<b><i>Online Extra:</b></i> Big Sports, Big Money and the Future of Fantasy Sports Regulation

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Cheryl Miller, The Recorder

November 20, 2015

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Daily fantasy sports operators DraftKings and FanDuel are in a fight for their business lives in New York, where the attorney general has accused them of running illegal gambling sites. FanDuel has expanded the fight to California, asking its players to pressure state lawmakers and Attorney General Kamala Harris not to shut down operations in the Golden State. In a recent interview with our ALM sibling, The Recorder, Whittier Law School professor and gaming expert I. Nelson Rose discussed some of the issues in play with fantasy sports regulation.

DraftKings and FanDuel say they provide games of skill, not games of chance. Are daily fantasy sports a form of gambling?'

The question is, whether having just daily fantasy games, whether that eliminates too much skill, too many of the elements of skill. It means that things like injuries of a quarterback, fortuitous events, would have a much bigger impact. With season-long sports, a player could trade the injured player but injuries would happen to everyone. It's more likely that chance is going to drop out as the deciding factor.

But just because it's gambling doesn't mean it's illegal. The operators point to this 2006 federal statute, the Unlawful Internet Gambling Enforcement Act, that does have a carve-out for fantasy sports. But when you read the statute, you don't have to read it that carefully'it's the first paragraph of the statute ' it says that it is not designed to change any other federal law, let alone any other state law. It's an enforcement statute.

So it doesn't make something that is illegal, legal. The question of whether it's legal or not depends on state law, whether a game meets the state standard for a contest of skill or whether it's gambling.

How likely is it, then, that there will be 50 sets of regulations addressing daily fantasy sports?'

It could happen. It's happened with many other games. If you look at things like state lotteries, you can go back to 1962 and there were literally no state lotteries in the United States. Today, all but a half-dozen states have state lotteries.

And Utah and Nevada share a border, but one state has no forms of legal gambling and the other has almost every form, except a state lottery. So the state law where gambling [is addressed] it is in fact very common to have different standards. The same thing goes for alcoholic beverages and tobacco. Or we can now look at marijuana.

What are the chances of federal legislation in this arena?'

That's what the operators would love, to have a federal law at the very least to preempt the state laws so they wouldn't be violating any state laws. There's zero chance of that passing. Any law that Congress passes has to recognize the different public policies of the state. Congress would never impose the same public policy toward gambling on Nevada and on Utah. So there has to be an opportunity for states to opt in or opt out, if they ever do pass a statute.

Who are the players in this fight?'

If you look at the powers that are on both sides, the pro daily fantasy sports side is much more politically powerful than the anti side. The pro side of course has the operators. But more importantly it has most of the professional sports world behind it.

It also has very powerful media interests who love the fact that people are watching games until the final minute, even when it's a blowout because the viewer is more interested in how their individual athlete performs, which means more advertising, more money for the media companies and more money for the sports. And they have enough money to stave off disaster, like with all those lawsuits and hearings. I think they have enough resources that they can fight these and basically remain open until they can use their political power to get change through states' legislatures.

How do you assess California's proposed legislation?'

I haven't seen the California statute, but I think they will succeed in getting statutes passed that require the fantasy sports operators to be regulated because they have done such a poor job of self-regulation. Just common sense would say you don't let your insiders participate in games where they might win $350,000 '.

If they were smart, the fantasy operators would voluntarily agree to be taxed because if they are generating revenue, they'll have the state as an ally instead of an enemy.

Will this fight over regulating daily fantasy sports have an impact on attempts to regulate other Internet-based games, such as poker?'

I don't think so. That really is a separate fight. The operators are different. The parties are different. One of the problems that Internet poker has had, for example, is it doesn't have powerful organizations and media companies behind it. It doesn't have that enormous money and political power that fantasy sports have.

Do you think the California attorney general will get involved in this fight?'

The decision by the New York attorney general was very significant. Now you've got in New York, the third biggest state, and he's the attorney general, so he's the chief law enforcement officer of the state. And one of those companies is actually based in New York. So I think states can't avoid the problem anymore. I think that the operators are going to have to go on the offensive.

The attorneys general talk to each other. And whenever you have someone as a target by one state AG, they always become a target of other state AGs. So California will be looking at this.

What do you think will be happening a year from now on this front? Will the regulatory fights be over?'

No. I think that the fantasy sports operators have so much money and so much at stake that they will be fighting legal battles on a dozen fronts. And unless they're going to win, like they're going to get legislation through, the lawsuits will be continuing next year and the year after ' and probably the year after that.

Cheryl Miller'writes for'The Recorder, the San Franciso-based ALM sibling of'Internet Law & Strategy. She can be reached at'[email protected].

