Fantasy sports sites DraftKings and FanDuel are about to face their first major legal hurdle.
New Jersey Rep. Frank Pallone, a ranking member of the House Energy and Commerce Committee, called for the panel to investigate the link between fantasy sports and gambling following the increased promotion and coverage of DFS products throughout national TV broadcast networks.
On Monday, Pallone sent a letter to committee Chair Fred Upton (R-Mich.) and Commerce, Manufacturing and Trade Subcommittee Chair Michael C. Burgess (R-Texas).
“I am writing to request that the Energy and Commerce Committee hold a hearing examining the relationship between professional sports and fantasy sports to review the legal status of fantasy sports and sports betting,” the U.S. representative wrote.
Pallone’s interest in daily fantasy sports comes in the heels of the explosion in popularity of DFS sites. Over the weekend, National Football League viewers were pummelled by advertisements for sites, including DraftKings and FanDuel. DraftKings alone spent $24 million in TV ads leading up to the first weekend of NFL football.
“Anyone who watched a game this weekend was inundated by commercials for fantasy sports web sites, and it’s only the first week of the NFL season,” Pallone said. “These sites are enormously popular, arguably central to the fans’ experience, and professional leagues are seeing the enormous profits as a result.”
Pallone is not far off the mark. Both FanDuel and DraftKings—which are reportedly valued at over $1 billion—have inked partnerships with different professional teams in several leagues, and in some cases, have partnered directly with leagues themselves.
Daily fantasy sites allow their players to build their virtual teams every day or week, instead of only once at the beginning of the season. FanDuel and DraftKings have real-money contests where users pay an entry fee to choose their team with a salary cap. They stand to win cash prizes or lose their entry fee depending on how the players perform in real-life games. Although the odds of the average player winning is slim, it was reported last week that only 1.3% of DFS players win 91% of player profits through the use of automated software that does most of the heavy lifting for them.
This, Pallone said, is an obvious interplay between federal laws, making DFS sites ripe for Congressional review.
“Fans are currently allowed to risk money on the performance of an individual player,” Pallone said. “How is that different than wagering money on the outcome of a game?”
Online sports gambling are outlawed under the 1992 Professional and Amateur Sports Protection Act. But daily fantasy sports operate under the Unlawful Internet Gaming and Enforcement Act (UIGEA) carve-out. Lawmakers back then didn’t consider fantasy sports simply because this style of fantasy sports gambling just didn’t exist at the time.
Early this year, American Gaming Association said Americans will bet over $3.8 billion with unauthorized sportsbooks at the 2015 Super Bowl, which is a clear indication that the current prohibition on sports betting outside Nevada is “clearly failing.”
Pallone, incidentally, has been tirelessly working to end PASPA’s tyrannical rule on their home states. For the past three years, Pallone has been trying to pass sport betting legislations that will exempt New Jersey from PASPA’s control.
The meteoric rise of daily fantasy sports has in some ways mirrored the rise of online poker in the United States. Like poker it’s captured the imaginations of fans looking to become rich playing a game, they’re scoring big money television contracts but they’re also suffering from too many sharks in the pool, unwanted government attention and a murky legal landscape. It’s clear daily fantasy sports will suffer the same fate as online poker in the USA; it’s just a matter of when DFS’s black Friday moment happens.