Nevada Says Daily Fantasy Sports Are Gambling – Where Does The Industry Head From Here?

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The decision by Nevada lawmakers that daily fantasy sports constitutes gambling and requires a license to operate had the immediate impact of causing all major DFS operators to exit the state.

But beyond that decision is a host of questions and choices that will unquestionably shape the future of daily fantasy sports.

Safe in other states?

The decision from Nevada regulators, which you can read in full here, does not carry legal force in other states. It also does not address the issue of the distribution of skill and chance in daily fantasy sports, instead simply noting that DFS meets the state’s definition of gambling.

The decision may trigger other states with a substantial land-based gambling industry to accelerate their consideration of the DFS question.

One could argue that Nevada’s decision will provide fodder for clarification in states where the legal picture surrounding DFS is murky. It will also provide political cover for lawmakers interested in regulating fantasy sports. But the conclusion recently reached by Massachusetts AG Maura Healey that DFS does not violate Massachusetts state law could provide a counterpoint to whatever influence the Nevada decision exerts.

In any case, the immediate impacts outside of Nevada will likely be minor. But it’s hard to view the Nevada decision as anything but potentially disruptive to the status quo for daily fantasy sports operations in states outside of Nevada.

Major sites will aggressively seek friendly regulation

It’s my belief that the major DFS operators will ramp up their efforts to secure “regulation lite” in friendly states.

What do I mean by regulation lite? Government oversight that stops short of deeming DFS gambling (and taxing it as such), but puts into place some basic controls and consumer protection measures.

This type of regulation could theoretically serve as a firewall against more intrusive and onerous regulation from states or the federal government and allow DFS operators to sidestep some of the costs associated with full-blown gambling regulation.

I think we’re already seeing a move toward this in Massachusetts. It’s my understanding that operators are lobbying in other statehouses for a “light touch” approach to regulating and taxing DFS. I expect that initiative to go into overdrive in the weeks ahead.

Industry will fracture across some fault lines

The DFS industry is already highly fragmented on a number of key issues.

The Nevada decision will likely exacerbate those divisions.

I do believe that some operators will pursue a Nevada license — StarsDraft specifically comes to mind due to the company’s recent comments regarding state-based regulation and parent company Amaya’s desire to rehabilitate the PokerStars brand in the eyes of U.S. lawmakers.

I also believe we’ll see some operators move closer to lawmakers and policymakers on the issue of full regulation, while others will continue to attempt to keep it at arm’s length.

Finally, the Nevada decision may test the already tenuous alliance between DraftKings and FanDuel, although the statements issued by the two sites confirming their exit from Nevada read quite similarly.

Ultimately, the DFS industry speaking with two voices — or more — inhibits the ability of the industry to achieve any single goal.

The entrance of commercial casinos

This is the big wildcard.

Commercial casinos haven’t made it clear what their intentions are, nor is it entirely clear what options they actually enjoy, when it comes to DFS.

Some two dozen states representing the vast majority of the U.S. population host casinos regulated by state or tribal government.

It’s far from a homogenous industry. And I honestly believe that the majority of said industry is still wrapping its mind around daily fantasy sports. The legal ambiguity in several states — most notably California — will keep many on the sidelines.

But the size, scope, and economic power of the commercial casino industry absolutely outweighs the DFS industry by every conceivable view.

The Nevada decision marks the first tangible outcome of the focus of that power on DFS. It’s unlikely to be the last.