Sports Protection Act of 1992 (PASPA).
“PASPA intended to prohibit full-fledged sports betting however it’s a thriving $150 billion illegal market,” he in a press statement.
However, the hearing did little to indicate that Congress will move forward on DFS regulations or sports betting and many reports noted that several committee members attended only briefly, while others asked rudimentary questions about DFS that indicated they didn’t know much about the industry.
The hearing, however, did attract a long line of spectators.
“The reason so many people showed up is this is such a big industry, so many jobs,” Pallone later told ESPN. “The problem is a lot of my colleagues still see fantasy sports and sports betting as kind of a fun thing, not terribly serious. We have to overcome that.”
Pallone said more hearings and legislation to protect consumers were possibilities.
“I’d like to have more hearings, but I think the most important thing is to figure out a way to pass legislation to legalize sports betting,” Pallone said. “Our follow-up will be based on that, whether it’s a hearing or just going around meeting with some of the stakeholders. That’s the goal. Everybody here testified that it makes sense to legalize sports betting. Everybody agrees. Of course, we didn’t have the leagues here.”
In other developments concerning DFS:
In Minnesota, opposition arose to a bill to regulate daily fantasy sports in the state legislature, causing the bill to be tabled for the rest of the year.
According to the Minneapolis Star Tribune, state Senator Rod Skoe and Senate Majority Leader Tom Bakk, opposed the bill in front of the Senate’s Taxes Committee and bill author Senator Sandy Pappas agreed to table the bill. The bill had already cleared the state’s House.
Minnesota has not shut down daily fantasy sports in the state, but the industry had still pursued legal clarification on the games in the state.
In Missouri, the state Senate recently voted 20-10 to approve a measure that would regulate and tax fantasy sports betting. Governor Jay Nixon, in his state of the state message, called for regulation over fantasy sports websites like FanDuel and DraftKings, and said any revenue from them should go toward education.
The bill’s sponsor, state Senate Minority Leader Joe Keaveny, said, “We’re trying to regulate an industry that has previously not been regulated.”
The law would require an annual operating fee of 11.5 percent of a fantasy sports website’s net revenue, with an annual licensing fee of $10,000 or 10 percent of net revenue, whichever is lower. The state would be expected to earn about $10 million annually from the websites.
“It’s not that much money,” Keaveny said, but stated an estimated 4 million Missourians participate in the games and the state needs to have oversight.
“They have the potential to take a lot of people’s money,” Keaveny claimed. The Missouri Gaming Commission would regulate the industry in the state.
Earlier the House approved legislation to impose certain regulations on the industry, including charging fantasy sports operators annual fees of $5,000 and banning employees with insider information from participating. But the House bill stopped short of establishing a tax rate on revenue. Both the Senate and House versions would require companies to verify that players are age 18 or older.
Opponents of the Senate legislation include state Senator Eric Schmitt, who said, “Why are we so ginned up about passing a bill that, to me, has some pretty onerous regulations?”
State Senator Rob Schaaf noted, “I think it does need more study.” He said voters should be able to determine if the industry should be regulated.
