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DraftKings offers four sports — golf, MMA, NASCAR, and soccer — that FanDuel does not.
The ramifications of that split, once limited to the battle for market share, may now influence the shape of the daily fantasy sports industry that emerges following the current wave of legal, legislative, and regulatory scrutiny.
“The legal status is very negative,” Eccles said of fantasy NASCAR last year on RotoGrinders. “NASCAR doesn’t provide a lot of stats that you could construct a fantasy game around, and so any game quickly resembles sports betting. Unless that changes I can’t see us offering fantasy NASCAR.”
Eccles offered his company’s assessment of fantasy golf in the same thread: “We won’t be introducing fantasy golf. I think it is commercially attractive (its probably our next most requested sport) but I’m uncomfortable with the legality of it.”
“Every time I have to make a decision like this,” Eccles continued, “I think whether the argument would stand up in court. To me a reasonable person would consider a golf tournament to be a single event, not multiple events. Therefore it would not fall under the UIGEA safe harbor. That does not automatically make it illegal (it may still be a game of skill under state law) but it does make it more risky.”
Eccles’ decisions came at a steep price, as DraftKings — aided by a surge of interest in golf — closed FanDuel’s once-substantial lead during the spring and summer of 2015 before seizing the top spot in September.
There has been little direct public discussion by DraftKings executives of the legal scaffolding supporting specific sports.
That DraftKings has such scaffolding is all but certain. American payment processing partners require a qualified legal opinion from all DFS operators. Other key stakeholders likely require similar assurances.
But the nature of the scaffolding is an important question.
At a meeting of the Fantasy Sports Trade Association that took place in May 2015, DraftKings CEO Jason Robins acknowledged that fantasy NASCAR may not comport with a literal reading of the requirements outlined by UIGEA, according to sources with direct knowledge of the meeting.
Part of the justification asserted by Robins during the meeting for offering fantasy NASCAR, per the same sources, was that the product does not violate any state law, effectively removing the need for the UIGEA safe harbor.
DraftKings is far from the only DFS site offering fantasy NASCAR and golf.
Legal experts speaking on background confirmed to LSR that full compliance with state gambling law would arguably render UIGEA compliance moot, and that, while they could not confirm DraftKings’ specific justification for offering fantasy NASCAR, such a legal theory is not uncommon in the DFS industry.
UIGEA does not make any form of gambling legal or illegal. It only speaks to the legality of payment processing around certain forms of online gambling. More on that critical distinction here and here (see page 7).
The UIGEA carve-out frequently referenced by DFS operators resides under (1)(ix) of the Definitions. That section identifies the characteristics a given activity must display in order to qualify for “safe harbor” from UIGEA penalties.
The required characteristic commonly identified as problematic for single-race NASCAR contests and single-event golf contests is found in (1)(ix)(II) (emphasis added):
All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.
It’s important to stress that a fantasy sports game that does not meet the requirements of the UIGEA could still be a legal game.
The UIGEA is absolutely silent on the issue of defining gambling — legal or otherwise — leaving that task to the states and other federal laws.
The question of which sports are and aren’t fair game for fantasy will be likely be clarified through the process of regulation.
The issue is already contentious. The OC Register recounted a confrontation between Eccles and Robins at the summer FSTA conference over the legality of specific sports offered by DraftKings.
Debate over that clarification could prove intense and might threaten operator unity:
Such a wedge could undermine the industry’s ability to credibly call for — and execute — self-regulation or light-touch regulation.
As lawmakers and regulators start to get into the nuts-and-bolts of daily fantasy sports, it’s possible that the split over the issue of UIGEA compliance — and the underlying ambiguity driving that split — could become more visible.
That visibility could plausibly serve as a precursor to talk of revising the UIGEA to resolve any ambiguity.
The public conversation regarding the legality of daily fantasy sports is often (incorrectly) boiled down to compliance with UIGEA.
For example, MLB Commissioner Rob Manfred recently referred to “the statutory exemption … that Congress created” as support for his league’s conclusion that DraftKings wasn’t involved in gambling.
Shifting the focus of the conversation from federal law to state law could trigger a reassessment of the playing field for DFS.
There’s also the open question of how a lack of compliance with the UIGEA would resonate in states like Kansas and Maryland, where state law explicitly protecting DFS is modeled on language from the UIGEA.
The FSTA Paid Entry Contest Operator Charter requires that all signatories “seek legal advice to ensure all games offered by them are compliant with the fantasy sports definition in the Unlawful Internet Gaming [sic] Enforcement Act 2006.”
In October 2014, FSTA head Paul Charchian indicated that the group actively enforces that requirement: “We have had instances where we have had to tell members their model doesn’t fit what we are comfortable with, so, while we don’t police the industry as such, we certainly try to ensure we stay within the language of the UIGEA.”
Both DraftKings and FanDuel sit on the board of the FSTA.
In May, Robins reportedly suggested to other FSTA members that DraftKings planned to propose to amend the FSTA charter to remove the UIGEA requirement, according to people with direct knowledge of the meeting where the suggestion was made.
Robins’ suggestion followed an acknowledgement by several in the meeting that, as offered, fantasy NASCAR was not a UIGEA-compliant product, according to the same sources.
Five months later, the UIGEA requirement remains in the public version of the charter, and several FSTA members continue to offer sports that lack a clear, articulated justification under the UIGEA.