[toc]New Jersey will not be acting quickly on any possible legislation to regulate the daily fantasy sports industry. That was one of the key takeaways from a sometimes contentious New Jersey Assembly committee hearing on Monday.
It was the first committee in a state legislature to consider the DFS industry at length in the wake of the increased governmental and media scrutiny that began in early October. On the heels of this hearing, one is also scheduled for Tuesday morning in a Pennsylvania gaming committee to discuss regulation legislation.
You can listen to the entire hearing here.
Top-level takeaways from the NJ DFS hearing
The hearing, conducted in the Assembly Tourism, Gaming and the Arts Committee, was informational in nature. No actual bill was considered; a piece of draft legislation, that has not been formally introduced, was floated by State Sen. Joe Whelan last week.
The most important piece of information revealed at the hearing is that the state appears to have little interest in attempting to move forward with DFS legislation while the New Jersey sports betting case is still active in the U.S. Third Circuit Court of Appeals. Assemblymember Ronald Dancer said he did not want to do anything to “place the sports betting case in jeopardy,” an assessment that Chairman Ralph Caputo concurred with.
From those comments, it appears this committee and other governmental officials have no appetite for considering or passing an actual DFS bill until that case — in which the state hopes to win and allow gaming interests in the state to offer sports betting — is resolved. The rehearing isn’t likely to take place until some time in 2016, with a decision not expected until later in the year.
There were also several key issues that came up over the course of the hearing:
- Committee members were very interested in the amount of skill vs. the amount of chance in daily fantasy sports, and how that intersects with state law. Industry representatives generally pushed hard to attempt to educate lawmakers on the amount of skill required to play DFS, with committee members pushing back on that point.
- “Vulnerable populations” came up more than once, in reference to:
- Minors playing DFS, and protections in place to stop them from doing so.
- Problem gamblers and protections that are in place.
- The amount of regulation and oversight required of the DFS industry was debated. Industry representatives unanimously called for consumer protection, but either pushed back against the need for licensing and taxation under which online gambling or brick-and-mortar gaming industries operate.
The DFS industry and the committee members: What they said
The meat of the hearing took place near the end, when representatives for DraftKings, FanDuel and the Fantasy Sports Trade Association testified and responded to questions from the committee. Jeremy Kudon, outside counsel for the FSTA, and Stephen Martino, outside counsel for FanDuel, spoke at length.
While the committee had some tough questions for the witnesses called before the industry panel spoke, the hearing was not terribly contentious, until this point. But there was a pretty clear change in tone during this segment of testimony, as the committee grilled the panelists at times and took issue with their testimony.
FSTA’s New Jersey testimony
Kudon opened by saying DFS is a legal game of skill under New Jersey law, but that the industry was not shying away from potential regulation.
“We want to be part of the solution, not part of the problem. …we believe in common-sense, reasonable consumer protection legislation,” Kudon said.
However, much of his testimony centered on the amount of skill that is required to play daily fantasy sports: “Chance is simply not a material element of a fantasy sports contest.”
At the end of his testimony, he offered the following: “I am not here today to wrap ourselves in this cloak of skill … we came here today, just as we plan to go to other states, looking for legislation that will provide clarity on the legality of fantasy sports, so we’re not interpreting terms like of ‘contest of chance’ and at the same time require operators to satisfy reasonable yet important consumer protection obligations.”
He concluded by pointing to a piece of legislation in Illinois that appears to be as friendly to the industry as could be hoped in a state regulatory scheme.
After Kudon’s comments, Caputo became a bit argumentative:
- Kudon’s comments referenced a decision by the NJ Division of Gaming Enforcement allowing casinos to offer fantasy sports contests, while not referring to them as gambling. (Of note, it’s believed no gaming interest in New Jersey has actually offered DFS based on the NJDGE’s regulations.) “This has no relationship to what you are doing as a company, no relationship at all,” Caputo said, noting that the legislature had no role in that regulation.
- Caputo also rejected that DFS does not resemble gambling: “When you talk about fantasy sports being a game of skill, it’s really a hybrid,… there’s some element of chance in there.”
- Caputo called the DFS industry a part of the gaming industry in the state “whether you recognize it or not.” And then: “It’s going to be regulated one way or another … but maybe not in the way that you want, so I’ll leave it at that.”
