Nebraska Legislature bill endorsed by Fan Duel, DraftKings would hurt small fantasy sports companies, critics say

Nebraska Legislature bill endorsed by Fan Duel, DraftKings would hurt small fantasy sports companies, critics say

The following article can be found in its original form at this link from the Omaha World-Herald:

Omaha World-Herald: Joe Duggan, February 19, 2017

LINCOLN — Fantasy sports has traditionally been a hobby for sports geeks.

A dozen or so friends get together, draft teams made up of professional athletes and track the players’ real-life statistics to compete for bragging rights, maybe a plastic trophy or even a few hundred bucks.

For Chad Schroeder, it’s a full-time job. And a lucrative one, at that.

The 43-year-old northwest Omaha man is one of the top professional fantasy football and baseball players in North America. A former stock broker, Schroeder says he has amassed gross winnings in excess of $1 million since launching his fantasy career a decade ago.

To help back up his claim, he shuffled through papers in his home office until he came up with an IRS Form 1099 sent to him last year. The form reported income of $51,450 from just one of the several fantasy sports companies Schroeder does business with each year.

One might think Schroeder would fully support a bill pending in the Nebraska Legislature that’s backed by the nation’s biggest fantasy sports companies. But he said the bill would actually threaten his livelihood, because he and others play a different type of game offered by much smaller companies.

“They’re going to lose tax revenue,” Schroeder said. “If they pass this bill as written, I’m not going to be getting 1099’s anymore.”

Ironically, the bill he referred to was introduced, in part, to help inoculate the fantasy sport industry against claims that it is nothing but a different form of gambling and should be outlawed. State Sen. Tyson Larson of O’Neill said his bill is about setting basic regulations so Nebraskans don’t get played by rogue companies.

“It’s a consumer protection bill,” Larson said last week, moments after his measure, Legislative Bill 469, advanced out of the General Affairs Committee to be debated by the full Legislature.

Congress defined fantasy sports as legal in 2006, when it passed legislation that outlawed Internet betting on sports and games like poker. Industry representatives say about 300,000 Nebraskans participate in fantasy sports contests.

Five states — Iowa, Montana, Hawaii, Arizona and Louisiana — prohibit online fantasy sports contests.

Among other things, the Nebraska legislation requires companies to establish escrow accounts to set aside the portion of entry fees paid out as prizes.

It also contains defining language that says winning outcomes must reflect the “relative knowledge and skill of the fantasy contest player.” And it requires several provisions intended to safeguard the integrity and fairness of the contests.

In addition to establishing fines for companies that violate the regulations, it requires fantasy companies to pay annual registration fees to the State Department of Revenue to cover enforcement costs.

While the bill has the strong support of the two largest fantasy sports companies, FanDuel and DraftKings, some of the smaller fantasy contest operators say the legislation would shut them out of the state.

In part, they say, it’s because the big companies offer a game that is much different, and much more popular, than the contests offered by smaller companies.

DraftKings and FanDuel run daily games, a format that has proven the most popular with players. Their customers pay entry fees to draft new lineups and play every day or even multiple times a day.

The ease and frequency of play has allowed each of the two largest companies to generate annual revenues in excess of $100 million, according to Forbes. The industry as a whole was worth $2.6 billion in 2016.

The daily play format also is behind an explosion in popularity of fantasy sports. Last year, more than 57 million played fantasy contests in North America, according to the Fantasy Sports Trade Association. That’s 30 million more players than in 2009.

So $10,000 registration fees called for in the Nebraska bill did not raise an objection from DraftKings and FanDuel.

Other companies offer season-long contests in which customers pay the entry fee at the start of the season, draft their players and then manage their teams 16 weeks for football or 26 weeks for baseball. Some of those companies generate much smaller revenues, and they squawked about fees.

In response to their concerns, the committee adopted an amendment to put the fees on a sliding scale depending on how much business each company does in the state. The lowest any company would have to pay is $1,000.

The sliding scale is acceptable to Steve Brubaker, a lobbyist with the Small Business of Fantasy Sports Trade Association. His organization represents about 40 companies, many of which offer season-long contests.

Brubaker, however, acknowledged that some companies won’t have enough customers in Nebraska to justify paying registration fees, even fees as low as $1,000. He was unable to say how many Nebraskans play season-long games with the companies in his association.

Greg Ambrosius of Minneapolis is founder of the National Fantasy Baseball Championship and National Fantasy Football Championship, two of the high-stakes, season-long contests. Fees of $10,000 or less may sound modest, but if every state charges them, it could quickly add up, he said.

“Legislatures are passing bills without understanding the difference between daily and season-long fantasy,” he said.

Schroeder, the professional player in Omaha, said he dabbles in daily games, but season-long contests are his bread and butter. With the help of silent investors who get a share of his winnings, he enters dozens of contests each season with fees ranging from $300 up to $10,000. And he does business with the smallest season-long companies across the country.

There are not many players like him in the country, let alone Nebraska. Still, he argued that if lawmakers pass the bill, it will force some companies out of the state and some games underground.

Whether the fantasy sports bill can gain enough support to pass in Nebraska remains very much in doubt. Last year, similar legislation died in the face of a filibuster by opponents who expressed concern that it would lead to expanded gambling in the state.

Unless the bill is amended to drop the fees for season-long contests, Schroeder said, he will be hoping the opponents win out again this year.

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