Last updated October 16, 6:44PM PDT
[toc]The Nevada Gaming Control Board has issued a notice that calls for unlicensed daily fantasy sports operators to stop operating in Nevada, effective immediately.
To the best of my knowledge, no DFS operators currently hold a Nevada gaming license. Fantasy Aces announced it will be applying for a Nevada license.
Read the statement here. Text copied in full below.
Full text of statement
Over the last several months, Nevada Gaming Control Board (Board) staff has analyzed the legality of pay-to-play daily fantasy sports (DFS) pursuant to the Nevada Gaming Control Act and the regulations adopted thereunder. I further asked the Gaming Division of the Office of the Nevada Attorney General to perform a legal analysis as to whether DFS activities conflict in any way with Nevada law. Based on these analyses, I, along with Board staff, have concluded that DFS constitutes gambling under Nevada law. More specifically, DFS meets the definition of a game or gambling game pursuant to Chapter 463 of the Nevada Revised Statutes. Moreover, because DFS involves wagering on the collective performance of individuals participating in sporting events, under current law, regulation and approvals, in order to lawfully expose DFS for play within the State of Nevada, a person must possess a license to operate a sports pool issued by the Nevada Gaming Commission.
Further, a licensed operator who offers DFS must comply with all laws and regulations that apply to licensed sports pools. Therefore, since offering DFS in Nevada is illegal without the appropriate license, all unlicensed activities must cease and desist from the date of this Notice until such time as either the Nevada Revised Statutes are changed or until such entities file for and obtain the requisite licenses to engage in said activity. Although Nevada gaming licensees who have received approval to operate a sports pool may expose DFS for play themselves in Nevada (in compliance with all applicable statutes and regulations), such licensees should exercise discretion in participating in business associations with DFS operators that have not obtained Nevada gaming approvals. While this Industry Notice is intended to provide clear guidance as to Nevada law, Nevada licensees wishing to conduct business with DFS companies should also conduct thorough and objective reviews of DFS activities under the laws of other states and any applicable federal laws.
Nevada AG’s opinion
The takeaway was not a surprise, given the NGCB statement:
In short, daily fantasy sports constitute sports pools and gambling games. They may also constitute lotteries, depending on the test applied by the Nevada Supreme Court. As a result, pay-to-play daily fantasy sports cannot be offered in Nevada without licensure.
That conclusion has a footnote that mentions two separate points:
- DraftKings CEO Jason Robins once stated the concept for DraftKings was ‘‘almost identical to a casino.’’
- DraftKings received a gaming license in the U.K. but didn’t refer to it in that manner in publicizing it: “It appears that DraftKings recognizes the appearance of inconsistency between its position that it should be unregulated in the United States and its decision to submit to gaming regulation in the United Kingdom.”
Here are points of interest from the analysis. Note that analysis is based on Nevada law:
Daily fantasy sports usually = sports pools, sometimes lotteries
Under Nevada law, the AG determined that DFS contests are sports pools, generally:
In order to determine if daily fantasy sports operators are operating a sports pool, one must determine (1) whether a wager is present; (2) whether the wagering is done on sporting events or other events by any system or method of wagering; and (3) whether daily fantasy sports operators are in ‘‘the business’’ of accepting wagers.
Daily fantasy sports meet all of these requirements and, thus, constitute ‘‘sports pools’’ under Nevada law. This conclusion is consistent with the views of one of the leading attorneys representing daily fantasy sports operators, who stated that ‘‘fantasy sports’’ was ‘‘a significant evolution in the realm of sports betting.’’
Some forms of DFS could be an illegal lottery, however:
Daily fantasy sports may also constitute illegal lotteries under NRS 462.105(1) depending on the legal question of whose skill is being assessed and the factual question of whether skill or chance is dominant. If the skill being assessed is that of the actual players rather than that of the fantasy sports team owners, then daily fantasy sports constitute illegal lotteries. If the skill being assessed is that of the owners, then there is a factual question as to whether the skill in selecting lineups predominates over chance.
Skill vs. chance
Nevada basically said the amount of skill required for DFS was not germane:
In the context of addressing the legality of fantasy sports, the question of whether skill or chance is involved is often deemed important. However, under Title 41 of the Nevada Revised Statutes, the determination of whether an activity involves skill, chance, or some combination of the two, is relevant only when analyzing lotteries. By contrast, the determination of whether an activity constitutes a gambling game or a sports pool under Nevada law does not require analysis of the level of skill involved.
It is important to note that while Nevada gaming regulators clearly have authority to regulate games of skill, the present analysis does not concede the argument that daily fantasy sports are predominately skill-based.