FanDuel’s New Jersey testimony
Martino noted early in his testimony that some in the industry did not truly embrace the idea that some type of oversight was necessary until the issue came to the fore in the past month. But he said FanDuel was more focused on the current environment and assessing what needs to be done, and creating proper consumer protections. He listed a number of the issues that should be considered in New Jersey and elsewhere:
- Age verification
- Know-your-customer safeguards
- Responsible play and exclusion methods
- Integrity of player funds
- Data security
- Employee conduct policies
After that list, however, he offered the following: “I am equally confident that treating and regulating fantasy sports like brick-and-mortar casinos is neither necessary or wise. The regulatory infrastructure that has generally developed around commercial casinos — in particular the best-in-class one that exists in New Jersey — does not reflect the need or the level of risk found in fantasy sports. In fact, fantasy sports cries out for risk-based form of regulation, not to be consigned to a one-size fits all construct.”
He went on to say such regulation could “suffocate” the industry.
After Martino’s statements, Caputo went into a series of questions, eventually asking if FanDuel or the industry had any objection to licensing. A back-and-forth between Caputo and Martino clearly left the former displeased. Martino said the form of the licensing and the fees associated with it would likely frame his answer. Then this exchange occurred:
Caputo: In the event that there are regulations that would oversee your industry, would you object to being licensed?
Martino: I think we would object to being licensed in the manner that a brick-and-mortar casino or an online…
Caputo: What would be the difference? What would be you objection?
Martino: Because of that intrusiveness of that and the expense based on the relative risk…
Caputo: I don’t see what the intrusiveness is, it’s just a matter of filling out a form and letting people know…
The two then talked over each other for a bit before Caputo said: “That bothers me that you would object to licensing.”
The panel and Caputo then went back and forth some more, with the panel saying that the industry objected to being treated like a casino; Caputo said he was only asking about being licensed and the standards associated with it, not whether DFS sites are operating a gambling site. They came to a modicum of resolution when the industry panel explained that the requirements of the licensing would be key to whether the industry is in favor of licensing, and Caputo said “That makes sense.”
Other questions and answers
Assemblymember Valerie Vainieri Huttle asked the panel some questions after Caputo’s exchange above. There was another somewhat contentious exchange between her and Kudon as she tried to wrap her mind around DFS contests, calling them “wagers,” while Kudon insisted on calling them “entry fees.” “It’s like the Democrats calling them taxes and Republicans calling them revenue raisers,” Vainieri Huttle quipped.
Following up, Caputo asked how high the entry fees can go. The panel said it was uncertain. “That’s why we need oversight. You don’t know,” Caputo concluded.
Vice Chair Troy Singleton then commented, saying he understands why the industry doesn’t want to call it gambling, but taking issue with the classification. “In any other space in the world, you are betting that you are going to win money, based on what you are putting up. It’s a pretty simple concept.”
He also asked for better data and a clearer answer on the amount of skill and chance involved in daily fantasy sports.
Other witnesses that appeared at the NJ DFS hearing
- Janice Fuller, from the office of U.S. Rep. Frank Pallone (D-NJ). She appeared on behalf of Pallone, who has been on the forefront of calling for regulation of the DFS industry, including asking for a Congressional hearing to consider the DFS. Full testimony here.
- Nicholas Menas, VP Corporate and Government Affairs for Amaya. Amaya — the parent company of PokerStars — was invited to testify as it is now licensed to operate online poker and casino games in New Jersey, and it also owns and operates a DFS site, StarsDraft. Unlike other industry witnesses, he was deferential to New Jersey on how the industry should be handled and whether it should be considered a game of skill or a game of chance. He called the debate “irrelevant” and that they would operate under any regulations New Jersey puts in place.
- Greg Bordelon, a lecturer on legal studies at Monmouth University. He provided information about the legal environment and other states considering DFS regulation. (He recently penned an article about DFS at NJ.com)
- Dennis Drazin, representing Monmouth Park. He noted that the race track was close to offering DFS with partner Star Fantasy Leagues. He also equated DFS to gambling and said the industry likely needs to be regulated (preferably at the state level, in his opinion). Like the committee members, he said the issue of regulation should wait until after the resolution of the sports betting case. He has been an advocate for legal sports betting in the state.
- Bill Pascrell III, an iGaming lobbyist appearing on behalf of DFS operator Fast Fantasy. His major point was that commercials from DraftKings and FanDuel and the huge amounts of venture capital coming into the two companies has presented an inflated sense of how much revenue DFS operators are generating. He called for consumer protection, but asked for a measured approached to licensing fees and taxes, so as not to hurt smaller operators. Vice Chair Troy Singleton concurred with that sentiment: “You don’t want to create a monopoly, based on regulation that stymies the ability for not-as-well capitalized organizations to be in the space. …You don’t want to create a regulatory structure that in fact boxes out the free market system.”
- Neva Pryor, Council on Compulsive Gambling of New Jersey. She called for DFS sites to offer responsible gambling safeguards, referencing the National Council on Problem Gambling’s stance on DFS.