Online fantasy sports leagues have become increasingly popular over the past decade. According to the Fantasy Sports Trade Association (FSTA), an estimated 56.8 million people in the United States and Canada over the age of 12 played fantasy sports in 2015. FSTA also estimates fantasy sports have a $3 billion to $4 billion annual economic impact across the sports industry. For many years, the industry flew under the radar. It has historically been an industry focused on season-long leagues that have relatively small prize pools, and many leagues never offered any prizes.
Today, daily fantasy sports leagues (DFS) that award winners with cash or prizes have become much more prevalent. DFS leagues run for a short, predetermined period. They follow many of the same rules as weekly and season-long leagues, but they are more commonly associated with monetary awards and other prizes. DFS players compete online by selecting a team of athletes and using their real-world performance statistics to determine who wins over a designated time.
The rapid growth of DFS has led many states and the federal government to examine whether they are a form of illegal online gaming. Online gaming is regulated under the Unlawful Internet Gambling Enforcement Act (UIGEA), which is designed to combat online gambling by preventing fund transfers among credit card companies, banks, and online gaming sites running “unlawful Internet gambling.” It requires financial service providers to enforce the law by blocking transactions from gambling websites. When UIGEA was drafted, an exception was carved out for fantasy sports – if the “winning outcomes reflect the relative knowledge and skill of the participants.”
Critics of increased regulation or outright bans of DFS argue it is a game of skill; the complex nature of a daily fantasy game requires expansive knowledge of players and statistics, which change on a weekly basis. FanDuel and DraftKings, the two companies currently dominating the DFS market, have already stopped offering paid-entry games in several states because their laws were unclear about the legality of DFS, including Arizona, Iowa, Louisiana, Montana, and Washington State.
Many other states are considering tighter regulations, taxation, or outright bans. In Michigan, Minnesota, and Pennsylvania, legislators have considered bills that would either confirm DFS as a game of skill or add consumer protections, taxes, licensing fees, or a combination of these policies.
Michelle Minton, a consumer policy fellow at the Competitive Enterprise Institute, argues laws banning fantasy sports will only serve to send consumers into risky underground markets.
“Whether or not fantasy sports betting is legal, it’s going to happen,” Minton told Budget & Tax News in December 2015. “When online gambling was largely considered illegal in the United States, Americans still spent billions of dollars wagering on websites operated overseas. That’s what will happen if daily fantasy sports betting is thrown back into the black market: Most will continue to play online but in a much less secure environment.”
Little evidence currently exists to suggest playing daily fantasy sports creates any of the negative effects associated with illegal gambling. DFS is a game of skill and should be treated as such. State legislators should carefully consider allowing DFS, and they should regulate it appropriately, with an eye toward providing consumers safe and reliable online DFS options.
The following documents examine daily fantasy sports and proposed DFS regulations in greater detail.
Michigan Lawmaker Proposes Bill Blocking Fantasy Sports Crackdown
https://heartland.org/news-opinion/news/michigan-lawmaker-proposes-bill-blocking-fantasy-sports-crackdown?source=policybot
Elizabeth BeShears writes in The Heartlander about a debate in Michigan over regulating online daily fantasy sports leagues. “A Michigan state lawmaker is proposing a bill to legalize betting on fantasy football games, prompting the state’s top gambling regulator to throw a penalty flag toward those playing fantasy football for money in the state. The key issue is whether the activity is defined as games of skill or of chance.”
State Lawmakers Call Foul on Daily Fantasy Football
https://heartland.org/news-opinion/news/state-lawmakers-call-foul-on-daily-fantasy-football
Gabrielle Cintorino writes in The Heartlander about the fantasy sports industry’s response to state governments’ efforts to reform or ban daily fantasy sports.
States Consider Regulation of Daily Fantasy Sports Sites FanDuel, DraftKings
http://www.usatoday.com/story/sports/fantasy/2015/12/02/pew-stateline-state-regulation-daily-fantasy-sports-fanduel-draftkings/76660516/
Elaine S. Povich of Stateline outlines how states have reacted to the rapid growth of daily fantasy sports, including the various regulations that have been implemented.
Research & Commentary: Regulation of Online Gambling
https://heartland.org/publications-resources/publications/research–commentary-regulation-of-online-gambling?source=policybot
Alex Monahan writes about the growing efforts to regulate or ban online gaming. Monahan argues states “should be allowed to make their own choice as to whether to allow online gambling. Doing so would bring in considerable tax revenue to the states, increase competition in the domestic gambling industry, and provide consumers with safe and reliable online gambling options.”
Out of Bounds? A Legal Analysis of Pay-To-Play Daily Fantasy Sports
https://heartland.org/policy-documents/out-bounds-legal-analysis-pay-play-daily-fantasy-sports
Nathaniel J. Ehrman examines daily fantasy sports and argues in this article daily pay-to-play fantasy sports sites are “legal under current federal laws, and are legal in the majority of states as a game of skill.” Ehrman also argues “many of the public policy concerns about daily fantasy sports are inapplicable and focus more on the consequences of casino gambling. Under the existing laws and regulations, daily pay-to-play fantasy sports are legal and should withstand any coming legal challenges.”
DFS State Watch: Monitoring Daily Fantasy Sports Action in State Government
http://www.legalsportsreport.com/dfs-state-watch/
Legal Sports Report outlines the various forms of daily fantasy sports legislation being considered across the United States.
A Safe Bet: Online Gambling’s Good for U.S.
http://www.cato.org/publications/commentary/safe-bet-online-gamblings-good-us
Patrick Basham, a former adjunct scholar for the Cato Institute, describes the unnecessary and harmful impact of federal regulation of the online gambling industry. Basham says gambling is one of the great successes of online commerce, and he says it’s wrong to prohibit online gambling.
Research and Commentary: Online Gambling Regulations
http://heartland.org/policy-documents/research-commentary-internet-gaming-regulations
This Research & Commentary by Heartland Senior Policy Analyst Matthew Glans documents the state of online gambling regulation in 2011. Glans says opponents of online gambling claim it will lead to higher gambling addiction rates and possibly underage gambling. Advocates of the practice, however, call for regulation instead of prohibition. Glans says state intervention can curb the negative effects of gambling without stopping responsible gamblers from enjoying the products available. Glans lists several sources for further research on the subject.
Online Gambling Tax Could Hit the Jackpot
https://heartland.org/publications-resources/publications/online-gambling-tax-could-hit-the-jackpot
Writing for The Heartland Institute, Eli Lehrer argues the social opposition to online gambling legalization is dead, and he says states should begin permitting and regulating the practice. He notes online gambling is already occurring throughout the United States, pointing specifically to Native American casinos that are able to create gambling websites outside of the federal government’s jurisdiction. Lehrer says to ensure these and future websites are free from fraud, the federal government should regulate online gambling and collect tax revenues.
A Short Treatise on Fantasy Sports and the Law: How America Regulates its New National Pastime
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1907272
Marc Edelman explains how U.S. law regulates the emerging fantasy sports industry. The article provides an overview of fantasy sports history, how fantasy sports works today, how laws apply to industry, and the services they provide.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Government Spending News at https://heartland.org/topics/government-spending/index.html, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database at www.policybot.org.
The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Logan Pike, Heartland’s state government relations manager, at [email protected] or 312/377-4000.
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
