Legal Sports Report on Split in Fantasy Industry

Legal Sports Report on Split in Fantasy Industry

The following article can be found in its original form at this link from the Legal Sports Report:

Legal Sports Report: Dustin Gouker, March 2, 2016

A handful of season-long fantasy contest operators have voiced their opposition to a fantasy sports bill in a letter to Virginia Gov. Terry McAuliffe.

 

Those who signed the letter represent organizations that are a part of theFantasy Sports Trade Association (FSTA), a group advocating for the passage of legislation in Virginia and similar bills in other states.

You can read the full letter, sent on Wednesday afternoon, here.

Fantasy sports operators not all on same page in Virginia

Last week, Virginia became the first state to see the full legislature approve a bill regulating fantasy sports. This week, the bill formally landed on the governor’s desk, giving him seven days to sign, veto or amend the bill.

The FSTA and major DFS operators have publicly supported the bill. DraftKings’ statement when the bill passed the House last week is broadly representative of the reaction:

Today the Virginia General Assembly took an important step toward ensuring that fans in Virginia can continue to enjoy fantasy sports contests with thoughtful and appropriate consumer protections in place.

But the letter sent to McAuliffe makes it clear that not everyone in the fantasy sports industryis a fan of this bill — or other similar legislation around the country — as it is presently written.

“While we respect, and likely share, the myriad concerns underlying the Fantasy Sports Contests Act,” the letter reads, “we do not believe the currently proposed version of the act serves Virginia citizen interest without at least a small change to make it economically feasible for any season-long fantasy game operator to continue to operate in your state.”

What the letter says

The letter does not call on McAuliffe to veto the bill, but to “voice concerns with aspects” of the bill in front of the governor.

The letter makes the argument that “full-season fantasy sports are a completely different game than daily fantasy sports (DFS).” More from the letter:

Although none of our businesses churn the type of revenues as do DraftKings or FanDuel, far more Americans play in full-season fantasy sports contests than “daily fantasy sports” – perhaps because we exist primarily as a hobby. Furthermore, unlike DraftKings or FanDuel, our companies have never faced any meaningful legal challenge, either under state gambling law or consumer protection law.

The letter goes on to cite the opinion of New York attorney general Eric Schneiderman, who has not targeted season-long fantasy in actions against DFS operators DraftKings and FanDuel.

The letter also offers suggestions on how the bill can be changed to ensure that season-long contest operators can remain in the state:

  • Rename the bill the “Daily Fantasy Sports Contests Act” and exclude season-long fantasy sports businesses from the scope of the legislation. The letter suggests that a separate act could govern season-long operators.
  • Revise the flat $50,000 fee with a “tax for all fantasy providers (daily or full-season) based on a share of collected revenues.” This would “prevent DraftKings and FanDuel from gaining a shared monopoly over that marketplace,” according to the letter.
  • Include an exemption that allows “fantasy sports businesses with less than 2,000 Virginia customers to apply for a hardship waiver to forgo paying the licensing fee.”

Paying the price for conflation with season-long fantasy

Before this letter surfaced, sources tell Legal Sports Report that a number of operators had implored the FSTA to differentiate paid-entry season-long contests from DFS.

Those pleas went unheeded, sources said, and that’s evident in the actions of the FSTA, as well.

The model bill advanced by the trade group is called the “Fantasy Contests Act” and makes no effort to draw a line between season-long and DFS. That’s despite the fact that the legal and legislative scrutiny focused on the fantasy sports industry has been almost exclusively driven by daily fantasy sports.

The conflation of season-long and DFS has been a hallmark of the FSTA’s lobbying efforts for the last two years:

  • The top-level numbers cited by industry representatives are for the entire fantasy sports industry of more than 50 million players, not DFS, whose registered player base is about a tenth of that. When pressed, the industry will provide the number of DFS players in a given state, but for the purposes of making their argument for regulation, the full universe of fantasy players is used.
  • A similar conflation is employed around the economic activity generated by daily fantasy sports and the broader fantasy sports industry.
  • The industry’s description of “fantasy sports” at legislative hearings and in the media evokes a social activity conducted between peers (an image traditionally associated with season-long fantasy) as opposed to the multi-billion dollar mass market gaming product that DFS has created.

Interestingly, the FSTA has been willing to draw at least one distinction between DFS and season-long.

At a hearing in November, a lobbyist for the industry actually said that DFS takes more skill than seasonlong – an assertion echoed by an industry representative at hearings in Washington State.

Season-long operators had enough?

The model bill being pushed by the FSTA usually includes a small fee — in the neighborhood of $5,000 — to be licensed.

But the FSTA has been unwilling to publicly push back in states — like Virginia — where a higher licensing fee has been written into legislation that would make it nearly impossible for season-long operators to be a part of a regulated environment.

Of course, much — or in reality almost all — of the lobbying efforts for legislation have been paid for by DraftKings and FanDuel.

Sources said a number of season-long operators made one last plea on a conference call on Wednesday that included the FSTA, as well as Jason Robins and Nigel Eccles, the CEOs of DraftKings and FanDuel.

In that call, it was made clear that the FSTA would not oppose the bill as it currently sits on the governor’s desk, nor would it suggest amendments.

What happens from here?

While only some season-long paid-entry operators voiced their opinion by signing the letter to the governor, it’s clear many of them are in the same boat in states like Virginia, where a barrier to entry would be too onerous.

Season-long operators clearly viewed this public break from the FSTA and DFS companies as alast resort.

It’s not clear if the public pressure from season-long operators could generate the momentum for the FSTA to reevaluate its position and push for legislation that would best represent all of its member companies.

We’ve also heard nothing so far from Gov. McAuliffe, and his plans for the bill. The letter should reach him on Thursday. It is within his powers to amend the bill and send it back to the legislature for approval.

 

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