California Lawmaker Introduces Bill to Regulate Daily Fantasy Sports

If you have watched or listened to a sporting event in the past few months, you’ve likely heard of FanDuel and DraftKings, two leading daily fantasy sports sites (DFS) which have flooded the airwaves with advertisements for this year’s NFL season.

But just as quickly as the industry has risen, it could already be crumbling. In October, a low level DraftKings employee accidentally published private company information on the site’s blog ahead of schedule. The incident led to calls by lawmakers for the industry to be scrutinized and potentially regulated.

California Assemblymember Adam Gray, who floated an online poker bill in the state legislature earlier this year, anticipated the need for regulation of the daily fantasy industry and introduced a bill in September which aims to regulate and license DFS operators.

Consumer protections

In an interview, Gray, who is the chairman of the Governmental Operations Committee and familiar with gaming issues, said that the advertising blitz by DFS companies was what gave him the sense that legislation was needed.

“You want to make sure that these games are being conducted fairly and that there are consumer and legal protections and restrictions on age participation for kids,” he said. “All of those things are very important to have in place.”

A game of skill?

Daily fantasy exists in somewhat of a gray zone. In 2006, the Unlawful Internet Gambling Enforcement Act was passed, effectively shutting down online poker sites, but at the same time giving fantasy sports a legal carveout. Lawmakers reasoned that DFS is not pure gambling, but a game of skill and therefore should not be ruled as such.

But now many are questioning the basis for that argument. Last month, Nevada released a ruling that DFS was indeed gambling, and that operators would need to leave the state until they acquire the appropriate license.

Even worse news came last week, after the New York Atty. Gen. declared that daily fantasy is gambling and DFS sites are operating illegally in the state. It’s unclear whether other states will follow suit, but DraftKings and FanDuel have decided to pursue legal action against the New York ruling.

Gray believes that regulating the industry will provide consumers with peace of mind that they will be treated in a fair and legal way. “We’ve had Internet gaming. The horse racing industry has had Internet wagering for some years now,” he said. “They haven’t had a single scandal break on the New York Times front page. That’s because they’re regulated.”

While the DFS industry is undergoing changes at breakneck speed, Assemblymember Gray plans to speak with DFS operators and discuss his legislation at an informational hearing. “We can choose to move forward with that bill in January,” he said. “We’re going to take the time in December to gather the facts and talk to the stakeholders and the consumers, and then, we’ll see where we go from there.”

If legislation such as Gray’s is passed, however, analysts say that the industry will cease to exist. DFS operators rely on a large pool of players to offer big guaranteed tournaments and cash games. Much like online poker, regulating DFS state-by-state will have a devastating effect on the industry.