Momentum Grows For Light-Touch Regulation Of DFS
Legal Sports Report

Momentum For “Light Touch” Regulation Of Daily Fantasy Sports Grows, But Clear Path Yet To Be Set

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Recent commentary suggests that key stakeholders are starting to coalesce around a push for “light touch” regulation that would bring daily fantasy sports under government oversight but stop short of the controls typically applied to commercial gambling activity.

Surveying the support

Partners

MLB Advanced Media President Bob Bowman commented to ESPN this week that the advent of regulation is a “lead-pipe cinch.”

In the same article, NBA commissioner Adam Silver asserted that “there should be a regulatory framework” for DFS, but also stressed that he believes DFS does not legally constitute gambling.

Their remarks followed a similar sentiment expressed earlier in the week by New England Patriots President Jonathan Kraft. “Fantasy sports is pretty much a part of mainstream culture now in our country and I think it’s a nice element of what we have and I think it should be regulated as well,” Kraft told ESPN.com.

Kraft is also president of the Kraft Group, who participated in DraftKings’ latest fundraising round.

DFS operators

Concurrently, we’re seeing clear indications from major operators that their aversion to state regulation of DFS is softening.

“We are seeing a number of state regulators and other authorities taking a reasoned and measured approach to the daily fantasy sports business,” a DraftKings spokesperson told LSR on October 21, “and hope that trend continues along with due consideration for the interests of sports fans across the country who love to play these games.”

FanDuel went a step further in response to Silver’s call for regulation: “FanDuel and our partners believe some regulation may be warranted and want to work with lawmakers to ensure fans continue to have access to all the fantasy games they love.”

Commercial gaming industry

American Gaming Association head Geoff Freeman sounded (somewhat unexpectedly) supportive notes for DFS that hinted at light touch regulation on Twitter this week:

Freeman went on to suggest that DFS is “helping the casino industry attract new customers.”

Meanwhile, leading voices from the land-based regulatory community told GamblingCompliance that onerous regulation could be counterproductive, including former Nevada Gaming Control Board Chairman Mark Lipparelli:

The convergence of social, fantasy, skill, and other contests have reached a point where we need to embrace light regulation. Without some clarity, we are going to see a steady diet of arguments about existing gaming laws that frankly, in most cases, have not kept pace with industry innovation.

Policymakers

Finally, policymakers in some states – most notably Massachusetts – are telegraphing their intent to consider daily fantasy sports as a consumer product that should be regulated in a manner distinct from casino gambling. Florida, Illinois and Pennsylvania are other states where we’ve heard rumblings regarding similar efforts.

That may be because they don’t have a choice thanks to PASPA.

It bears mentioning that Massachusetts Attorney General Maura Healey does seem to be tempering her earlier analysis regarding daily fantasy sports. The reported entry of the US Attorney in Boston into the mix could further complicate the situation.

We’ll get a better sense of the overall temperature in Massachusetts on October 29 when the Gaming Commission holds a public hearing on DFS.

A race against more intrusive attention

A number of potentially powerful counterweights sit across the scale from that momentum.

  • The multi-pronged look at DFS by the federal government is in the early stages and could dissipate, but the investigation alone could be enough to drain political support for friendly regulation.
  • Questions raised by powerful politicians about the legality of DFS in Florida could disrupt momentum if they move beyond questions and into actual answers.
  • A number of other states — including Connecticut, Delaware, Georgia, Illinois, Nebraska, and New York — appear to be seriously contemplating the DFS question. Negative movement in even two or three states could trigger a cascade of action in states with similar gambling statutes. Conversely, positive decisions from any of those states would support progress toward light regulation.

I’d argue that the goal for the DFS industry is to set the precedent: find a partner in government, and then articulate and execute a compelling regulatory framework that can be easily ported to states interested in minimally intrusive oversight of DFS.

The industry may need to achieve that goal before additional states mimic Nevada’s more comprehensive approach to regulation. It seems likely that one approach will become the default for the next wave of states that consider the question.

But even a stalemate between comprehensive and light touch regulation poses a risk for DFS: if enough of the potential player population is located in states with restrictive approaches to DFS, the viability of the product itself is threatened.

What would a light touch regulatory structure look like?

The conversation is currently heavier on questions than answers.

Here are a few of the general areas where details will need to emerge sooner than later to properly support a push for light touch regulation.

State-by-state vs federal regulation

The advantages of federal regulation? It offers:

  • A single set of guidelines for operators.
  • A possible workaround to PASPA.
  • The cleanest path to a nationwide player pool available.

The downsides of federal regulation? 

  • It’s not clear if there’s a political appetite for such an initiative.
  • DFS could easily get swept up in a broader push for federally-regulated sports betting that might complicate the chances for passage.
  • The unprecedented nature of such regulation could generate significant unintended consequences for the industry.

Meanwhile, state regulation could likely get underway more rapidly than a federal push, but would bring a potential patchwork of approaches, compliance requirements, and tax rates that might undermine the sustainability of daily fantasy sports.

Some key issues

A light touch regulatory approach would likely look to keep taxation and fees to a minimum and would be unlikely to wade too deeply into matters involving suitability as a function of licensing.

The core focus of such a regulatory approach would fall on issues such as:

  • Game integrity: Are games fair? Regulations would set minimum standards for oversight that would likely be executed by third-party testing labs.
  • Consumer protections: How is sensitive consumer data protected? What about player’s funds? Again, regulators would be more likely to verify and approve third-party assessments on these questions than to handle the investigative work directly.
  • Geolocation: Once DFS becomes a regulated product, the burden for ensuring that play isn’t available in states that don’t want DFS will become a more serious one. Regulators will likely look to standards for legal online gambling products in New Jersey and Nevada for cues on this point.

A need for a central body

A key element of a successful light touch approach is a central body – perhaps similar to FINRA – that has investigative powers and legitimate levers for ensuring accountability and compliance.

This body cannot be the same body as the primary lobbying body for the DFS industry. It must be an equal partner to government, operators, and players.

Getting all operators on board

One of the big challenges of a light touch approach is ensuring buy-in from all operators:

  • It may be difficult to craft a hands-off approach that also contains the enforcement tools necessary to ensure that all operators play by the rules.
  • Some operators with unique agendas may actively push back against regulation.
  • Others may resist due to visions for the future of fantasy sports that diverge from the operators currently dominating the market.

To wit: Matt Chatlin, operator of OwnThePlay, recently told the Boston Globe that policymakers have yet to seek his input:

“I’m incredibly surprised that I haven’t been contacted, and I hate that I haven’t been asked,” said Chatlin, a former professional poker player. “I have very strong opinions about how to bring regulation to the Internet gaming space.”

…..

A regulatory approach that allows daily fantasy sports to continue to evolve, works in concert with the regulated commercial casino industry, and, most critically, ensures that players can expect a fair, safe experience is the best path forward for all.

Light touch regulation has the potential to achieve those aims, and the approach appears to have a meaningful foundation of support. But rational and rapid action is required of the industry if that potential is to be realized.

Chris Grove
- Chris is the former publisher of LegalSportsReport.com and OnlinePokerReport.com. Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.
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