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Cheryl Miller, The Recorder

November 20, 2015

'

Daily fantasy sports operators DraftKings and FanDuel are in a fight for their business lives in New York, where the attorney general has accused them of running illegal gambling sites. FanDuel has expanded the fight to California, asking its players to pressure state lawmakers and Attorney General Kamala Harris not to shut down operations in the Golden State. In a recent interview with our ALM sibling, The Recorder, Whittier Law School professor and gaming expert I. Nelson Rose discussed some of the issues in play with fantasy sports regulation.

DraftKings and FanDuel say they provide games of skill, not games of chance. Are daily fantasy sports a form of gambling?'

The question is, whether having just daily fantasy games, whether that eliminates too much skill, too many of the elements of skill. It means that things like injuries of a quarterback, fortuitous events, would have a much bigger impact. With season-long sports, a player could trade the injured player but injuries would happen to everyone. It's more likely that chance is going to drop out as the deciding factor.

But just because it's gambling doesn't mean it's illegal. The operators point to this 2006 federal statute, the Unlawful Internet Gambling Enforcement Act, that does have a carve-out for fantasy sports. But when you read the statute, you don't have to read it that carefully'it's the first paragraph of the statute ' it says that it is not designed to change any other federal law, let alone any other state law. It's an enforcement statute.

So it doesn't make something that is illegal, legal. The question of whether it's legal or not depends on state law, whether a game meets the state standard for a contest of skill or whether it's gambling.

How likely is it, then, that there will be 50 sets of regulations addressing daily fantasy sports?'

It could happen. It's happened with many other games. If you look at things like state lotteries, you can go back to 1962 and there were literally no state lotteries in the United States. Today, all but a half-dozen states have state lotteries.

And Utah and Nevada share a border, but one state has no forms of legal gambling and the other has almost every form, except a state lottery. So the state law where gambling [is addressed] it is in fact very common to have different standards. The same thing goes for alcoholic beverages and tobacco. Or we can now look at marijuana.

What are the chances of federal legislation in this arena?'

That's what the operators would love, to have a federal law at the very least to preempt the state laws so they wouldn't be violating any state laws. There's zero chance of that passing. Any law that Congress passes has to recognize the different public policies of the state. Congress would never impose the same public policy toward gambling on Nevada and on Utah. So there has to be an opportunity for states to opt in or opt out, if they ever do pass a statute.

Who are the players in this fight?'

If you look at the powers that are on both sides, the pro daily fantasy sports side is much more politically powerful than the anti side. The pro side of course has the operators. But more importantly it has most of the professional sports world behind it.

It also has very powerful media interests who love the fact that people are watching games until the final minute, even when it's a blowout because the viewer is more interested in how their individual athlete performs, which means more advertising, more money for the media companies and more money for the sports. And they have enough money to stave off disaster, like with all those lawsuits and hearings. I think they have enough resources that they can fight these and basically remain open until they can use their political power to get change through states' legislatures.

How do you assess California's proposed legislation?'

I haven't seen the California statute, but I think they will succeed in getting statutes passed that require the fantasy sports operators to be regulated because they have done such a poor job of self-regulation. Just common sense would say you don't let your insiders participate in games where they might win $350,000 '.

If they were smart, the fantasy operators would voluntarily agree to be taxed because if they are generating revenue, they'll have the state as an ally instead of an enemy.

Will this fight over regulating daily fantasy sports have an impact on attempts to regulate other Internet-based games, such as poker?'

I don't think so. That really is a separate fight. The operators are different. The parties are different. One of the problems that Internet poker has had, for example, is it doesn't have powerful organizations and media companies behind it. It doesn't have that enormous money and political power that fantasy sports have.

Do you think the California attorney general will get involved in this fight?'

The decision by the New York attorney general was very significant. Now you've got in New York, the third biggest state, and he's the attorney general, so he's the chief law enforcement officer of the state. And one of those companies is actually based in New York. So I think states can't avoid the problem anymore. I think that the operators are going to have to go on the offensive.

The attorneys general talk to each other. And whenever you have someone as a target by one state AG, they always become a target of other state AGs. So California will be looking at this.

What do you think will be happening a year from now on this front? Will the regulatory fights be over?'

No. I think that the fantasy sports operators have so much money and so much at stake that they will be fighting legal battles on a dozen fronts. And unless they're going to win, like they're going to get legislation through, the lawsuits will be continuing next year and the year after ' and probably the year after that.

Cheryl Miller'writes for'The Recorder, the San Franciso-based ALM sibling of'Internet Law & Strategy. She can be reached at'[email protected].

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