Texas will attempt to become the first state to regulate daily fantasy sports sites, after a pair of bills have appeared in the state legislature.
The basics of the bills
There are two companion bills introduced that deal with sports betting and fantasy sports: House Bills 4019 and 4040. The bills were sponsored by Rep. Abel Herrero, a Democrat. Here is a quick glance at what the bills do:
- HB 4040 requires “sports betting websites” to be licensed within the state of Texas. Based on the language of the bill, daily fantasy sports sites appear to need licenses to operate in Texas, if the bill were to pass.
- HB 4019 makes it a criminal offense to operate or use a “sports betting website” (including DFS sites) that is not licensed in Texas.
The bills were actually filed last week, but one of the bills, 4040, was introduced in front of the legislature on Monday. The bill was not on anyone’s radar, but initial readings of the bill by legal and industry experts make it appear that these bills are aimed at DFS.
Will Texas become the first state to regulate daily fantasy sports websites? New bill (HB 4040), introduced yesterday, seeks to do just that
— Daniel Wallach (@WALLACHLEGAL) March 24, 2015
Rep Herrero’s TX bills actually about #fantasysports, sports betting websites based on outcomes [1/2]
— Kevin Cochran (@KevinRCochran) March 24, 2015
of “the players in a sporting event or series of sporting events” http://t.co/reaKfsTkHr
— Kevin Cochran (@KevinRCochran) March 24, 2015
Language is everything
Neither of the bills is very long, as they get straight to the point. HB 4040 would create a new section in the state code requiring licenses to accept certain wagers:
OPERATING SPORTS BETTING WEBSITE; LICENSE REQUIRED. (a) A person or entity must obtain a license issued by the department annually, if the person or entity operates a sports betting website.
That might seem innocuous to the DFS industry, until one reads the definition of a “sports betting website” in the bill:
(3) “Sports betting website” means an internet website that allows a user to make through use of the website a bet on the outcome of a sporting event or participation in a competition based on the performance of the players in a sporting event or series of sporting events.
Daily fantasy sports exist in the United States because of a carveout in federal law under the Unlawful Internet Gambling Enforcement Act. But the UIGEA does not trump any state law that outlaws — or in the case of Texas — regulates DFS. Currently, most DFS sites do not operate in five states. Texas was not considered a gray state for DFS, previously.
The flipside of this, of course, is that it appears that Texas could set the stage for allowing sports betting sometime in the future. Currently, sports betting is legal only in Nevada, Delaware, Oregon and Montana; New Jersey is in a legal fight to allow sports betting within its borders. ODFReport reached out to Rep. Herrero’s office for comment on the bills and their intent, and we will update this story as warranted.
Part of the proposed bill would also authorize “charging a license fee” to operate a sports betting website, which would allow Texas to create some revenue from DFS sites.
The climate in other states
This is just the second attempt at regulating the DFS market. Earlier this year, Indiana introduced a bill that would have regulated daily fantasy sports. No action has been seen on that bill since it was brought in front of the legislature in early January.
The bill in Indiana would have set up licensing for DFS operators via the state’s “racinos.” The legality — or the need to license DFS websites already in operation — was not addressed by the bill. Thus, if the bill were to become law, DFS sites would operate in a gray area in Indiana.
Interestingly, in debate about the Iowa bill earlier this month, members of the legislature brought up two different concepts that the Texas bill addresses:
- The idea that DFS is really just a form of sports gambling.
- The state should look into capturing revenue from DFS sites operating within its borders.
The Texas bill addresses the concerns of those who voted against the Iowa DFS bill in the state Senate (it passed by a 2-to-1 margin), as it lumps DFS in with sports betting and requires a licensing fee to operate.
It’s unclear what sort of support this bill might have currently in the Texas legislature, although states are generally loathe to pass up ways to generate revenue. The Texas legislation brings up some questions for the DFS industry, especially if it is successful.
- Will other states draft similar legislation to deal with the issue of fantasy sports, and to capture revenue from DFS?
- Does the sentiment that DFS should be lumped in with sports betting continue to gain traction?
- If licensing is required, will sites other than FanDuel, DraftKings, and a few others be able to afford a still-to-be-determined licensing fee to operate in a single state?
Whatever happens, it appears likely that the ramifications could extend well beyond Texas.