Gaming Regulator Warns That DFS Wants To Avoid State-Imposed Oversight
Legal Sports Report

California Gambling Commissioner to DFS: ‘Pick Your Poison’ Between Self-Regulation, Governmental Oversight

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A member of the California Gambling Control Commission wrote an opinion that urges the daily fantasy sports industry to embrace regulation, either through self-regulation or by trying to control the discussion for governmental oversight.

‘Pick your poison’

The op-ed from Richard Schuetz, who is a commissioner for the CGCC, tries to lay out a roadmap for the future of DFS. The article — entitled You’re Busted: Fantasy Sports and the Need for Adult Supervision — ran in the latest issue of the Global Gaming Business magazine.

While it’s at least possible that the industry never encounters any type of serious regulation, Schuetz, and no doubt others actually involved in DFS, do not see that as a likely endgame. He outlines three scenarios for the DFS industry:

  • Self-regulation of the industry, through some sort of third-party organization set up by DFS interests.
  • “Running towards” regulation, in which DFS interests proactively try to establish a “state-sponsored” regulatory body.
  • State-imposed regulation, in which governmental bodies act on their own in establishing regulations for the industry.

Here’s an excerpt from the piece:

If any of the participants in the fantasy space believe that they can, in the long run, maintain their present sanctuary from state imposed regulation, it can probably be proposed that they possess a high degree of tolerance toward risk. And while the direct participants in the space may be willing to tolerate this risk, many of the related parties may not, and this would certainly include the payment processors, who do not want to see this layer of golden eggs unduly constrained, and the venture capitalists, who do not want their investments tied up in legal matters for the foreseeable future.

What is being suggested is that somebody in the sector better start self-regulating, or running to regulation, and the most logical candidates for providing this impetus are the payment processors and the venture capitalists. … Pick your poison, be it self-regulation or running to, for the third option state imposed regulation will not make you happy.

The response from DFS

The Fantasy Sports Trade Association, for its part, believes it is already headed toward a self-regulation modelPeter Schoenke, chairman of the FSTA, says the organization “is trying to make a big effort to self-regulate.”

He points out the FSTA’s “paid-entry contest operator charter,” which sets guidelines for member companies offering real-money fantasy games. Here’s the introduction of that charter:

In order to maintain membership of the Fantasy Sports Trade Association (FSTA), all companies that operate paid entry fantasy sports leagues must agree to the FSTA Paid Entry Contest Operator Charter. Any violation that is not remedied within 30 days of notification by the FSTA can result in revocation of FSTA membership at the FSTA board’s sole discretion.

The charter then goes into detail on what is expected of fantasy operators that are a part of the FSTA.

“We’re really going to try to make [the charter] very effective,” Schoenke told Legal Sports Report. “The FSTA and all the companies have a real vested interest to play by the rules and not have bad actors.”

How big of a deal is it to not be a part of the FSTA? That’s up for debate, although it certainly wouldn’t be good for a DFS site. But it seems unlikely it would stop an operator from offering contests.

And while there is plenty of good in the charter, the FSTA is not guaranteeing that its members are not running afoul of state or federal law:

Conforming with the above should not be viewed as compliance with the law, and the FSTA is in no way certifying such compliance of member companies. Companies should procure and adhere to legal advice regarding their games from skilled, experienced counsel of their choice.

So while the charter appears to be a good start, it certainly needs more teeth — and perhaps a third party organization — to be considered “self-regulation.” Schoenke says the FSTA is actively working to improve the charter, taking feedback to make it a more effective document.

Schoenke also notes that real-money fantasy sports — of the non-daily variety — has been around for quite some time, and it’s done just fine without regulation. Of course, the amount of money in the industry now, thanks to DFS, is far greater than at any time in the past.

Legalization vs. regulation

Thus far, the industry has concentrated on legalizing DFS in jurisdictions in the U.S. where contests are either illegal or operate in a gray area of the law. A website set up by the Fantasy Sports Trade Association is called www.fantasysportsfreedom.com, and it offers constituents a chance to contact their representatives in a variety of states. (Currently, real-money DFS is considered illegal in five states.)

As we’ve noted a lot in recent weeks, there seems to be more pushback on DFS’ status as a skill game, or, perhaps more accurately, as a non-gambling activity. (Most notably, that sentiment was captured in this Think Progress piece.) And that means that more people may want to take a stab at regulating the industry.

Two states have bills that mention “fantasy sports” and “regulation”:

  • A Texas bill would require DFS sites to be licensed and set up a regulatory framework.
  • An Illinois bill is called the “Daily Fantasy Sports Regulation Act”; despite the name, the content and aim of the bill has not yet been determined.

No progress has been made on either bill, so far.

How inevitable is regulation?

Despite the pushback, the fantasy sports industry still has a lot of momentum on its side:

  • Several states have active legislation that is on the good side of the ledger for DFS, including the recent law legalizing fantasy sports in Kansas. And no one has yet made a concerted effort at rolling back fantasy sports’ status as a skill game in any jurisdiction where it was already legal.
  • Two of the major sports leagues own equity stakes in DFS sites (the NBA in FanDuel and Major League Baseball in DraftKings). If confronted with a regulatory scheme that is bad for its partners, it seems hard to believe the leagues would not get involved in lobbying efforts.

Still, it’s hard to believe more regulation — in one of the forms Schuetz listed — isn’t on the horizon. But what form that regulation will take is still up for debate.

Photo by Steven Isaacson used under license CC BY-SA 2.0.

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.
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