Fantasy gaming, like 3D printing or driverless cars, has enjoyed a largely unregulated existence. But that’s about to change.
Pay-to-play fantasy sports have always existed in a loophole: They’re not classified as gambling, because they’re games of skill. But as more and more regulatory forces turn their gaze onto DraftKings, FanDuel, and other daily fantasy sports, it seems it’s time for the practice to pay the piper.
Things weren’t looking good when the football season started up. Members of Congress had recently called for a formal investigation, and daily fantasy sports had started falling under scrutiny of many state officials, including Nevada. Then, last week, things got worse for daily fantasy sports when the Nevada Gaming Control Board (NGCB) decidedly declared pay-to-play daily fantasy sports to be a form of gambling.
“We’re the only state with real sports betting so we know it when we see it,” one gaming lawyer told Bloomberg of the decision. From now on any daily fantasy sports operators will need a casino license, just like any other form of sports gambling.
It certainly didn’t help that DraftKings was recently investigated for insider trading, with one employee raking in hundreds of thousands in fantasy winnings. Not to mention the pending class action against DraftKings and FanDuel, on the grounds of negligence, fraud, and false advertising. Given all that, it’s no surprise that NBC Sports reports Congress would be holding hearings in November to discuss the proliferation of daily fantasy sports games.
The problem is, that many supporters and proprietors have mistaken daily fantasy sports’ exploitation of a loophole as legitimacy of an exception to the Unlawful Internet Gambling Enforcement Act (UIGEA). But those exceptions only apply if certain conditions are met, which it increasingly seems like daily fantasy sports are not, as Michael E. Strauss writes for AdLaw by Request:
If these critics are in fact correct, under the Unlawful Internet Gambling Enforcement Act (“UIGEA”) fantasy sports players are simply ‘betting’ or ‘wagering’ on the outcome of a sporting event, which is unlawful.
The renewed scrutiny is not without base. Traditional fantasy sports leagues, for instance one based on the NFL, require season-long time commitments, statistical analysis, and knowledge of positions, players, coaches, and teams. Winning takes skill, which is why the UIGEA exempted “participation in any fantasy or simulation sports game” from falling under the umbrella of unlawful Internet betting or wagering.
Now, with the advent of Daily Fantasy Sports (“DFS”) leagues—short term, easy entry and play games—some say no such knowledge and skill are necessary to win cash prizes.
As one senator stated, what was once understood to be purely friends getting together is quickly turning into a billion dollar industry, that seems to have been barreling forward with no one monitoring it. And the data seems to back him up: An estimated three to four million people are currently playing daily fantasy sports, with the industry expected to generate a startling $3.7 billion in players’ entry fees this year alone.
The question now seems to be how far this industry will topple. As it stands, fantasy sports are an increasingly common past time for football fans, and daily fantasy is a major extension of that. And as a New York Times special report on the offshore strategies of online sports betting illustrated, eradicating sports gambling entirely is more tricky than cutting off the head of the Hydra. With fantasy sports’ becoming an everyday part of being a sports fan, daily fantasy sports’ rising popularity, and the ubiquity of the Internet, getting rid of the practice entirely won’t be easy.
The best case scenario for the industry at this point would be some sort of regulation that allows daily fantasy sites to continue even if they technically qualify as gambling. But the worst case scenario—that these sites count as sports gambling and are therefore illegal—looms over the whole process. Which is why no matter how much daily fantasy site operators assure their clientele that it’s 100 percent above board they’re still lawyering up.
What’s clear is that fantasy sports no longer seem to be holding the line against regulators. So any players should enjoy this season, because one way or another the status quo is going to change—and that may not leave them feeling fine.