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Lawmakers across the country rushed to pass daily fantasy sports (DFS) legislation when it first appeared on their radar back in 2015. Within two years, 19 states passed DFS legislation.
The legislative progress DFS made in such a short period of time is laudable. However, the end result was near-universal bad legislation.
States are learning that instead of the promised riches, the amount of money earned from DFS is equivalent to the amount of water you can get out of a stone.
Even more egregious is the realization that the way they crafted their DFS laws now allows DFS operators and companies to push the envelope even further. Everything from de facto parlay wagering like FastPick to single-game DFS slates is now ostensibly legal, all thanks to laws that were more or less written by the industry and rushed through state legislatures.
A couple years later, many of these same states are now rushing to legalize traditional sports betting. So far, most of that introduced legislation is just as flawed.
What happened with DFS
When they were crafting DFS legislation, lawmakers in most of these states didn’t do a good enough job reigning in the lobbyists. In fact, they bought their talking points hook, line, and sinker:
- DFS isn’t gambling, it’s a game of skill and only requires a “light touch” regulation.
- Millions and millions of people are participating in paid-entry fantasy sports, wagering billions of dollars.
- High licensing fees or tax rates will destroy the industry and pick winners and losers in the market.
Most of these statements are a stretch.
- DFS is both a skill game and gambling. Like poker or sports betting, it’s a skillful form of gambling. Now that it’s been legal, DFS companies move more into the gambling realm. DFS operators are leveraging their new legal status and push the envelope when it comes to fantasy sports and sports betting.
- Lobbyists overstated the number of people participating in DFS contests was overstated. The amount wagered was conflated with revenue to maximum effect. Lawmakers eyes widened when DFS proponents threw big dollar amounts around, as lobbyists and the industry switched between revenue and amount wagered when it suited their argument.
- When they talked about the need for legalization, they talked about DFS as a multi-billion-dollar industry. When the topic of licensing fees and taxes came up though, they cried poor and switched to talking about revenue. States were told how fragile the business model was, and how any added cost or burdensome regulation could derail this potential gravy train.
The bottom line is this: DFS is a form of gambling and requires strict regulation. But at the end of the day, DFS is only marginally better regulated than it was before.
In some states, a few thousand dollars is enough to secure a DFS license.
In Virginia, the Department of Agriculture oversees the DFS industry.
Sports betting legislation is following suit
Sports betting is another industry that doesn’t mind conflating handle (the total amount wagered) with actual revenue. While it worked for DFS, this time around, lawmakers are making sure they get their cut, not to mention that the sports leagues are trying to get a piece of the action too.
Instead of industry-friendly bills, by-and-large, sports betting bills have been industry-killers.
Some examples include:
- A law in Pennsylvania with an absurd tax rate
- A push in some states for one percent of handle paid to the leagues as an”integrity fee”
- Lack of consideration of mechanics of integrity monitoring
- Assumptions that all black marketing betting will disappear overnight
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How legislatures should tackle this issue
To be fair, not all of the legislation is bad.
One example of measured legislation is West Virginia’s betting bill.
West Virginia isn’t burdening operators with a high tax rate, nor has it included the so-called integrity fee that the professional sports leagues’ lobbyists have been pushing for.
So why is West Virginia different? The answer is quite simple, West Virginia is in its second year of exploring sports betting.
If states don’t want to wait two years, they should look at how Massachusetts regulated DFS.
Massachusetts was one of the first states to impose strict regulations on DFS companies.
First, the Attorney General crafted regulatory guidelines.
Later, the legislature passed a DFS bill that adopted these regulations on a temporary, two-year-basis.
That gave the state time to study the issue. Now the state is looking at passing permanent legislation.
