The future of California daily fantasy sports may be in jeopardy as the largest DFS market joins a growing number of states pondering its legal status.
California Attorney General Rob Bonta is reviewing whether the state’s gambling law prohibits daily fantasy sports, including contests from DraftKings and FanDuel and more scrutinized ones from PrizePicks and Underdog Fantasy.
At around $200 million in annual entry fees, the Golden State is by far the largest DFS market in the country. None of that goes to the state, though, which has left the industry unregulated and untaxed.
There is no timeline for California’s investigation. Over the past year, though, the AG’s opinions have taken between nine months to a year from start to finish.
Game of chance or game of skill?
The investigation, first reported by Gambling Compliance, comes at the request of State Sen. Scott Wilk (R), who wrote a letter to the AG in October asking for it.
His inquiry centers around whether daily fantasy sports are more skill-based or a game of chance, which would likely make them illegal under California’s gaming laws. That question, a mishmash of answers from other attorneys general and courts, and a federal fantasy sports carveout have created a patchwork of DFS rules around the country.
“Although the participant may utilize their knowledge of a particular sport in choosing their ‘team’ of players, how well those players perform during a game is completely out of the participant’s control. As such, daily fantasy sports appears to be a game of chance not otherwise permitted by the laws of California,” Wilk said in the letter.
California daily fantasy sports in legal gray area
Former Assemblyman Marc Levine (D) made a similar request in 2015 to then-Attorney General Kamala Harris, though her office never released an opinion on California DFS.
Without regulatory resistance, FanDuel and DraftKings have continued to operate DFS in California. More recently, PrizePicks, Underdog, and other competitors began offering Californians what some regulators have identified as de facto sports betting.
Michigan and New York recently banned those “pick’em” games, suggesting companies would likely need a sports betting license to continue offering them.
‘Things have changed’
California, however, has not legalized sports betting despite the industry spending $300 million on ballot proposals in 2022.
“I wanted to see if our new Attorney General has an opinion. Things have changed since the original request was made,” said Sen. Wilk. “There were two ballot initiatives last year and discussions among stakeholders with the legislature. I am just curious to see if the AG’s office has an opinion.”
Wilk told LSR that he is not concerned with any particular company or style of game. His district does not include any of the tribal casinos that have fought against legalizing California sports betting.
Impact of losing largest market
Most of DraftKings and FanDuel’s business now comes from sports betting, which is legal in 37 states with more on the way. Both are targeting full-year profitability for 2024 as their hold on the sports betting market tightens and their grip on fantasy sports slips.
Through 12 weeks of the NFL season, DraftKings fantasy app downloads declined 24% year-over-year to 461,000, while FanDuel’s declined 15% to 297,000, per Citizens JMP Securities. During that same span, PrizePicks downloads increased 111% to 1.6 million, while Underdog’s increased 178% to 870,000, second among all fantasy operators behind PrizePicks.
Neither PrizePicks nor Underdog offers regulated sports betting, though, so the loss of the California market could have a much bigger impact on their operations.
