DraftKings, FanDuel Miss Legal Sweep Of New England; Fantasy Sports Out Of Latest Connecticut Budget

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Connecticut DFS

DraftKings and FanDuel almost had what amounts to legal clarity in every state in New England.

But daily fantasy sports legalization looks to be off the table in Connecticut for the time being.

As the state legislature struggles to pass a budget for the 2018-19 biennium, Gov. Dannel Malloy is trying to take matters into his own hands.

Malloy has submitted a stripped-down version of his own budget proposal, and DFS legalization is one of the items that’s been stricken.

How Connecticut got into a mess

More than 100 days into the fiscal year, Connecticut is still without a budget for 2018.

Lawmakers are struggling to cover a $3.5 billion deficit over the next two years, and they’re running out of ideas. The state’s credit rating is under watch with a “negative” outlook. Some state employees haven’t been paid since June.

In the months since, members of the state’s four caucuses have been diligently trying to unify. All they have to do is produce some sort of bipartisan plan that the governor will sign into law. But disagreements on the spending cap, pension obligations, and the distribution of educational funds have hindered progress. It’s mostly been a stalemate so far.

In September, the General Assembly did manage to pass a Republican-drafted budget through both houses. The proposal included controversial items such as pension changes and lopsided education cuts, though, and Malloy promptly vetoed it.

On October 1, the governor invoked an executive order that allowed him to make sweeping cuts to government spending. It was a last-ditch effort to keep pace with the state’s debt, and the severity of the cuts has put some additional pressure on the legislature.

Gov. Malloy tries his hand

Despite the stalemate, there is a growing sense of optimism among legislators. Earlier in the week, House Majority Leader Matt Ritter said the group was “making substantial progress” toward a budget agreement.

The progress is not quick enough for Malloy, though. Over the weekend, he decided he’d had enough. Malloy’s newest submission on Monday is his fourth to the committee.

According to the governor, his $41.25 billion proposal is stripped down to the basics:

This is a lean, no-frills, no-nonsense budget. Our goals were simple in putting this plan together: eliminate unpopular tax increases, incorporate ideas from both parties, and shrink the budget and its accompanying legislation down to their essential parts. It is my sincere hope this document will aid the General Assembly in passing a budget that I can sign into law.

One of the “frills” to miss the cut was a proposal to “authorize daily fantasy sports contests.” The governor laid our four bullet points to garner support, and the first one is the most relevant:

With legislators quibbling over partisan issues, the governor’s proposal essentially removes all items on which the four caucuses disagree. Senate Republicans appear not to be on board with daily fantasy sports legalization yet, so Malloy took it off the table.

The budget had previously planned to allocate $1.2 million in DFS revenue over the next two years.

This development seems to put DFS legalization on the shelf, for the time being. However, it’s not impossible for it to find its way back into the budget discussion.

Muddying the waters?

While some appreciate the contribution to the conversation, most of the legislators are unimpressed with the governor’s effort. Leaders on both sides of the aisle are among those publicly taking shots at the new proposal.

From Minority Leader Themis Klarides:

I think it’s a distraction in regards to four caucuses that are sitting in that room, day after day and making progress toward getting a budget together, and we’re going to continue to do so. The governor will be brought into this process when we all believe that it is the most efficient time for him to be brought in.

Klarides adds that the governor is trying to “muddy the waters,” and Majority Leader Matt Ritter agrees:

I would say the governor’s new proposal is no different than previous ones. We’re well aware of what priorities he cares about. Just because you have House and Senate Dems and House and Senate Republicans working together doesn’t mean you’re excluding his ideas and his concerns.

Malloy even seems to realize that his proposal doesn’t have much of a chance as written:

No budget is perfect, and none of us have the market cornered on good ideas. At the same time, we must keep in mind that time is of the essence if we want to avoid the most difficult cuts to towns, hospitals, and nonprofits. Simply put, we need to act now on behalf of our constituents.

DFS isn’t part of Malloy’s newest budget plan, but it’s not going to be passed as-is, regardless. And there’s the potential for another, more preferable path to legalization. Prior to this budget mess, there was an active DFS bill in the House.

Connecticut attorney general weighed in

Both the House and the Senate introduced acts “concerning fantasy sports” for the first time in 2016.

H 5046 included DFS as part of a broad revenue bill, while S 192 was a bespoke piece of fantasy sports legislation designed for consumer protection. Both bills gained traction, but both failed to produce a vote before the session expired.

Before either bill was heard, the Senate asked Attorney General George Jepsen for a legal opinion. Jepsen cautioned that “any legislation authorizing daily fantasy sports contests must be viewed against the backdrop of the existing agreement between the State and the Tribes.”

The Tribes in question are the Mashantucket Pequot and the Mohegan, who operate the only legal gambling establishments in the state. They each contribute 25 percent of their monthly slot machine revenue for the exclusive rights to provide video facsimiles (slot machines) and commercial casino games in the state. Should that change, the payments would cease.

Jepsen stopped short of calling DFS legislation a violation of those conditions, but he did suggest caution. “The passage of such legislation could jeopardize the State’s revenue-sharing arrangement with the Tribes,” Jepsen concluded. He cited a lack of clarity in both the definition of “video facsimile” and the skill vs. luck debate.

Rep. Jeffrey J. Berger took up the DFS cause once again in 2017 with his introduction of H 6400. It’s just one sentence long. That bill also failed to garner a vote, though the idea was embedded into the budget proposal somewhere along the way.

New England and DFS

The lobbying efforts of the DFS industry, led by DraftKings and FanDuel, have resulted in legal clarity throughout the New England region:

Connecticut would basically have made DFS six-for-six in NE.

No to DFS, yes to sports betting?

DFS legislation may well find its way onto Connecticut’s books at some point. But it likely won’t be incorporated in the 2018-19 budget. There is some disagreement in the legislature, and the relationship with the tribes further complicates things.

With regards to standalone gambling legislation, the state has shown itself to be forward thinking. In July, Malloy signed a bill that paves the way for sports betting in the future. Any progress in Connecticut is on hold, however, as New Jersey battles the federal sports ban in the US Supreme Court.

Connecticut also approved a new casino in East Windsor in the same package. But daily fantasy sports looks to be a non-starter for the time being.

The attorney general did not provide an opinion on whether DFS is a game of skill under existing law, instead citing other states’ decisions.

So for now, while it sorts out its financial mess, Connecticut appears to be taking a pass on DFS. Without clear legislation on the books, though, most sites continue to operate in the state.