You have poured over the records and statistics. You have listened to the experts. Click….click. Your money has been placed. A few hours later it’s late in the game and third and long. Your team can put the game away with a touchdown, or if the right player scores you’re in the money. Bam! Just as you predicted the better team just won the game. Oh yeah! Your guy just spun out of a tackle and juked his way to paydirt. You’re over the top. You login to calculate your winnings. Whether you wager on outcomes or individual players you are gambling on sports. Are your winnings the results of luck or skill? And whether the Department of Justice or the FBI like it, or not, millions of people are wagering on games and daily fantasy sports.
In 1992 Congress passed the Professional and Amateur Sports Protection Act which attempted to define the legal status of sports betting in the United States. Effectively, the law prohibited sports gambling in all but four states – Oregon, Delaware, Montana, and Nevada. In 2006 the explosion of the internet forced Congress to reexamine the issue of legal gambling – specifically sports gambling. The Unlawful Internet Gambling Enforcement Act was passed. The UIGEA “prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law.” The act specifically excludes fantasy sports that meet certain requirements, skill-games and legal intrastate and inter-tribal gaming.
Fantasy sports has flown under the radar for almost a decade since the UIGEA. It’s classification as a “game of skill” has protected the industry. But, in the last year, daily fantasy sports have exploded. Two daily fantasy sites in particular, DraftKings and FanDuel, are exchanging billions of dollars in sports fans’ money. They are reaping billions and paying out billions. The cash boom is being heard loud and clear in Washington and on Wall Street. Now, Congress, The Department of Justice, and the FBI are sniffing around. Several developments in the past 48 hours threaten the very existence of daily fantasy sports.
On Wednesday The Wall Street Journal reported that The Department of Justice and the FBI are probing the legality of daily fantasy sports.
– FBI agents from the Boston office have been contacting customers of DraftKings Inc. to ask them about their experiences with the Boston-based company, one person familiar with the matter said.
– The New York Attorney General’s office has asked both companies for a raft of internal data including the win/loss records of players, algorithms that determine the fantasy pricing for athletes and details on their policies to prevent fraud. The companies had until Thursday to respond.
The interest of law enforcement was piqued by the revelation that daily fantasy sports might be vulnerable to its own style of insider trading.
Daily fantasy came under scrutiny after a DraftKings employee admitted on a fantasy-sports message board last week that he had prematurely released sensitive data about the site’s biggest contest. The same week, he won $350,000 on FanDuel, something both companies acknowledge. DraftKings said the leak was an accident, and both companies said he didn’t benefit from having early access to data.
DraftKings attempted to brush off the notion that their industry, or a governmental investigation, will reveal any illegality.
“It is entirely predictable that the government would follow up on the misleading reports about our industry,” a DraftKings spokeswoman said in a statement. “We have no knowledge of the specifics of any federal investigation but strongly disagree with any notion that our company has engaged in any illegal activities.”
If Wednesday was a gut-punch to daily fantasy sports, then Thursday was the headshot. Yesterday the Nevada Gaming Control board “banned unlicensed daily fantasy sports websites from providing their product to Silver State customers, saying the activity constitutes sports wagering.”
In an order filed by the Gaming Control Board Thursday, the agency said daily fantasy sports websites, such as DraftKings and FanDuel, can apply for a Nevada gaming license to operate a sports pool. The Control Board issued a “cease and desist” order that bans the websites from Nevada.
“Since offering daily fantasy sports in Nevada is illegal without the proper license, all unlicensed activities must ceases and desist from the date of this notice,” wrote Gaming Control Board Chairman A.G. Burnett.
So what is really going on here? There are several concurrent developments. First and foremost New Jersey is waging a drawn-out legal war to legalize sports gambling. Atlantic City is crumbling and the state is facing an $85 billion dollar deficit. New Jersey lawmakers and state governments across the country are drooling at the prospect of taxing and regulating illegal sports gambling which is estimated at $80 billion to $380 billion. A ”principled man” like New Jersey Senator Robert Menendez doesn’t understand why daily fantasy sports is allowed to rake in billions, but his own state can’t solve its budget crisis by legalizing sports gambling. The daily fantasy “insider trading” scandal last week gave New Jersey, and Menendez, a chance to cry foul and hide their real intentions behind the veil of “consumer protection.”
“We put an exception for fantasy sports [in the 2006 law] because we didn’t want to burden groups of friends who get together to have a friendly contest to see who knows most about the sport,” Menendez said. “We never imagined this. I’m for allowing [daily fantasy sports] to go forward, but I want it to be appropriately regulated.”
Nevada plowed through the same hole on Thursday when they prohibited daily fantasy sports in their state. The real objection for New Jersey and Nevada is much purer than an altruistic concern for consumers. They want to wet their beaks. Nevada Gaming Control Board Chairman A.G. Burnett put it quite succinctly, “We’re not saying they can’t do (daily fantasy sports). We’re saying they can do this as long as they have a gaming license.”
DraftKings and FanDuel are both estimated to be worth about a billion dollars apiece. Rest assured, sports gambling and daily fantasy sports will both be legal someday; but the paradigm of betting on sports isn’t going to shift without a price.
“You can have the license. The price is $250,000… plus a monthly payment of 5% of the gross…” – The Godfather II.
Yes, it’s going to cost a lot of money to operate a website that makes lots of money from gambling on sports. It’s not a matter of protecting consumers, or whether sports gambling is a skill or not. Like all complications in the tangled web of government, gambling, and law – it’s a matter of coughing up the cash. And that requires more than skill or luck.
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