On Thursday, November 19, 2015, Massachusetts Attorney General Maura Healey released a set of consumer protection regulations aimed at providing oversight into daily fantasy sports operations. In addition, a Massachusetts state court ruled that payment processing companies working with Draft Kings would be required to continue processing payments from New York, as, at the time, no formal legal action had been taken against the company in New York.

However, on November 17, 2015, the New York Attorney General filed complaints in the New York Supreme Court against FanDuel and Draft Kings with respect to their daily fantasy sports operations. Thus, daily fantasy operators are receiving mixed reactions from state officials on the legality of their operations.

The developments reflect state policy makers’ increased attention to daily fantasy sports and their evaluations of whether the activity complies with state and federal laws. Daily fantasy sports are generally distinguished between season-long fantasy contests and daily fantasy contests. 

Until recently, daily fantasy sports were offered in all but a few states under the theory, as stated by the daily fantasy operators, that the games are skill-based competitions that fall within an exemption to the Unlawful Internet Gaming Enforcement Act (“UIGEA”). However, state and federal policy makers have recently begun to take a closer look at the activity under state gambling laws, as well as other federal wagering laws, such as the Professional and Amateur Sports Protection Act. Below is a summary of the recent major developments in the area.

Nevada

On  October 16, 2015, the Nevada Attorney General issued a memorandum concluding that daily fantasy sports constituted a “sports pool” under Nevada law, requiring operators to receive a gaming license prior to offering the activity in the state. The memorandum also concluded that daily fantasy sports (whether skill-based or not) constitute a “gambling game” under state law.

In its analysis, the Attorney General’s office stated that “the determination of whether an activity constitutes a gambling game or a sports pool under Nevada law does not require analysis of the level of skill involved.” The memorandum also refuted the daily fantasy operators’ reliance on UIGEA’s language, finding that “UIGEA is irrelevant to determining the legality of daily fantasy sports under Nevada law.”

New York

On November 10, 2015, the New York Attorney General’s office sent cease and desist letters to Draft Kings and FanDuel, alleging that the companies were offering illegal gambling games in violation of the New York Penal Laws and also in violation of the state’s business laws related to deceptive practices. In advance of the lawsuit, both companies filed for a temporary restraining order in state court seeking to prevent the state from taking legal action against their operations. The request, however, was denied November 16, with the judge setting a hearing date for November 25. On November 17, the Attorney General filed complaints against both companies in the New York Supreme Court.

Neither Draft Kings nor FanDuel have filed an answer in the case at this time.

Massachusetts

On November 19, 2015, Massachusetts Attorney General Maura Healey announced proposed regulations under the state’s consumer protection laws designed to regulate daily fantasy sports. In a press release on the matter, Healey stated that “[t]hese regulations are a first of their kind for the Daily Fantasy Sports industry, and they focus on protecting minors, ensuring truthful advertising, bringing more transparency to the industry, and leveling the playing field for all consumers.” 

The proposed regulations consist of 16 provisions, and include a statement that their purpose “is designed to protect Massachusetts consumers who play Daily Fantasy Sports contests for prizes from unfair and deceptive acts and practices that may arise in the gaming process.” The regulations define the activity as a contest where a prize is awarded based upon the performance of one or more athletes in a competition. The regulations would apply to those operators that offer ten or more contests per month for money, and excludes season-long fantasy sports that consist of at least 200 separate competitions where prizes are awarded out of a common fund of the participant’s entry fees.

Proactive Fantasy Industry Steps

Despite all the activity on many fronts, the fantasy sports industry (which has existed and been accepted in many communities for a very long period of time) has been working to proactively address the issues raised.  On Tuesday, October 27, the Fantasy Sports Trade Association announced that it will be forming the Fantasy Sports Control Agency (“FSCA”), an independent body to regulate the developing industry. The FSCA will be headed by former US Secretary of Labor and prominent legal scholar, Seth D. Harris. In addition to serving in the Obama Administration, Mr. Harris was the director of New York Law School’s Labor and Employment Law programs, visiting professor at Seton Hall Law School, and focused his research on issues involving federal labor, disabilities, and employment discrimination policy.

Mr. Harris’s accomplishments in both the legal and public sectors should provide the FSCA with strong guidance as it develops industry standards, internal controls, auditing, and enforcement mechanisms. In addition, his credibility and record of accomplishments provide the FSCA with the authority needed to bring together various stakeholders to address industry issues. His selection provides a strong first step in establishing effective, independent regulatory policy for fantasy sports industry members.

Additionally, the industry has embraced some of the efforts for practical governmental regulation.  In response to the announcement by the Massachusetts Attorney General earlier this week of proposed regulations, both FanDuel and DraftKings offered qualified support for a regulatory approach, with FanDuel saying they made "a tremendous amount of sense," and DraftKings calling them a "thoughtful and comprehensive approach" to fantasy sports.

 

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