Over the past two weeks, the news hasn’t been very good for the online gaming and, in particular, the daily fantasy sports (DFS) industry. After the revelations that employees of the two major players in the game, FanDuel and DraftKings, would often play on the opposite site (barred from playing on the site that employed them, employees often would go to the other to play) and win hundreds of thousands of dollars, the scrutiny by several states has intensified as to whether DFS is “gambling” or not. The “other shoe” dropped earlier this week with the statement from the Nevada Gaming Control Board that DFS is indeed gambling and necessitates a license from the state for the companies to operate.
So what brought about this action from the NGCB? According to the Las Vegas Review-Journal’s Howard Stutz, apparently the Chief Executive Officer of DraftKings, Jason Robins, appeared on a Reddit “Ask Me Anything” (AMA) in 2012 and the Attorney General of Nevada, Adam Laxalt, obtained the transcripts. In the AMA, Laxalt noted that Robins made several statements about his organization and the DFS industry as a whole that compared their operations to that of a casino. Additionally, Robins allegedly stated that the concept of DFS was “a mashup of poker and fantasy sports.”
The Nevada AG investigation also revealed that those involved with DraftKings would often use the terms “wagers” or “bets” when discussing what players would do on the site. When these same instances would come up in other circumstances – perhaps, say, an investigation – the sites would not use such terminology. “While the sites’ representatives publicly state that they do not believe daily fantasy sports involve ‘wagers’ or ‘bets,’ they do use the term “betting” and “wagering” when they are not dealing with law enforcement agencies,” the Nevada AG memo stated.
The restrictions by the NGCB – to force the DFS sites to obtain a gaming license to be able to operate – has currently stymied both FanDuel and DraftKings. As of yet, neither company has indicated that they will pursue a license in the state of Nevada, which could run into the thousands of dollars in obtaining after investigation costs and fees. While this dance goes on, other states are proceeding forward with their actions.
Previously, both Florida and New York had launched investigations into the DFS industry, while a California legislator has introduced a bill for regulation of the industry. In Pennsylvania, the move is in the opposite direction, advocating for a ban on the industry unless it is being operated by one of the 12 casinos in the state. Michigan is reviewing the legality of DFS alongside the states of Mississippi, Delaware and Illinois. In the cases of Florida, New York, California, Michigan, Pennsylvania and Illinois, you’re talking about six of the ten largest states in the United States.
The cloud currently hanging over DFS wasn’t helped by an article in the New York Times earlier this week. Entitled “Cash Drops and Keystrokes: The Dark Reality of Sports Betting and Daily Fantasy Games,” authors Walt Bogdanich, James Glanz and Agustin Armendariz thoroughly investigated DFS and other forms of online gaming including sports betting. Of particular interest to the authors was the law that allowed for the creation of the DFS industry, the Unlawful Internet Gaming Enforcement Act (UIGEA) of 2006, which made it illegal for banks to process gaming transactions and forced them into fraudulent practices to make the transactions or illegal “money drops” to pass the money to the appropriate people. (The writers do note that the UIGEA has failed miserably in what it was intended to do.)
The problems with DFS getting the attention that it is currently receiving is that it torpedoes the chances of online poker getting any chance at passage in the near future. If a legislature is looking at banning something (and yes, they are looking at banning; only California’s legislative effort has been one for regulation), it would be next to impossible for the same legislature to go about pushing online gaming and/or poker regulation through. Instead of looking at potentially seeing states such as Pennsylvania, New York or California possibly bringing online gaming/poker live in their states, they might fall under the dark cloud that DFS has brought on the scene.
The news for DFS hasn’t been good and it might not be getting better. With hope, online gaming and poker isn’t caught up in the groundswell.
