States Passing Daily Fantasy Sports Bills May Be Authorizing Far More Sports Betting Than They Realize

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Some 28 states are considering legislation dealing with daily fantasy sports.

More than half are advancing legislation based on a model bill – the Fantasy Contests Act – authored and supported by the Fantasy Sports Trade Association.

The bills follow a common pattern: Define fantasy sports, and then exempt activities that meet the definition from the state’s definition of gambling.

But the definition of “fantasy contests” employed by the bills is so broad as to potentially authorize products that stretch far beyond what most imagine when they think of fantasy sports, or even DFS.

Breaking down the definition

Here’s the definition in question, which currently appears in bills in 15 states (AL, GA, IL, IN, OK, MD, MN, MO, MS, NE, NM, SC, VA, WI, WV). From the Alabama bill:

(3) FANTASY CONTEST. Includes any fantasy or simulated game or contest, in which all of the following are satisfied:

a. The value of all prizes and awards offered to winning participants are established and made known to the participants in advance of the contest.

b. All winning outcomes reflect the relative knowledge and skill of the participants and shall be determined predominantly by accumulated statistical results of the performance of individuals, including athletes in the case of sports events.

c. No winning outcome is based on the score, point spread, or any performance or performances of any single actual team or combination of such teams or solely on any single performance of an individual athlete or player in any single actual event.

Note that the definition is similar to, but not the same as, the UIGEA language concerning fantasy sports. The requirement that prize pools not be connected to player entries has been removed, as has the requirement for multiple events.

What kinds of bets would comply?

The definition above lays out a pretty simple set of conditions for a compliant contest:

  1. Involves a minimum of two athletes.
  2. Does not involve the performance of an entire team / collection of teams.
  3. Does not involve the score or point spread of a game.
  4. Outcomes must reflect “relative knowledge and skill” of participants.

Some quick examples of bets that don’t appear to run afoul of the definition – and therefore, would not be illegal gambling under state law should the bill become law – include:

There’s also nothing in the language that would obviously prohibit player-vs-house contests. And, of course, the language also allows for non-sports fantasy contests (e.g., awards shows, political debates, and even spelling bees).

Vague definitions breed uncertainty and aggressive interpretations

Putting aside the specifics of the FSTA model definition for a second, it’s important to appreciate that any legislative approach that relies on the formula of broadly defining, and then exempting, fantasy sports, is likely to produce deeply flawed policy.

Why? The broader and vaguer the definition, the more likely it becomes that operators will push the limits of that definition, and the less able state officials become to rein operators in.

DFS industry has already experienced this with UIGEA language

We don’t have to guess to reach that conclusion. We’ve already seen it play out once before in the DFS industry via the UIGEA.

Like the state bills in question, the UIGEA offered a broad, vague definition of what constituted fantasy sports. The result?

And remember, that was all in the context of state gambling law acting as a backstop to the UIGEA.

These new bills would weaken or remove that backstop. So all operators will have significantly less risk when it comes to aggressively iterating a fantasy sports product with the goal of getting as close to a sports bet as possible.

The evolution of bingo games into slot machines via Class II gaming and scratchoff lottery tickets into slot machines via VLTs are obvious and relevant templates for appreciating how statutory loopholes will be aggressively exploited by gaming interests.

No mechanism in FSTA bill for reining in aggressive variants

A vague definition would be less of an issue if the regulatory structure proposed by the FSTA bill was backstopped by a strong, independent regulator with broad powers.

It isn’t. In fact, the majority of the slight regulatory onus proposed by the bill is placed on the operators themselves.

In most versions of the bill, the only enforcement mechanism is the requirement for an annual compliance audit conducted by a third party – generally of the operator’s choosing – and submitted to the state AG or consumer protection agency.

Possible solutions

The obvious solution to this problem is to regulate fantasy sports more like a gambling product. I’m not saying you have to call it a gambling product (I believe it is, but appreciate that terming it as such would basically end the legislative process in many states), but I am saying that it should be regulated like we regulate online gambling in NJ.

That approach may be politically problematic for DFS sites and the FSTA, but that lack of convenience shouldn’t trump good policy in the legislative process.

Dramatically tightening the language could also help to shield state bills from conflicts with federal laws like the Wire Act and PASPA. Emphasis on “could.”

Tighten language

The bare minimum solution is to tighten the scope of the definition.

Draw firmer borders around what sort of products are and aren’t allowed. Create more conditions and clear limitations to ensure that the bills address the sort of activity they are meant to address: fantasy sports as played by the vast majority of users, and not prop or parlay betting (although you could argue that line is crossed by DFS, but that’s a separate topic at this point).

Create oversight mechanism for additional game approval

The reflex criticism of the above approach is that it’s also bad policy to set overly-prescriptive regulations in the statute, as state law is a tough thing to change.

That’s a fair point. And it’s one of many strong arguments for creating a state-backed oversight mechanism that would have the powers to promulgate – and iterate – regulations for fantasy sports betting, including the definition of what type of activity is and isn’t copasetic.