NBA Commissioner Adam Silver said what many people think, declaring that the entire debate over skill vs. chance in DFS was “pointless” in comments at SXSW last week.
Unfortunately, DFS exists at a point in time in which the label — skill or gambling — is still extremely important, for a variety of reasons.
The latest example came in New Jersey, where legislation that would regulate fantasy sports doesn’t explicitly call it a game of skill; as such, the fantasy sports industry, DraftKings and FanDuel opposed the bill.
So why will the debate not go away, and why will the skill vs. chance debate rage on in states across the country?
It’s the legality problem
The main reason why the fantasy sports industry can’t and won’t give into the gambling designation? It could have a cascading effect in a number of states if it were to do so.
We’ve already seen seven attorneys general around the U.S. opine that DFS is gambling under state law. An open admission of the idea that DFS is gambling — or even supporting legislation that comes to that conclusion — could open the floodgates to more negative opinions.
Most legal analysts believe DFS passes the “dominant factor test” that many states apply to determining whether something is gambling or not. But DFS also exists in a number of states where the threshold for defining gambling is different. And a number of those states haven’t weighed in yet.
Then there’s also the problem with the current legal battle in other states — most importantly for FanDuel and DraftKings in New York, Illinois and Texas. While the DFS industry is arguing it is a game of skill in the courtroom, it would be a bad look to agree to be called gambling somewhere else.
The FSTA has made it a priority
The Fantasy Sports Trade Association recently reiterated that securing the skill designation is a priority in state legislation.
From an email sent to member companies by President Paul Charchian:
I’m writing today to make you aware that the FSTA board has unanimously voted to enact three important pillars to our lobbying efforts.
First, we want to be clear about the association’s goals for our state-by-state legalization efforts. They are:
- Clarification that fantasy sports contests are legal games of skill
- Common sense regulation
- Fee structures that allow small operators to remain viable in the state
That makes it quite clear that the industry, as a whole, isn’t going to allow anyone to call fantasy sports “gambling” without a fight. That was in play in New Jersey on Tuesday; from the Associated Press story on a fantasy sports hearing there:
[Industry lobbyist AJ Sabath] said the bill as currently written would “create a significant level of uncertainty about the future of our industry in New Jersey.”Sabath said that without an explicit definition of daily fantasy sports as a game of skill, the industry cannot invest in setting up operations in the state.
‘Gambling’ turns into a slippery slope
The industry would like to avoid being treated just like regulated gambling in states, for a variety of reasons:
- The licensure process is more rigorous and expensive.
- States tax gaming revenue in addition to charging licensure fees (most DFS bills do only the latter).
- The regulatory schemes for gaming are more onerous than most bills being floated, currently.
The industry wants to set itself apart from the gaming regulatory schemes in every state, a battle it already won in Virginia. In Indiana — where a bill is on the governor’s desk — fantasy sports is under the gaming commission’s purview, but as a game of skill.
Even if the industry could set aside the legal implications of being okay with being called “gambling,” the bill in New Jersey serves as an example of what the DFS industry wants to avoid in being regulated. Proposals of a 9.25 percent tax on gross revenue and severe fines for violation of the law are both things with which the industry would be less than thrilled.
Treating DFS just like gambling might be too much for most operators to handle monetarily and from an implementation standpoint, which is why the industry puts forth far less onerous regulations in its model legislation.
The bottom line: While everyone would like to just ignore the skill vs. gambling debate, the designation is far too important for the DFS industry, as it is currently situated.