Daily fantasy sports may be facing its most serious threat of its decade-long existence. Earlier this month, the US Department of Justice reversed a seven-year-old policy that the 1961 Wire Act applied only to sports betting across state lines. Under the new opinion, the DOJ now believes that the Wire Act applies to many forms of interstate gaming, including daily fantasy sports.
Until we get more clarity, players can continue to play daily fantasy sports for now, but over the next few months the decision could prove to be either neutral news for DFS or it could be bad.
Why DFS could be at risk
Due to the fact that daily fantasy sports is inherently intrastate, the future of DFS could be threatened under the new opinion. Daily fantasy sports is played by players — against each other — from over 40 states. Every day, in thousands of contests, players from states such as California are entering the same contests as players from Minnesota or New York and many other states. This could potentially be a problem for the DOJ. The question at this point will be — will the DOJ enforce the new opinion or will the DFS-friendly language of the 2006 UIGEA be enough to keep DFS away from scrutiny?
Some have said that the developments are bad news for online gaming while others have At this point the only thing that observers can seem to agree on is that there is confusion from the opinion.
Could the UIGEA save DFS?
Daily fantasy sports have been regulated by a handful of states with many other states seemingly content leaving DFS alone. In all, players from 42 states are accepted by at least one major operator.
While many states have regulated daily fantasy sports over the last few years, a few states have even authorized sports betting in the state since a US Supreme Court’s decision last May, which essentially declared the 1992 PAPSA law unconstitutional. Although DraftKings and FanDuel have jumped into the sports betting world, partnering with casinos to offer land-based and mobile sports betting, the Supreme Court decision would likely not impact DFS. Daily fantasy sport’s savior may be in the law that gave birth to the games.
To further complicate an already complicated matter, the 2006 UIGEA expressly allowed for fantasy sports. Although some opponents have argued that daily fantasy sports did not exist in 2006 and thus was not intended in the language in the law, the fact is that daily fantasy sports began and thrived because of that law. In the UIGEA, it expressly says that the definitions of betting and wagering is not applicable to fantasy sports.
Participation in any fantasy or simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization . . . and that meets the [certain conditions].
So why is sports betting ok and DFS possibly in hot water? In states where sports betting is legal, the process of the sports wagering occurs within a state’s borders — not over the internet. And while mobile sports betting may continue to be ok, it would almost certainly need to stay within the borders of the state — including having servers located in the state — to not come under scrutiny.
For daily fantasy sports, that would not really be practical for players in most states. If player pools were to be segregated by state, it’s possible that only the largest states would be able to sustain a healthy ecosystem to allow for enough games. While states such as California and New York could probably make it work, the smaller states would be left in the dust. The new framework required for intrastate DFS may not even practical for a business model for top DFS sites, especially when they are getting into the world of sports betting.
Daily fantasy sports could still be available for many U.S. players at this time next year, but it is not a certainty. One thing that does appear to be clear is that we should know a lot more over the next few months, especially as we get closer to April 15th.