Illinois Looks to Regulate DFS Sites

Illinois Update: State Representative Reveals Plans For ‘Daily Fantasy Sports Regulation Act’

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An Illinois representative has started a bill called the “Daily Fantasy Sports Regulation Act” — the second piece of state legislation introduced recently that could have wide-ranging implications for the DFS industry.

The plan for the DFSRA

The bill — which is currently just a stub — was introduced  by Representative Michael J. Zalewski, a Democrat, last week. You can track the bill here.

The text of the bill has not been written, and that will likely come in May, Zalewski told Legal Sports Report. He wants to put forth a proposal before the legislature adjourns in May so that it can be considered in the next legislative session.

“What I wanted in the initial shell is just sort of establish that I am interested in the issue and work on it,” Zalewski said in a phone interview this week. “We’re going to take some different ideas from different states and we’re going to try to collaborate and bring together a good bill for Illinois. It’s definitely a long-term project and I want to take time and do it right.”

Zalewski mentioned Texas, Iowa and Indiana, as states that have DFS bills that are similar to his state, demographically. Illinois is currently one of 45 states where most DFS sites operate, and it is not considered a “gray” state in terms of state law, at least by DFS sites.

Despite Zalewski’s use of the word “regulation” when talking about his plans, it does not sound like he has any interest in making it considerably more difficult for people to play daily fantasy sports. And it is not an attempt to help Illinois’ coffers, as the state is struggling with a budget shortfall.

“It’s hardly a revenue issue for me,” Zalewski said. “I like sports…and I like to think I fit within the demographic that these sites target, individuals who like sports and want to participate and enjoy it and are willing to do the research, so I think it’s an innovative way to keep engaged with sports.

“I also think when you have a lack of clarity on the legality … on whether these are games of skill or games of chance, we don’t want people subjecting themselves to legal exposure, we want them to have certainty one way or the other,” Zalewski continues. “Given the popularity and the proliferation of these [DFS] websites, we might as well try to regulate them.”

Zalewski also said he was “hesitant” to equate DFS to sports betting; “I think that’s a whole different conversation,” Zalewski offered.

Eight is enough

Illinois marks the eighth state to pursue legislation that would somehow affect daily fantasy sports, just this year, and the third in the past few weeks. (Check out this legislative tracker for a full rundown on all of the bills.) And that doesn’t include a failed measure in Arizona last year.

So far, not too many states have made progress on passing legislation. The ones that have:

  • The state that has made the most measurable progress on a DFS bill is Iowa — that’s the first state to see one legislative chamber actually pass a bill.
  • Legislation in Kansas seems to have some momentum, as well — bills have gotten out of committee — but legislation hasn’t come up for a vote in either chamber.
  • Washington held a committee hearing on a DFS bill, but no further action has been taken.

Texas vs. Iowa models

When Zalewski picked out Iowa and Texas, he picked two states on the opposite sides of the spectrum. State law in Iowa prevents DFS contests, currently, but a bill would simply legalize real-money DFS.

Meanwhile, DFS is considered legal in Texas, but that state’s bill would be a big change for sites operating there. Here is what the Texas bill would do, if it passes as is:

  • The bill creates a law in the state code that requires DFS sites to procure a license to operate in the state.
  • A license to operate a DFS would carry with it a fee, and DFS sites could be taxed, as well.
  • It would make it a crime to operate or use an unlicensed DFS site within state borders.

Possible issues for industry with “regulation” laws

The DFS industry obviously pushes for bills that simply legalize playing daily fantasy contests — especially in the five states where real-money DFS is considered illegal (see Iowa, Louisiana et al).

Having states pursuing legislation that regulates DFS is a far murkier proposition for the industry. The Texas bill is pretty vague, and allows the Texas Department of Licensing and Regulation to set up rules for DFS sites. And obviously we don’t know exactly what the Illinois bill will do, yet.

But consider some of the possibilities, if regulation/licensing of DFS sites were to become widespread:

  • Licensing fees and taxes could have a chilling effect. Clearly, taxes and fees aren’t going to stop FanDuel or DraftKings from being in a market. But depending on how much it costs to operate in a state, it could push other sites out of regulated jurisdictions.
  • Splintered player pools could fundamentally alter the DFS ecosystem. States might mandate that DFS sites segregate their player pools from the rest of the country and the world — see regulated New Jersey online poker, for example. A regulation model where all states are segregated from each other would effectively end the possibility of large guaranteed prize pools that are the lifeblood of DFS sites.
  • DFS increasingly becomes equated with gambling. Even if states don’t call DFS contests “gambling” in specific pieces of legislation, licensing is something that is done for casinos, online gaming sites, etc. For instance, the Texas bills lump DFS contests in with sports betting. For an industry that wants to push its status as a skill game, any kind of creep toward “gambling” is likely not ideal.

Of course, no state has passed a bill yet, and we can’t be certain how Texas or Illinois is going to approach the issue, if these bills make any headway. And certainly some lawmakers might be loathe to mess with the average voter’s ability to play fantasy sports.

If potential regulation is limited to a state or two, the worries for DFS aren’t that great. But as momentum grows for states to legislate or even regulate DFS, the implications for the industry down the road are far from clear.

Dustin Gouker
- Dustin Gouker has been a sports journalist for more than 15 years, working as a reporter, editor and designer -- including stops at The Washington Post and the D.C. Examiner.