MAY 2016



Jason Gerber

In 2015 online Daily Fantasy Sports (“DFS”) exploded throughout the United States.  Anyone who watched an NFL game or turned on ESPN experienced a deluge of advertisements touting the opportunities of online fantasy sports and the winnings that came to participants. The level of interest in DFS from fans should come as no surprise.  For years fantasy sports have been growing in popularity and it is difficult to find serious football fans who are not involved in at least one, if not more, fantasy football leagues.
Problems, however, arose as individual states began to look at the business of DFS.  Federal Law was not an issue for DFS companies because Congress specifically carved out an exception, lobbied for by major professional sports leagues like the NFL, to categorize DFS as a game of “skill” instead of “gambling”. It is not a coincidence that the major DFS companies – DraftKings and FanDuel – share owners with professional sports teams and leagues.  The enormous lobbying strength of these individuals and companies certainly did not hurt the odds of creating this exception for “skill” and the enormous opportunity to make money on DFS.
The states, however, took a much different view because the same exception for “skill” did not apply under individual state laws. Even before the last year’s NFL season broke a sweat numerous states banned online DFS as gambling.  In October, 2015, Nevada stated that DFS was in fact gambling and that Draft Kings and FanDuel would not be permitted to operate in Nevada.  The difference between Nevada and the other states banning DFS is that the issue was not whether or not it would be legal to operate DFS sites in Nevada but whether the sites were properly licensed.
There should be no doubt, therefore, that DFS will be back in Nevada in the very near future.  There remains far too much interest from fans to keep DFS from eventually being approved and regulated in Nevada.  The money, estimated at approximately $3.1 billion last year, will continue to make DFS an attractive opportunity for online or traditional businesses. How DFS will return to Nevada and how it will be regulated remain the major issues confronting both the state gaming commission and DFS operators.
Recently, the Nevada Gaming Policy Committee met and held a panel discussion about the future of DFS, the appropriate regulations in Nevada and Nevada’s licensing procedures.  Major players in the DFS industry joined Governor Sandoval and representatives of the gaming commission for a discussion regarding these issues facing the industry.  Although nothing was decided, the attendance of CEO’s from DraftKings and FanDuel demonstrates the pivotal role Nevada will play in crafting rules related to DFS.  Although some industry players are still shying away from the licensing procedures in Nevada, it seems likely that once the appropriate regulations are in place those players will return to Nevada in compliance with new rules and laws. Unfortunately, the regulatory and legal changes that may be necessary to license traditional DFS may not be made until Nevada’s 2017 legislative session.
At least one DFS operator, US Fantasy, is attempting to obtain a license for DFS under the current system and regulations. US Fantasy hopes to provide pari-mutuel style fantasy sports games, something akin to what is regularly seen in betting on horse racing, and is seeking its license for these games right now. US Fantasy is not trying to bend the current regulations to traditional fantasy sports; instead, US Fantasy wants to alter the fantasy game to fit into the current licensing structure. What remains to be seen is whether fantasy sports players will be interested in a game that will likely look significantly different than the games they are used to playing in office leagues or online leagues where no money is at stake.
DFS is not going away. The money available for companies who run the leagues is only going to grow. Professional sports leagues that may publicly represent an aversion to traditional gambling know the positive impact fantasy sports have on viewership and the overall fan experience. Those leagues, therefore, are not going to pull their support for DFS whether or not it is considered “gambling” rather than a game of “skill.” But, the regulations will likely need to be changed to accommodate traditional fantasy sports or the games themselves are going to need to change to fit within the current regulatory structure. Nevada, furthermore, will continue to be at the forefront of the regulatory and licensing changes that will likely be mimicked as other states address the legality of DFS games.

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