House Committee Hears From Fantasy Sports Leaders
The following article can be found in its original form in Courthouse News:
Courthouse News: Tim Ryan, May 11, 2016
WASHINGTON (CN) - Members of Congress on Wednesday struggled with whether to treat daily fantasy sports sites as gambling, while representatives of the multi-billion dollar industry urged lawmakers to leave regulation to the states.
At a Wednesday hearing before the House Subcommittee on Commerce, Manufacturing and Trade, lawmakers emphasized the need to regulate the burgeoning daily fantasy sports industry to protect people from dishonest advertising, insider training and unfair competition.
Daily fantasy sports sites allow players to build lineups of professional athletes that score points based on their performance on the field. For example, in most fantasy formats, an NFL running back would get one point for every 10 yards he gained in a game and six points for every touchdown he scored.
Players compete in pools and can earn money depending on how well their pros perform in each day of games in the MLB, NFL, NBA and other leagues.
Current federal law exempts fantasy sports from regulations that killed Internet gambling, defining fantasy sports as a game of skill. Daily fantasy is therefore treated the same as season-long leagues, which operate using similar point systems but lock players into their teams for the course of an entire season rather than just a day or weekend.
The comparison of the two formats was fuzzy for some members of the committee, who struggled to see why daily fantasy sites are any different than other online gambling games that federal law has outright banned or regulated heavily.
"Even if some skill is required, daily fantasy... involves betting on sports," Rep. Janice Schakowsky, D-Ill., said at the hearing.
Peter Schoenke, the president of popular fantasy information site RotoWire.com and chair of the Fantasy Sports Trade Association, cast the distinction between daily and season-long fantasy leagues as "speed chess versus regular chess," with the only major difference being the length of the contest.
"Some may have the impression that the daily format is dramatically different than season-long fantasy sports, but it is virtually identical in the way it assigns points for players' performance," Schoenke said.
But John McManus, executive vice president for MGM Resorts International, said it is clear the law should treat daily fantasy differently than its season-long alternative.
"As soon as you're taking money from citizens and promising to pay it back under certain scenarios, you should be regulated," McManus said.
Draft Kings and Fan Duel dominate the overwhelming majority of the daily fantasy market, and unleashed a barrage of advertisements during last year's football season that thrust the format into the public perception.
The two giants faced strict scrutiny last year after reports surfaced claiming employees of the companies were winning pools by competing against regular players.
Draft Kings and Fan Duel did not participate in Wednesday's hearing, much to the apparent annoyance of New Jersey Democratic Rep. Frank Pallone, who repeatedly hit the fantasy giants for skipping the event.
States across the country have taken steps to curb the explosion of the daily fantasy sports market, as 10 states, including New York and Texas, have moved to either make daily fantasy sports illegal or define it as gambling. Four states have legalized daily fantasy sports and others have put forward regulations on the industry.
Members of the committee Wednesday seemed concerned about how to prevent minors and professional players who develop complicated algorithms from competing against regular users, as well as measures to help gambling addicts get help.
Professional players who develop programs that spit out optimal fantasy lineups based on factors as complicated as the typical strike zone of an umpire calling a baseball game can clean up playing against people without that information and who don't know their competition, said Kurt Eggert, law professor at Chapman University Fowler School of Law.
"That would be as if you're out there playing tennis and suddenly Roger Federer is slamming balls at you and you're playing for money," Eggert said.
Specifically mentioning the states' prohibition of playing games based on amateur sports, Eggert praised Massachusetts' efforts to regulate the daily fantasy industry, and insisted states are the best equipped to create regulations on the industry.
This was a common view among the representatives of the industry. Schoenke told the committee fantasy sports organizations are willing to work with states to develop regulations on the industry, and cautioned lawmakers to be careful when making federal laws.
"We also hope that, in doing so, we preserve the ability of states to regulate this activity and that they do so without killing the innovative spirit and new and exciting choices for millions of fans who enjoy fantasy sports," Schoenke said.
But a representative of the Small Business of Fantasy Sports Trade Association, or SBFSTA, said overarching federal regulations could help companies without the deep pockets of Draft Kings and Fan Duel compete by preventing them from having to navigate 50 separate regulatory minefields.
"If the federal government could figure out something that would allow us to stay in business and operate without too much burdensome regulation while complying with the consumer protections they're looking for, we'd be all for that," SBFSTA co-founder David Gerczak said after the hearing.
Also after the hearing, Schakowsky said there "may be a role" for the federal government in the daily fantasy game, but noted most of the companies in attendance Wednesday did not support wide-ranging federal intervention. She said more hearings are likely to help pinpoint the best way forward on the complicated issue.
"This is a huge, multi-billion dollar industry right now, and I think we should explore all aspects of it," Schakowsky said.