2016 For Daily Fantasy Sports In State Legislatures: Win Or Loss?

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DFS win or lose

The year for daily fantasy sports, at least legislatively, is pretty much over, with six states passing laws to date. The one major bill that is still hanging out there is New York, which has not yet been signed by the state’s governor.

Action could still be taken in some states, most notably Pennsylvania or California.

A recent Associated Press story reported that while six states passed laws legalizing or regulating paid-entry fantasy sports contests, more than 20 considered legislation but did not pass a bill into law.

Whether the legislative action so far amounts to a “win” or a “loss” for the fantasy sports industry, however, hinges on a variety of factors beyond how many passed bills. But let’s start there.

The number of states on the good side of the ledger

For starters, it’s very difficult to pass almost any piece of legislation, and bills often aren’t passed on the first try. That concept, alone, makes the fact that six states have passed laws legalizing paid-entry fantasy sports pretty much a win.

If you had told me last October that six states would pass any type of law legalizing DFS, I would have classified that a victory for the industry.

To that point, the industry had not done almost any lobbying at the state level. What lobbying did occur was mainly in states where DFS was considered illegal. That alone makes the volume of states a solid outcome.

At the same time, I took a look at the legislative landscape as it stood in April. With two states in the books and two nearly there, six or seven states legalizing seemed on the low-end of the scale. (In a worst-case scenario I envisioned only five states passing laws, with a high-water mark of a dozen.)

So, through the lens of where things were at three months ago, six (or seven) states is not quite as good as the industry could have hoped. But which states passed laws is also germane to the discussion.

Which states passed laws?

Another starting point: If DFS gets a law on the books in New York, the laws passed in the other states are borderline trivial.

That’s not to say that the other laws are not important. But the stakes are so much higher in New York. DraftKingsFanDuel and nearly every other DFS site had pulled out of the state, which has one of the biggest player bases in the US.

When and if the bill will become law is still a variable in New York, however.

That leaves us with the six states that did pass laws, which were of two levels of importance:

Rendering AG opinions moot

Out of the states that passed laws, two were of far more importance than the rest: Tennessee and Mississippi.

In both those states, attorneys general had issued negative opinions about the legality of DFS. So, essentially, the new laws rendered those opinions moot.

DraftKings and FanDuel had pulled out of Mississippi while the legislation was being considered. And if Tennessee had not passed a law, it likely would have resulted in the same scenario (or perhaps a court case).

Regardless, the stakes were higher in these two states because of the more-uncertain legal landscape.

Nice just to be legal

The other four states had no direct legal threats, at least at the time the bills were passed. Most fantasy sports operators were already in ColoradoMissouriIndiana and Virginia before laws were passed.

Getting laws on the books anywhere has to be seen as progress, no matter what the micro political climate was in those jurisdictions.

Is DFS now legal in more than 20 percent of states?

If we count states that passed fantasy sports laws in the past and states with friendly AG opinions, DFS appears to be legal in at least 20 percent of the states.

Other DFS-friendly states:

The states with favorable opinions are presented with the caveat that an AG opinion does not have the force of law (just like an opinion declaring DFS to be illegal gambling in a state does not, either).

But still, with the states passing laws, that’s at least 10 states with a legal climate that is more favorable than not, with Maryland being a wild-card.

A win for DFS, or a win for DraftKings and FanDuel?

At the beginning, the legislative model being proposed by the industry was built on inclusiveness: Trying to make sure all companies offering paid-entry fantasy sports contests could do so under the law. That was done with a proposal of low fees, no taxes and regulations that were not overly onerous.

In some states, that effort got derailed and seems to be helping create a state-regulated duopoly. In Indiana and Virginia, for instance, $50,000 initial licensing fees will likely keep some operators out.

Mississippi, Tennessee and Colorado appear to be laws that should allow almost all operators into those markets. Missouri features an effective tax of more than 20 percent for operators that are not DraftKings or FanDuel.

In addition to fees and taxes, complying with regulations and contracting for third-party audits are expenses that some operators may not be equipped to handle in some of the six states.

And, season-long paid-entry fantasy sports operators also got swept up in the legislative rush; their sites are generally covered by these laws, as well.

We’re still in the phase of these laws being implemented, so who is registering to operate in which states is still a variable. (It’s all but certain that DraftKings and FanDuel will be in all six states.)

These laws are great for the “big two” in DFS, but it’s not clear yet how great it is for other DFS operators.

Takeaway: This year was a good year legislatively for DFS

Despite the bumps in the road and questions about the inclusiveness of some of the laws, it’s difficult to classify it as anything but a good year for the DFS industry, legislatively. (That’s assuming New York’s bill eventually becomes law.)

While some of the laws passed will serve to keep some operators out of ‘x’ jurisdictions, six states in 2016 said DFS is legal within their borders. The latter has to outweigh the former, given the legal gray area in which DFS has existed in the US to date.

While getting laws passed in more states would have been great for the industry, 2016 represents a legislative push that few could have foreseen.

The lobbying efforts in the states where laws weren’t passed should serve as a solid base when legislatures reconvene after the November elections or early next year. Several models now exist for regulation, licensure and taxation, including ones that are more friendly to smaller operators.

It all adds up to a more friendly climate for DFS than existed just six months ago.

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