You may have noticed recently that daily fantasy sports is a thing. Want to get rich quick? Be a millionaire? The ads promise your answer is on FanDuel or DraftKings. It’s only a few clicks away.
You also may have noticed that Pennsylvania is broke and our state’s leaders can’t decide on the best ways to bring in revenue to fund things like schools and public services. So now, this state could head toward getting its own slice of that sweet $3 billion fantasy sports pie.
“Politicians and law enforcement officials who never probably cared about these things, well, now they can’t watch their football game without seeing 20 of these ads,” said Philadelphia sports attorney Steve Silver, “and now they’re wondering what the heck is going on here.”
The state of fantasy sports (and sports betting in general) could shift wildly in the coming years as both Pennsylvania and New Jersey tune in. And regulations almost certainly mean revenue for the states: Taxed gambling income and fees could theoretically charge fantasy sports companies in order to operate here.
But Pennsylvania can’t go passing laws changing how daily fantasy sports and sports betting works in this state. The fantasy companies argue it isn’t gambling — that it’s a game of skill, not chance. The pro leagues make millions off of fantasy sports, but can’t sign deals with sports betting providers. And regulating or legalizing either as gambling operations would mean today’s operating reality would violate federal law.
Why it’s legal
Daily fantasy sports currently operate under the Unlawful Internet Gambling Enforcement Act, which was passed in 2006 and basically exempted fantasy sports from laws that govern online gambling. When that legislation was drafted, it was done so with the help of George Bush’s White House that at the time employed a former lobbyist for the NFL.
The act was tacked onto the end of a wholly unrelated bill about regulating seaports and international supply chains. It ended up being passed in the final hours of the congressional session of the year. That language that allowed fantasy sports to exist was drafted back when the industry was largely about leagues with friends. At the time, millions weren’t at stake.
Enter daily fantasy sports, which is more than football; there’s baseball, basketball, golf, even NCAA sports in there. So this game of selecting players to put together a fake team and win money has turned into a complicated, tangled web of bills, regulations and interested parties that range from players to casinos to politicians to consumers.
And Pennsylvania is actually in a position to be one of the first states to make moves on it.
Why we care now
Unless you have somehow avoided watching a single sporting event this year, you probably know why we care about this all of a sudden.
Silver, an associate attorney at McBreen and Kopko, says the main reason for all the hype now is the massive proliferation of ads that hit as soon as the NFL season started. FanDuel and DraftKings both secured huge corporate backing in the offseason, including by a number of NFL team owners. Here in Philly, DraftKings advertises with SEPTA and the sites partner with both the Sixers and the Phillies. The Eagles partnered with FanDuel back in April.
During the first week of the NFL season, DraftKings spent more on advertising than any other company in the nation. By weeks two and three of the football season, people were already sick of hearing about these two huge daily fantasy sports websites (there are others, but FanDuel and DraftKings dominate the market).
“They shined a gigantic spotlight on themselves,” Silver said, “and when it hit, it uncovered a lot of things that have brought a lot of scrutiny.”
One of those instances was reports of what might amount to “insider trading.” In a nutshell, it’s alleged that a DraftKings employee used insider information to enter a tournament on FanDuel and he ended up scoring $350,000 in the process. Following that, people started realizing that maybe everything with these sites wasn’t exactly on the up-and-up.
The Department of Justice is probing the companies and looking into whether or not this stuff is even legal. In addition, class action lawsuits are being organized as DFS players who have lost complain about false advertising. The Fantasy Sports Trade Association is apparently developing a DFS outside control board.
The Keystone state’s take
Meanwhile, increased scrutiny is coming down from state regulators. The Pennsylvania House Gaming Oversight Committee will hold a public hearing on Nov. 10 about the regulation of fantasy sports and sports betting in the state. Silver said that in terms of positioning, Pennsylvania is in a good spot to pass regulatory bills because it already has a Gaming Control Board and widespread acceptance of gaming throughout the state.
