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USF, a daily fantasy sports startup by race and sportsbook veterans Michael Knapp and Salerno, announced last week that it would become the first DFS company to apply for a license in Nevada after the Nevada gaming commission ruled in October that all DFS sites would need a license to operate in the Silver State.
But that is just the beginning for USF, which is looking to build pari-mutuel-style fantasy games that USF hopes will work under the existing regulations in many states, Knapp recently told Legal Sports Report.
USF’s similarities to horse racing’s pari-mutuel betting is not an accident. In fact, USF may be the first DFS game that was created in part as a reaction to the regulatory struggles the daily fantasy sports industry finds itself dealing with.
“What we did is kind of work within the framework of the existing rules and regulations that were on the books either in Nevada or in California,” said Knapp, who has decades of experience working for California racetracks, Nevada casinos and in online gaming markets.
“It’s already been done for 75 years at the pari-mutuel tracks,” Knapp said. “That’s what they do. That’s how they deal with it.”
DFS operators like DraftDay and Star Fantasy Leagues are actively looking to work in a regulated environment as well, using a B2B model, although neither has publicly stated that they have applied for a Nevada license.
USF’s version of DFS has some significant differences between it and the offerings of industry heavyweights FanDuel and DraftKings.
Like conventional DFS, there will be a point value awarded to individual performances. But its pari-mutuel-style of scoring mimics horse racing. For instance, a game participant can pick from a position grouping such as quarterbacks to win, place or show, and make bets such as exactas, trifectas and daily doubles by factoring in odds.
“At least in my opinion, what I am doing is a lot easier, more fun, fairer than what they are doing,” Knapp said.
One crucial piece is that the game will be designed to be played intrastate, with an ability to be interstate between states with similar regulations, not unlike the relationship Nevada and Delaware share for online poker.
And UFS, which will be designed to be played through conventional terminals at brick-and-mortar facilities or online, will be customizable to fit with “each state’s regulatory agencies, existing racetracks, OTB’s, casinos, and lotteries,” Knapp said.
That is important in an ever-changing environment that could lead to a mish-mash of regulations across differing states, according to Knapp.
“I don’t think anybody is on the same page yet, and everybody has their own ideas,” said Knapp of state regulators. “With that you are going to have unintended consequences that come out of this.”
Knapp is not surprised that daily fantasy sports finds itself in regulatory battles across multiple states. In fact, Knapp said the industry’s quick growth was bound to attract some attention from regulators.
“To me that just seemed like the easiest thing on the board to handicap,” Knapp said.
He does not proclaim to have the answer to what the future holds for DFS. In fact, in many ways he is just as curious an observer as the rest of us as battles in states such as New York play out.
Once those regulations are set, it will be interesting to see how the current sites “retrofit” their products to comply with any changes to current regulations, he said. And in a regulated environment there will likely be added costs because the states “are going to want their cut,” he added.
“It is going to be very tough for them to be profitable; they are going to have to raise the take out,” Knapp said. “That is the same sort of thing that happened to racing, and in my opinion the reason why it declined like it did.”
One thing he is certain of is that the industry is about to change significantly.
“I think FanDuel and DraftKings, in fact I have heard them say it, that the versions that you are looking at now are not going to be the versions of fantasy in five years,” Knapp said. “I look at it as Daily Fantasy Sports 1.0.”
UFS is banking that it is a next-level version of DFS that fixes many of the industry’s current problems.
“I hope we are creating a winner for a lot of different reasons,” he said.
Knapp began working on his pari-mutuel, intrastate idea years ago, but had originally envisioned that USF would start in California, where a mature web of regulations oversee its many racetracks.
But Knapp and Salerno, who first discussed the idea years ago during a meeting at famed Santa Anita Park in California, saw an opportunity in Nevada.
The Nevada Gaming Control Board issued a notice in October that called for unlicensed DFS sites — which was all of them — to cease operations immediately in the Silver State. That made Nevada one of six states where no daily fantasy sports sites operated.
But the NGCB did not say that DFS was illegal under state law. Instead, the ruling was that DFS was indeed gambling, and as such each operator is required to be licensed in Nevada.
“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,” FanDuel said in reaction to the NGCB ruling. “In the interim, because we are committed to ensuring we are compliant in all jurisdictions, regrettably, we are forced to cease operations in Nevada.”
Until USF, a DFS operator had yet to apply for a license, presumably shying away from the expense of compliance for a relatively small market like Nevada while at the same time avoiding any admittance that DFS is gambling in the a U.S. jurisdiction.
However, Salerno and Knapp saw an opportunity to start in a state they are both familiar with. USF’s chances to get the license and launch its intrastate game appear to be a safe bet.
Nevada's first DFS applicant, US Fantasy (owned by Vic Salerno), considered a "shoe-in" for license https://t.co/gmR3VCIzMt
— Appellate Advocacy (@TIPSAppellate) December 10, 2015
For his part, Knapp said that Nevada regulators “have been encouraging.”
“In some way they’re feeling the weight on their shoulders of New York and some of these other jurisdictions that are taking a stronger view of daily fantasy as a result of what they did,” speculated Knapp of Nevada regulators. “In some ways they feel they are responsible for it. So having caused a problem they’d also like to be able to find a solution.”
USF hopes to be up and running in Nevada before the kickoff of the 2016 NFL season.