Has the Luck Run Out for DraftKings and FanDuel?

Las Vegas sign
Photo credit: https://www.flickr.com/photos/30478819@N08/

by Patrick Doughty*

After a tumultuous week, filled with calls for investigations into allegations of insider trading, the other shoe finally dropped for the Daily Fantasy Sports industry (DFS).[1]  On Thursday October 15, the Nevada Gaming Control Board (NGCB) concluded that DFS is gambling, thus subject to the laws and regulations of the State of Nevada and the Gaming Commission.[2]  The decision effectively shuts down industry giants DraftKings and FanDuel’s operations inside Nevada until the two companies obtain a state gaming license.  While the insider trading scandal may have sent a shockwave through the DFS and sports world, it is an issue that can be addressed and contained by the companies involved.  However, the NGCB’s decision is more serious, as it threatens the legal existence of Daily Fantasy altogether.

What Does the Board’s Ruling Actually Do?

The ruling establishes DFS as gambling under Nev. Rev. Stat. § 463.0152 (1985).  The NGCB  considers DFS a “sports pool,” which is defined as “[wagering] on sporting events or other events by any system or method of wagering.”[3]  The board explained that “in order to lawfully expose DFS for play within the State of Nevada, a person must possess a license to operate a sports pool issued by the Nevada Gaming Commission.”[4]  DraftKings and FanDuel were forced to shut down their operations in the state until they could obtain a license.

Nevada, through its statutes, encourages gambling as a part of its economy.[5]  Daily Fantasy is no different.  Current gaming licensees, such as casinos, are still able to offer DFS sports pools, so long as they are not connected to any unlicensed affiliates.[6]  By classifying DFS as a form of gambling, the state now controls who can operate these sports betting schemes.

In order to qualify for a Nevada gaming license, a non-publically traded company, such as DraftKings or FanDuel, needs to meet essentially two criteria.[7]  First, the applicant-company, or its subsidiary, must be incorporated in the state and it must maintain its principal place of business in the state.  Second, the applicant-company must turn over relevant financial information to the NGCB and get approval from the board before it can authorize any transfer of shares.[8]

It is unclear when, or even if, the major DFS companies will apply for a Nevada gaming license, as such a license may impact their non-gambling status in other states.[9]  But, in the meantime, Nevada joins Arizona, Iowa, Louisiana, Montana, and Washington as states that prohibit participation in DFS.[10]  Both DraftKings and FanDuel maintain that DFS is a game of skill and, therefore, should not be considered gambling.

Who Should Be Worried About This?

The Daily Fantasy Sports industry, as a whole, should be a little worried, although this decision is obviously very limited in scope.  The industry has gone out of its way to fit within the allowances of the Unlawful Internet Gambling Enforcement Act, commonly referred to as the Fantasy Sports exemption.[11]  While Nevada’s decision is only one state and does not impact the industry’s positon under UIGEA, it is still a chink in the armor of an otherwise seemingly unflappable business model.  With millions of dollars invested in advertising and partnerships, DraftKings and FanDuel will be wary of other states following in Nevada’s footsteps by considering DFS gambling, especially in states where sports gambling is illegal.[12]

The professional sports leagues, on the other hand, should be more concerned.  The leagues have consistently fought to defend against state attempts to establish sports betting schemes.[13]  They claim the integrity of their leagues would be tarnished if sports betting is allowed.  The leagues say fans would be less inclined to spend money on the leagues’ products if they perceive an association with gambling.[14]  Yet, the leagues have bought in to the DFS industry, both literally and figuratively.  DraftKings and FanDuel commercials have become as synonymous with N.F.L. Sundays as touchdowns and penalty flags.  Even the leagues’ broadcast partners have not been able to stay away from DFS money, readily promoting “daily fantasy lineups” and sponsored segments.[15]

This is the real impact of the Nevada Gaming Control Board’s ruling.  By considering DFS gambling, the leagues suddenly appear to be supporting this online betting scheme.  How do the leagues, and their broadcasting partners, reconcile the amount of money they have willingly accepted from DFS with their complaints about the harmful impact legalized sports gambling would have on their respective sports?  The irony is that while the leagues have fought any association with sports gambling in order to preserve the integrity of their games, recent events have exposed integrity issues within league-supported Daily Fantasy companies.[16]

What Are the Lasting Implications?

Daily Fantasy industry and their affiliates are already facing several serious issues.  Nevada’s ruling does not ease the pressure on the operators, the leagues, or the broadcasters that promote it.  The board’s decision partially vindicates the mounting criticism of the perceived double standard held by the leagues, and the law, which pushes away traditional sports betting with one hand, yet accepts enormous amounts of money from DFS with the other.[17]

Daily Fantasy companies and the leagues want to keep DFS within the Fantasy Sports exemption of the UIGEA.  Applying for a Nevada gaming license may impact the eligibility of DFS in states where sports gambling is illegal.  DraftKings and FanDuel continue to assert the game’s position as a “skill-based entertainment product.”[18]  FanDuel has circulated a petition among its members to help protect the game, citing the recent Nevada decision as “[misrepresenting] who we are and what we do.”[19]  DraftKings has reportedly delayed the shutdown of its website in Nevada, allowing players in the state to participate in this past weekend’s slate of N.F.L. games.[20]

With its decision, the Nevada Gaming Control Board tried to provide some clarity as to the game’s status.  The leagues have maintained their support of the daily fantasy industry, but if more states decide to follow Nevada and consider DFS gambling, the leagues will have to address some tough questions sooner or later.