However, Silver says, states could inadvertently run afoul of the federal Professional and Amateur Sports Protection Act which doesn’t allow sports gambling across the nation, except Nevada. So say Pennsylvania decides that, yes, daily fantasy is gambling. If they then legalize it to regulate it, they’re allowing sports gambling, and could be in violation of PASPA. (It’s similar to marijuana legalization, where states are dodging federal laws and legalizing weed in favor of regulation.)
The state plan that’s on the table that would regulate daily fantasy sports is House Bill 1197, which was drafted earlier this year by western PA Republican Rep. George Dunbar to allow for casinos to host fantasy sports tournaments. As issues with daily fantasy sports bubbled up, Dunbar revised the bill to include ways for DraftKings and FanDuel to operate.
Here’s what it would mean: Casinos would pay five million bucks to host daily fantasy tournaments, vendors like DraftKings and FanDuel would pay a million to operate in Pennsylvania and the state would also collect 14 percent of all earnings.
“That doesn’t mean get rid of Draft Kings and Fan Duel,” Dunbar told ABC27 in Harrisburg. “I want DraftKings and FanDuel in Pennsylvania. I want them operating in Pennsylvania.”
It’s pretty clear at this point that the companies are going to object to being tied exclusively to casinos — it would fundamentally change how people play the game. Both FanDuel and DraftKings have emailed users about potential Pennsylvania regulations. Below is a screenshot of what DraftKings sent users:
At the end of the day, it could all come down to how daily fantasy sports is classified. Is it gambling, or is it a game of skill? That depends who you ask. Proponents of more regulation will tell you this stuff is straight gambling.
When DraftKings CEO Jason Robins speaks publicly about the matter, he says it’s like trading on the stock market: of course there’s luck involved, but the truly skilled players rise to the top. But even he has slipped up. As investigators have pointed out, he said in a Reddit AMA several years ago that “the concept is almost identical to a casino.. specifically Poker. We make money when people win pots.”
A Delaware County resident who operates the Twitter @Fantasource spoke with Billy Penn about his experience in sports betting and playing daily fantasy sports. @Fantasource, who asked not to be named, has become a resource for people — many in Philly — looking for advice on who to draft, when to do it, who’s hot, who’s not and best practices for daily fantasy sports.
“I’ve been doing this for 20 years, between sports gambling and fantasy leagues, so I figured, let me use what I’ve learned and see if I can make any money,” he said. “And I was kinda successful. I wasn’t winning millions, but I also wasn’t losing everything.”
@Fantasource says he spends about 10 hours a week on daily fantasy sports — now it’s mainly football on FanDuel — and he has a routine down that includes spreadsheets and formulas to generate lineups. His weeks typically go like this: On Tuesdays, he looks at games and injuries, Wednesdays he starts checking out individual players so that by Thursday he has a good idea of who is playing and which match-ups look good. On Friday and Saturday he puts together lineups, and by Sunday, games start and it becomes a waiting game.
Usually he plays in smaller tournaments, and every now and then he’ll enter a large one and cross his fingers he’ll win the huge half a million dollar prize. But he knows the odds aren’t in his favor. Once he makes money in a tournament, the money comes in and he’s eventually sent a 1099 tax form. Yep, come the beginning of the year, he — along with everyone else who won money this year — will have to file income taxes on their winnings.
Still, @Fantasource said he agrees that there should be some oversight.
“I think everyone will agree that oversight and some kind of industry regulation would help,” he said. “If you’re dealing with my money, I would like some kind of security that you’re not just going to walk out the door with it or have some kind of data breach and who knows what could happen.”
What happens if daily fantasy sports is legalized, regulated and taxed? Some say it could mean that sports betting legalization and regulation is next. It’s already legal in Nevada. At issue is the fact that leagues in many ways support DFS. They’re not so high on sports betting.
New Jersey was close to legalizing sports betting — an estimated $95 billion dollar industry for just football that’s largely untaxed — in recent years. But plans were scuttled after the feds stepped in, and state lawmakers are trying to make their way through an appeals process.
“I think it’s a no-brainer,” Silver said. “The amount wagered is so large. It’s offshore. It’s with bookies underground. Why not have it done in a safe, regulated manner? People are doing it whether they have to go to some website or they can go down the street.”
