The events of the past week — particularly DraftKings‘ gaming license in the United Kingdom and PokerStars’ purchase of Victiv — may have increased the possibility of regulation of daily fantasy sports in the United States in the near future. [toc]
Why is what is happening in the U.K. matter in the U.S.?
At the top level, DraftKings receiving a gaming license in the U.K. would seem to have very little impact on what might happen across the pond.
The argument that it doesn’t matter
The rhetorical argument goes like this: Gaming laws are different in the U.K. and the U.S. Daily fantasy sports is a regulated activity in the U.K., and requires a gambling license to operate. The U.S. has a carveout for fantasy sports at the federal level acknowledging that it is different from gambling activities. DFS is generally considered to be a game of skill in most states.
DraftKings and many others will argue that applying for and receiving a gaming license is not a tacit admission that DFS is gambling; rather, it’s just what is required to enter a new jurisdiction. And, in reality, what happens in the U.K. has no impact on how the laws, as currently written, are interpreted in the U.S.
The argument that it does
That, however, is a narrow view of the possible impact of a DraftKings U.K. gaming license. The big picture? Gaming activities that are regulated in jurisdictions in the U.K. (and internationally) are generally regulated — or not allowed at all — in the U.S. For example:
- Online poker. Requires a license in the U.K. Only legal/regulated in three U.S. states.
- Sports betting. Requires a license in the U.K. Only legal/regulated in four U.S. states (although that could change depending on the outcome of a pending case in New Jersey).
Yes, those differences across the Atlantic Ocean exist because of differences in the law. But we already know that the author of the Unlawful Internet Gambling Enforcement Act didn’t intend for the 2006 law to allow for what the DFS industry has morphed into. (And the intent of a law has a non-zero impact on its interpretation). And with a few exceptions (notably Maryland, Kansas), there are not many specific state laws that have passed that have directly addressed/legalized real-money fantasy sports.
How a state lawmaker might see it
Look at it from a lawmaker’s point of view in the United States, if they see the news that DraftKings received a gaming license: Why should DFS be a regulated activity in the U.K., but not here?
We already saw some legislators at the state level start to question DFS’ unregulated status and the idea that it’s not gambling this year (Washington, Iowa and Texas, most notably). And DraftKings’ move to the U.K. only gives politicians on that side of the argument more ammunition.
Yes, Mondogoal — a DFS site for soccer — already had a gaming license in the U.K. while also operating in the U.S. But this time around it is DraftKings, a DFS site that is becoming nearly ubiquitous when taking in sports content in the United States. It’s difficult to believe that this news won’t make it onto the radar of some state legislators.
And why does PokerStars’ new DFS offering matter more than others?
Once again, at the top level, Amaya buying Victiv and rebranding it as StarsDraft for its PokerStars platform might seem to have little impact legally. It’s just another DFS operator, out of many, proving daily fantasy sports in the legal U.S. jurisdictions.
In reality, PokerStars’ entrance into the DFS market as StarsDraft is the first major foray into the industry by a company that is an online gaming operator. Once again, look at it from a legislator’s POV: If PokerStars, an online gaming company, is getting into DFS, doesn’t that mean it’s gambling? Every other platform (poker, casino, sports betting) that PokerStars offers is a gambling product that is regulated.
That’s in addition to PokerStars’ less-than-perfect reputation in the United States. Back in 2011, the United States Department of Justice seized PokerStars’ domain (along with that of other online poker sites) in alleged violation of the UIGEA. (Yes, that same UIGEA that allows fantasy sports). PokerStars settled that case, and admitted no wrongdoing in doing so.
In the legislative battle to attempt to regulate online poker in California, PokerStars status as a possible “bad actor” stemming from that case has been a sticking point in the crafting of a bill among the various gaming interests in that state. In California, specifically, it’s hard to believe that PokerStars could offer a DFS platform and it wouldn’t result in at least a debate over DFS, given the history of the major players there.
PokerStars simply brings with it increased scrutiny for an industry that used to include only “DFS-only” sites like DraftKings and FanDuel or major media companies like Yahoo and CBS. And that scrutiny could lead to regulation for the industry.
Regulation isn’t necessarily a bad thing
Sometimes regulation is portrayed as the “end of days” for DFS, and this analysis isn’t meant to put fear into the DFS industry. Regulation can provide an overarching structure for the industry, it would clarify what contests in fantasy sports are legal and which are not, and it would create greater customer protections.
On the last point, many in the industry believe that the top operators are all doing things right, and don’t necessarily need oversight. But that was once the prevailing belief in online poker, as well, before major operators like Full Tilt Poker, Ultimate Bet and Absolute Poker had major issues and couldn’t pay their users back.
In the end, to think we’re not going to see increased scrutiny of the DFS industry and possible efforts at the state level to regulate the industry defies belief, given the points above, in addition to:
- Increasing media references to DFS as gambling.
- A pending legal analysis of DFS under Nevada gaming statutes.
- DFS sites that are having issues with payouts.
It’s hard to predict exactly how regulation might go down in the U.S, what form it will take, or how widespread it might be. But it seems safe to say that in 2016, or perhaps even sooner, we’re going to see legislation introduced at some level of government that will greatly affect DFS.