States need to get directly involved if they wany real money from fantasy sports
Legal Sports Report

If States Want To Pay For Their Budgets With Fantasy Sports, They Need To Get Creative

Creative with fantasy sports
Some states have overestimated exactly how much money new fantasy sports laws — 16 in all now — will provide to their coffers in the form of fees and taxes.

But generally, politicians have not tied those discussions to any state budgets. States across the country have been dealing with revenue shortfalls of late, and they are seeking all sorts of answers.

In Connecticut, at least some lawmakers are eyeing daily fantasy sports to be a part of the solution. But counting on DFS for any sort of meaningful revenue for the state would be silly — at least in the model states have employed so far.

But there certainly are ways that states can leverage fantasy sports moving forward. That’s if they are willing to break the mold.

Connecticut, the budget and fantasy sports

Connecticut is in a protracted budget stalemate. It’s looking at all sorts of solutions for coming up with revenue, including a number of increased or new taxes.

According to one media outlet in the state, the House Democrat tax plan includes provisions for fantasy sports. The story doesn’t mention a tax on revenue, but a licensing fee apparently is in play.

The idea that sites paying fees to operate in the state would make a dent in a budget that is in excess of $18 billion (with a ‘b’) is laughable. In a best-case scenario, Connecticut would be lucky to generate six figures, with a fantasy sports licensing fee of say $50,000. (That’s a number that several states — Virginia, Delaware and Indiana — landed upon.)

But it’s not clear how many sites would pony up that kind of cash for access to a market with less four million people. DraftKings and FanDuel would pay it. But how many others would?

Even with a tax, the amount of revenue that a state could realize is relatively small. That’s because the industry, as a whole, generates only about $300 million. And that’s everywhere.

There are plenty of good reasons to pass fantasy sports laws to oversee the current market. Consumer protections and establishing legal clarity for the industry are among them. But revenue for the state? Not so much, at least as things currently stand.

But there’s no reason for the space not to iterate and innovate in a way that could help states like Connecticut. The first step: Identifying the scope of those fantasy sports laws.

What fantasy sports laws do

Fantasy sports laws around the country allow for far more than what most operators offer. While the salary-cap model of DraftKings and FanDuel is dominant currently, there’s nothing that says fantasy sports has to be done that way in any of the laws to date.

In fact, the laws on the books are extremely lenient in what can be legally called a “fantasy contest.” Most of those laws allow for things that are akin to prop betting on players. However, almost no one has explored the full extent of fantasy sports laws so far.

A new product in New Jersey called FastPick is the first to really try. (It’s also the first time a casino — Resorts Atlantic City — chose to offer a fantasy-style product outside of Nevada.) It meets the requirements of state laws. But it just asks users to pick three to ten players in a series of matchups against the house, in what amounts to parlay betting on player performances.

The platform that powers FastPick — SportAD — has designs on eventually entering other states with fantasy laws.

Regardless, the point is this: There are certainly possibilities out there for leveraging fantasy sports without having to copy or compete with DraftKings and FanDuel.

States should be active actors, instead of passive ones

Connecticut is already eyeing the possibility of legal sports betting, via a law passed this year. But that will depend on a victory by New Jersey in its case to legalize sports betting that is in front of the US Supreme Court (or a change to federal law). Neither of those things is a certainty in the short or long term.

Instead of waiting around to see what will happen, states have options, via fantasy sports, in the interim:

  • Authorize state lotteries to offer fantasy sports products. Taking the literal construction of fantasy sports laws, lotteries should be able to easily devise simple-to-play fantasy games. Or they can work with operators that can or do this already. While lotteries haven’t had much to do with sports outside of Oregon, Delaware and Montana (and relationships with NFL teams), there’s no reason they can’t be involved more moving forward.
  • Encourage casinos to offer fantasy sports as a placeholder for sports betting. Some state laws have made provisions for casinos or other gaming facilities to offer fantasy sports. State regulators should be working with casinos and tracks to allow them to use fantasy laws to their fullest extent. (See FastPick and NJ for an example.) States benefit when their casinos are doing well.

Fantasy laws to date have mostly aimed at regulating DraftKings, FanDuel and other DFS operators. And making sure they are legal.

But that’s a short-sighted use of these laws. And states like Connecticut and others looking for new revenue streams from lotteries and gaming should be leveraging the opportunities that fantasy sports can provide.

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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.