The Unlawful Internet Gambling Enforcement Act is often cited throughout the industry as a source of its legality. The AG shot that down as a rationale in Nevada:
B. UIGEA Did Not Legalize Fantasy Sports
That being said, a point of clarification is in order because there are some operators and commentators who have taken the position that the Unlawful Internet Gambling Enforcement Act of 2006 (‘‘UIGEA’’) 14 legalized fantasy sports within the United States. Given the explicit language of UIGEA, that position is simply untenable, and often at odds with what those same operators and commentators have said in the past.
In short, UIEGA is irrelevant to determining the legality of daily fantasy sports under Nevada law.
DraftKings uses betting terms
The Nevada AG’s office likely did a massive amount of research to link DFS sites to gambling. In addition to the Robins “casino” reference above, this was a part of the report:
Thus, because owners risk money on an occurrence for which the outcome is uncertain, wagers are present. This determination is consistent with how certain daily fantasy sports operators describe themselves. For example, in the online discussion described above, the DraftKings CEO states ‘‘You are playing against other players, we simply act as the ‘points tally’ and ‘money distributor.’’’26 The DraftKings CEO also states that DraftKings’‘‘concept is a mashup between poker and fantasy sports. Basically, you pick a team, deposit your wager, and if your team wins, you get the pot.
DraftKings is mentioned throughout the report; FanDuel is not.
Seasonlong fantasy not considered
Although “traditional fantasy sports” was mentioned, the AG was only asked for an opinion on the legality of daily fantasy sports, so that is all that was given.
Does this mean DFS sites must stop operating in Nevada?
Yes. The notice states that “all unlicensed activities must cease and desist from the date of this Notice.”
Is this decision limited to some DFS sites?
No. The decision applies to all sites operating without a license from Nevada.
What are the penalties if operators do not leave Nevada?
Operators would apparently be both in violation of Nevada state and also would expose themselves to additional criminal charges at the state level.
Can DFS sites continue in Nevada if they apply for a license?
No. A.G. Burnett, Chairman, Nevada Gaming Control Board told LSR that daily fantasy operators “would be able to file applications immediately, but would be asked to still cease and desist until such time as they are actually licensed.”
Does this mean DFS is illegal in Nevada?
No. GCB has determined that DFS is gambling under state law and therefore requires a license to operate.
The illegality comes in the offering of DFS without a license from Nevada regulators.
Am I breaking the law by playing DFS in nevada?
Per ESPN’s David Purdum:
Nevada residents who play daily fantasy sports will not be targeted by Nevada Gaming Control.
— David Payne Purdum (@DavidPurdum) October 16, 2015
What are the chances that DFS operators pursue a Nevada license?
We could see divergent approaches here. Many DFS operators will exit the market rather than submit to the cost of compliance and make the admission that DFS is gambling. But others may view Nevada’s decision as an opportunity to draw a clear line between their site and competitors.
What about other states?
The Nevada order does not have legal force in other states.
Are my funds safe?
There is little compelling reason to believe that Nevada players will have difficulty cashing out their funds as DFS operators exit the state.
Responses from DFS operators
Note that just because an operator does not have a response below does not mean they are still active in Nevada.
“We understand that the gaming industry is important to Nevada and, for that reason, they are taking this exclusionary approach against the increasingly popular fantasy sports industry. We strongly disagree with this decision and will work diligently to ensure Nevadans have the right to participate in what we strongly believe is legal entertainment that millions of Americans enjoy. Unfortunately, we now have to temporarily disable our product for our thousands of customers in Nevada in order to be compliant in all jurisdictions.”
“In accordance with the ruling from the Nevada Gaming Commission, we will cease allowing players in Nevada to compete in Draftpot contests. Players will have full access to log into their accounts to withdraw funds. We are exploring options that would enable Nevada players to compete on Draftpot in accordance with state law.”
Draft Ops moving to Santa Monica, CA office today & will release a public statement soon #DFS
— Darren Heitner (@DarrenHeitner) October 16, 2015
Draft Ops’ statement appears at Fortune.com in its entirety. The site called for regulation of the industry, as well. Excerpt:
Effective immediately Draft Ops will be headquartered in Santa Monica, California. The move has been in the works for several months as the Company expected the Nevada Gaming Control Board to declare fantasy sports to be gambling. Also in anticipation of this ruling, last month, the parent company of Draft Ops reorganized in the State of Delaware.
It is time for not only fantasy sports to become regulated but also for sports wagering in general to become legalized and regulated.
Confirmed to LSR that they were in the process of exiting.
