Taking on Daily Fantasy Sports in the United States
Daily fantasy sports (DFS) companies operate in 41 states, but only 19 have legislation explicitly allowing it.
The National Collegiate Athletics Association (NCAA) has criticized daily fantasy sports, and many statutes governing DFS specifically prohibit operators from hosting games for college football, college basketball, or amateur sporting events.
In 2017, Disney introduced a fantasy league game for ABC’s “Bachelorette” show to try increase its appeal to women. More than 700,000 individuals have played the two Bachelorette Fantasy League games thus far, with 75 percent of them being female.
What started as a season-long activity for friends to play as sports team owners in order to win financial awards and bragging rights has now grown into a multibillion-dollar industry. Fantasy sports tournaments are a type of game in which players form imagined teams comprised of real athletes. These teams compete against one another depending on the performance of their players in actual matches. The winning team’s “owners” receive monetary rewards. According to the Fantasy Sports Trade Association (FSTA), 59.3 million people in the United States and Canada participated in fantasy sports in 2017, spending an average of $556 per year on related fees.
While such contests have existed since the 1980s, they have evolved into a new industry known as daily fantasy sports (DFS), which has spread across the country in recent years, enabling the emergence of new billion-dollar businesses.
Daily fantasy sports, like conventional fantasy sports, are games in which players compete against one another by paying an entry fee to form a team of athletes from a sports league. Players gain points based on their statistical achievement in real-world competitions. The primary difference is that DFS games are played in a single day or week rather than an entire season, giving players a greater opportunity to win—or lose—money.
Federal Involvement
The legality of fantasy sports has been a recurring theme in the DFS debate. The most prevalent point of contention is whether daily fantasy sports are “games of skill” or “games of chance.” The Unlawful Internet Gaming Enforcement Act (UIGEA) of 2006, which prohibits financial institutions in the United States from processing online gambling transactions, classed fantasy contests as games of skill, exempting them from the law. However, the act’s text is broad enough that the games fall into a legal grey area that Congress and the states must decide on their own.
So yes, Congress has played just a minor role in this discussion. In May 2016, the United States House Subcommittee on Commerce, Manufacturing, and Trade held a hearing on daily fantasy sports and sports betting, but no further action was taken. (The NCSL submitted a document for the record at the hearing in favor of states’ right to regulate and tax daily fantasy sports.)
The Professional and Amateur Sports Protection Act is one piece of federal legislation that could have a direct impact on fantasy sports (PASPA). This bill makes sports betting illegal across the country, with the exception of Nevada’s sports wagering sector and a few states’ already-running sports lotteries. The state of New Jersey is currently arguing that PASPA is illegal in Christie v. National Collegiate Athletic Association. The State and Local Legal Center, which assists states and municipalities in Supreme Court litigation, filed an amicus brief in support of New Jersey.
State Intervention
The daily fantasy sports sector has been established for almost seven years, but the two biggest fantasy sports operators, DraftKings and FanDuel, did not become household names until a $200 million advertising blitz in 2015. This action aided these corporations in gaining notoriety and producing more players, and it drew the attention of state legislators and attorneys general. Many DFS organizations began operating in a legal grey area because to the lack of specific regulations clarifying the rules on the fantasy sports industry. To determine or forecast the legality of fantasy sports in their jurisdictions, states and territories relied on court precedent, attorney general decisions, public comments, or other laws.
Since 2015, 43 states have introduced fantasy sports laws. Nineteen states have passed legislation to legalize paid-entry fantasy sports, with two purposes in mind: first, to provide legal clarity, regulations, and safety for their inhabitants, and second, to generate cash.
Regulations include requiring players to be at least 18 years old, prohibiting DFS operator staff from participating in contests, isolating player funds from operational monies, and establishing a governmental agency to monitor the business. Some jurisdictions also barred amateur sporting contests, including collegiate sports, at the request of organizations like as the National Collegiate Athletic Association (NCAA). Several states have also formed special task forces or commissions to investigate and analyze various elements of fantasy sports and DFS, such as economic development, consumer protection, and taxation.
As states around the country grapple with budget problems, several are attempting to broaden their revenue bases, particularly in internet commerce, services, and excise taxes. To present, ten states have legalized daily fantasy sports, with operating costs ranging from $5,000 for three years to $50,000 per year, and ten states have approved taxing operators’ money produced within the state.
Those who expect that taxing daily fantasy sports companies will generate significant income for their budgets may be in for a surprise. While over 59 million people participate, the number of people who participate in paid-entry daily fantasy sports is substantially lower. Furthermore, the taxed money is only a fraction of the “handle”—the amount operators take in entry fees.
The fiscal impact of this new industry is still being assessed in the states that have legalized it. Pennsylvania, one of the most populous states to legalize paid-entry fantasy sports, issued a House fiscal note anticipating the tax will produce more over $500,000 in the final three months of the fiscal year.
While the DFS sector is still in its early stages, what it will eventually become remains to be seen. However, with the possibility of legalized sports betting across the country looming on the horizon, it is almost clear that gambling in America will continue to evolve in the twenty-first century.