* Editor-in-Chief, Jeffrey S. Moorad Sports Law Journal, J.D. Candidate, May 2016, Villanova University School of Law

[1] See Joe Drape and Jacqueline Williams, In Fantasy Sports, Signs of Insiders’ Edge, N.Y. Times (Oct. 11, 2015), http://www.nytimes.com/2015/10/12/sports/fantasy-sports-draftkings-fanduel-insiders-edge-football.html?_r=0 (reporting allegations of insider trading among employees of FanDuel and DraftKings); see also Luke Russert, Congress to Examine Fantasy Football Pay Sites?, NBC News (Sept. 14, 2015, 7:58 P.M.), http://www.nbcnews.com/news/sports/congress-examine-fantasy-football-pay-sites-n427291 (reporting New Jersey Congressman Frank Pallone’s intent to investigate “relationship between professional sports and fantasy sports”).

[2] Nevada Gaming Control Board, Notice No. 2015-99, Notice to Licensees: Legality of Offering Daily Fantasy Sports in Nevada (2015), available at http://gaming.nv.gov/modules/showdocument.aspx?documentid=10481.

[3] Nev. Rev. Stat. § 463.0193 (2015).

[4] Nevada Gaming Control Board, supra note 2 (emphasis added).

[5] Nev. Rev. Stat. § 463.0129 (2015) (describing public policy considerations of gaming statute).

[6] See Nevada Gaming Control Board, supra note 2 (clarifying legality of daily fantasy schemes among current licensees).

[7] Nev. Rev. Stat. § 463.490 (2015)

[8] Id.

[9] See Mike Florio, FanDuel, DraftKings Temporarily Suspend Operations in Nevada, NBC Sports (Oct. 15, 2015, 11:13 P.M.), http://profootballtalk.nbcsports.com/2015/10/15/fanduel-draftkings-temporarily-suspend-operations-in-nevada/ (quoting FanDuel director of communications, Justin Sacco, on decision to cease operations rather than apply for license to remain “compliant in all jurisdictions”).

[10] See Terms of Use, DraftKings.com, https://www.draftkings.com/help/terms (last visited Oct. 19, 2015) (listing ineligible state residencies); see also Terms of Use, FanDuel.com, https://www.fanduel.com/terms (last visited Oct. 19, 2015) (listing ineligible state residencies).

[11] 31 U.S.C. 5362(1)(E)(ix) (2006) (exempting participation in fantasy sports).

[12] See Ken Fang, NFL TV Partners Have Sold Almost $1 Billion in Ads for the 2015 Season Thus Far, Awful Announcing (Oct. 19, 2015, 8:45), http://awfulannouncing.com/2015/nfl-tv-partners-have-sold-almost-1-billion-in-ads-for-the-2015-season-thus-far.html (reporting advertisement figures for major advertisers during 2015 N.F.L. season).  FanDuel and DraftKings have spent $44.1 million and $31.2 million, respectively, on advertising during N.F.L. season.  Id.

[13] See, e.g., NCAA v. Governor of N.J., 730 F.3d 208, 215 (3d Cir. 2013), cert. denied, 134 S. CT. 2866 (2014); OFC Comm’r Baseball v. Markell, 579 F.3d 293 (3d Cir. 2009); see also Joshua M. Peles, Note, NCAA v. N.J.: New Jersey Rolls the Dice on a Tenth Amendment Challenge to the Professional and Amateur Sports Protection Act, 21 Moorad Sports L.J. 149, 158-61 (2015) (analyzing previous legislative and judicial history of professional sports gambling in United States).

[14] See NCAA v. Christie, No. CIV.A. 12-4947 MAS, 2012 WL 6698684, at *6 (D.N.J. Dec. 21, 2012) aff’d sub nom., NCAA v. Governor of N.J., 730 F.3d 208 (3d Cir. 2013) (arguing fans’ “perception of the integrity of their games will decline” if sports gambling is legalized); see also id. at *5 (citing 2007 NBA Las Vegas/Gambling Survey finding 17% of fans would spend less money on professional sports if it was connected with Las Vegas and perception of gambling).

[15] See Fang, supra note 12; see also Alex Reimer, The NFL’s Embrace of Daily Fantasy Sports is Beyond Hypocritical (Sept. 29, 2015, 3:32 P.M.), http://www.forbes.com/sites/alexreimer/2015/09/29/nflpa-draftkings-partnership-is-hypocritical/

[16] See Drape and Williams, supra note 1.

[17] See, e.g., SportsCenter: One Big Thing – Is Daily Fantasy Gambling (ESPN television broadcast Sept. 25, 2015), available at http://espn.go.com/video/clip?id=13736006 (arguing no difference between Daily Fantasy and regular sports gambling); see also Charles P. Pierce, It’s Time to Stop Being Stupid About Sports Gambling, Grantland (Oct. 14, 2015), https://grantland.com/the-triangle/its-time-to-stop-being-stupid-about-sports-gambling/ (citing hypocrisy displayed by leagues with fantasy sports).

[18] See DraftKings Statement – 10/15/2015, DraftKings.com, http://playbook.draftkings.com/press/draftkings-statement-10152015/ (last visited Oct. 19, 2015).

[19] See The Petition, FanDuel.com, https://www.fanduel.com/takeaction (last visited Oct. 19, 2015).

[20] See Joe Drape, DraftKings Continues to Operate in Nevada, N.Y. Times (Oct. 18, 2015), http://www.nytimes.com/2015/10/19/sports/draftkings-continues-to-operate-in-nevada.html (citing DraftKings spokesperson that “nuance” of particular game was reason to remain operational in Nevada).