“On behalf of our users in Nevada, FanDuel is terribly disappointed that the Nevada Gaming Control Board has decided that only incumbent Nevada casinos may offer fantasy sports. This decision stymies innovation and ignores the fact that fantasy sports is a skill-based entertainment product loved and played by millions of sports fans. This decision deprives these fans of a product that has been embraced broadly by the sports community including professional sports teams, leagues and media partners. We are examining all options and will exhaust all efforts to bring the fun, challenge and excitement of fantasy sports back to our Nevada fans. In the interim, because we are committed to ensuring we are compliant in all jurisdictions, regrettably, we are forced to cease operations in Nevada.”
“Fantasy Feud will cease operations in the State of Nevada after the ruling made by the Nevada Gaming Control Board. We are in the process of exiting and communicating with players on how they can withdraw account balances.”
“We’re in the process of exiting the state of Nevada.”
“In accordance with the Chairman’s direction, we have cut off all transactions to Nevada residents.”
Eric Hollreiser, Vice President of Corporate Communications for Amaya, Inc., issued the following statement: “As a proponent of state regulation of daily fantasy sports, we respect the decision of the Nevada Gaming Control Board and no longer allow Nevada consumers to play for real money on StarsDraft.”
When I attempted to log in to StarsDraft from Nevada at 5:30 PM PST, I received this message:
Star Fantasy Leagues
Star Fantasy League’s COO Seth Young confirmed to Legal Sports Report that the site is completing its exit from Nevada and notifying players.
“Based on the Gaming Control announcement, Tradesports.com will immediately take steps to prevent real money play by Nevada residents.”
“We’ve shut down Nevada as of yesterday, and are in the process of notifying our users.”
A Yahoo spokesperson told LSR that “Due to positions recently expressed by government authorities concerning paid Daily Fantasy Sports (DFS) in Nevada and Florida, Yahoo will suspend offering paid DFS contests to residents of those states pending further review. Yahoo believes that its contests are lawful and we will continue to assess the legal environment for DFS while providing a compelling fantasy sports experience for all of our users. Our decision today does not impact users in other states.”
Reactions to the decision
“The GCB reached an appropriate conclusion under Nevada law, DFS is gambling on sports,” David Gzesh, an attorney specializing in gaming and sports law, told LSR. How that conclusion might impact other States’ authorization, regulation or licensing of DFS under the restrictive language of the Professional and Amateur Sports Protection Act will be soon enough debated in the media, with a lot of fanfare and posturing.
“While I obviously disagree with the ultimate conclusion, I do strongly believe in the power of the States to regulate games within their borders,” commented Jeff Ifrah of Ifrah Law. “Although Congress may have exempted DFS from federal laws involving gambling, it remains up to the States to decide whether DFS as games of skill fall within the available exceptions to prohibited games of chance. I believe the industry would greatly benefit from state AGs and legislators speaking to this issue and consumers of course would welcome the clarity and legal certainty.”
“I think the Gaming Control Board’s notice speaks for itself. It shouldn’t come as a surprise,” William Hill U.S. CEO Joe Asher told the LVRJ.
Florida gaming attorney Dan Wallach told LSR that it “shouldn’t come as a surprise that a gaming control board considers DFS to be ‘gambling.’ For anyone who who wanted clarity, there you go. The signs were all there—the national debate over whether DFS constitutes gambling has been a mostly one-sided affair, and the recent controversies and scandals have certainly not gone unnoticed by regulators. The only shocking thing to me is that anyone could have possibly believed the outcome would be any different. This was the surest bet in Las Vegas.”
The American Gaming Association released the following statement:
The casino gaming industry has repeatedly called for greater legal clarity on daily fantasy sports. We appreciate that the Nevada Gaming Control Board has provided that clarity as well as a roadmap for DFS companies and casinos to provide popular fantasy sports within Nevada borders. We will continue to seek additional clarity in other jurisdictions, as eliminating ambiguity is in the best interests of all parties, including consumers.
Issues arising from the decision
- How does this decision impact live DFS events scheduled at land-based casinos?
- Will any DFS operators file for a license given the relatively small market size of Nevada?
- Will Nevada license holders pursue DFS in the wake of the decision?
- Will other states follow Nevada’s lead?
- Will other gaming regulatory bodies feel compelled to speak to the topic of DFS as a result of the Nevada decision?
DFS operators must communicate with Nevada players immediately regarding access to funds
We wrote earlier today about how daily fantasy sports operators need to improve transparency regarding handling of player funds.
It is imperative that daily fantasy sports operators exiting Nevada immediately communicate with customers regarding the safety of their funds and the process by which players will be able to cash out their funds.