Envisioning A Regulated US Daily Fantasy Sports Industry

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Friday, October 16th, 2015 | Written by Charles Washington

Right now, daily fantasy sports (DFS) betting is the number one form of online gambling, but unlike other types of iGaming, it is completely unregulated at the national level. By selling their services as games of skill rather than chance, fantasy sports setting sites have been able to avoid regulation, however, there is a possibility that lawmakers could soon take steps to regulate the industry, leading experts to speculate over how regulations may work.

Current State of DFS Betting

Here is how things currently stand for daily fantasy sports betting sites:

– Currently, five states have made it illegal for daily fantasy sports betting sites to operate within their borders: Arizona, Iowa, Louisiana, Montana and Washington.

– Maryland and Kansas have laws on the books that make fantasy sports legal, although they do not specifically state the legality of daily fantasy sports betting sites.

– Michigan has spoken out saying that, as currently written, laws prohibit daily fantasy sports betting sites. However, no moves have been made to actually enforce the law as of yet.

– A few states are currently debating whether or not to pass legislation to regulate or ban daily fantasy sports betting sites.

– The House Energy and Commerce Committee is considering holding a hearing on daily fantasy sports betting sites.

Modeling After Online Betting Laws

If daily fantasy sports betting sites become regulated, the method of regulation could be borrowed from one of the states that currently allows legal iGaming. The models are:

– Delaware’s model, which offers iGaming through the state lottery.

– New Jersey’s model, which offers iGaming through licensed Atlantic City casinos.

– Nevada’s model, which allows casinos to offer just online poker

All three states have laws that require operators to adhere to certain standards, including validating a player’s age, and ensuring that they pay taxes to the state.

What Changes Regulation Could Bring

If DFS betting sites are brought under federal or individual state regulation, there are a number of changes that would occur:

– Sites would need to adhere to a set minimum age for use, which may be higher than the 18 and up age range found on most sites.

– Operators may need to change the way they do the books by keeping funds for payouts in a separate account from their operating accounts.

– Operators would likely need to pay an additional tax on top of their conventional business tax. This would likely be somewhere around 10 percent. Usually, some of this money is used to pay for services dealing with gambling addiction related problems.

– Operators may have to change the way they market their sites. They may not be able to use some forms of advertising, or they may need to add legal language to ads to state that fantasy gaming poses a risk for financial loss.

While it’s unlikely that any regulations on daily fantasy sports betting will be quick to pass, those who participate in fantasy betting and operators should be aware that changes could be ahead.

Recent Scandal as a Catalyst

In addition to the huge sums of money currently being wagered on daily fantasy sports betting, another major factor which is likely to act as a catalyst for regulation is a recent high-profile scandal involving the two biggest operators in the industry, namely DraftKings and FanDuel. One week ago, an employee for DraftKings won $350,000 while playing on a FanDuel contest, leading to a storm of insider trading accusations, and resulting in a number of sponsorship partners pulling their support for the business.

Backlash from the scandal has since compelled both DraftKings and FanDuel to ban their employees from playing fantasy games, but in the meantime a great deal of negative publicity has already been directed at the companies. The Attorney Generals of both New York and Massachusetts have started their own investigations into FanDuel and DraftKings, while the Department of Justice and the FBI are considering whether the operators should be classed as gambling businesses, and if they are acting contrary to Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006.

In Washington this week, New York Democrat and House Judiciary Committee member, Hakeem Jeffries, questioned the logic of allowing a multibillion-dollar industry “to police itself”, while U.S. Senator for Connecticut, Richard Blumenthal, called for a federal investigation of DFS leagues. As he stated in a letter to the Justice Department:

“Consumers had no foreseeable knowledge that these companies were facilitating employees’ use of proprietary data to provide themselves with an advantage when playing users on their rival site. If employees are using insider information to unfairly advantage themselves over others, this may constitute fraud regardless of any other federal or state gambling statutes.”