Will Ruling That Daily Fantasy Sports Are Gambling Blow Whistle on Games?

by Martha C. White /  / Updated 

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Even betting types might not want to make a wager on how the conflict between daily fantasy sports sites and the Nevada Gaming Control Board will play out.

On Thursday, the board said that daily fantasy sports is gambling and, as a result, sites like DraftKings and FanDuel will have to be licensed if they want to continue operating in the state.

The sites were already having a rough spell.

In September, Democratic Rep. Frank Pallone Jr., who supports legalizing and regulating sports betting in his home state of New Jersey, requested that the House Energy and Commerce Committee conduct a hearing to examine the legality of daily fantasy sports. More recently, allegations of insiders using proprietary information to gain an edge in the contests have prompted scrutiny from New York’s attorney general as well as the FBI.

While many players who closely follow the performance of their fantasy “teams” of hand-picked players based on statistics in hopes of winning big cash prizes, that news was unsettling. But the move by Nevada made it even clearer that their pastime is facing a serious threat.

Image: DraftKings headquarters
An employee in the software development department of DraftKings, a daily fantasy sports company, walks past screens displaying the company's online system stats in Boston.Stephan Savoia / AP

For players in Nevada, the gaming board’s move means they need to find a new hobby -- or source of income if they are among the relative few who profit at the contests -- at least for the time being. Geolocation software used by the sites will now prevent them from logging in or registering in Nevada, forcing them to either wait until the operators of FanDuel and DraftKings decide whether to seek state gaming licenses or withdraw their money and move on.

Nevada Regulators Tell FanDuel, DraftKings: Get Out or Get a License

For players in the rest of the country, the ball is in the air, so to speak.

“For those outside of Nevada, yesterday’s decision is an interesting one,” Marc Edelman, an associate professor of law at Baruch College, City University of New York, told NBC News. “On one hand, it seems like very bad news.”

Nevada has liberal gambling laws compared to other states, he explained, so a determination that daily fantasy sports is gambling, not a game of skill, could prompt other states to follow suit.

“A lot of this is the Wild West still,” said Rick Burton, the Falk Professor of sports management at Syracuse University. “It kind of authenticates that this is gambling, and it changes the stakes a bit.”

Both DraftKings and FanDuel issued statements saying they disagreed with the Nevada Gaming Control Board’s decision, but didn’t indicate whether or not they would move forward with the necessary steps to become licensed in the state. If they acquiesced to Nevada’s licensing requirements, that could be viewed by other states as an acknowledgement that the activity they propagate really is gambling, opening the door for other states to either ban the games or regulate them.

On Friday, A.G. Burnett, chairman of the Nevada Gaming Control Board, told NBC News that neither company had begun the application process. If they do, he said, approval of a license could take anywhere from three months to a year, depending on the corporate structure, number of individuals that would have to be reviewed, and other factors.

“It’s thorough, it’s extremely thorough,” Burnett said of the review process.

But Edelman and other experts say it’s not clear that Nevada’s move to force the companies to get a license will have much impact elsewhere.

The political climate in Nevada is somewhat unique. The casino lobby is very strong,” he said. “Presumably, the casino lobby wanted to see an end of daily fantasy sports in the state,” since the sites don’t have to comply with state regulations but still compete with casinos.

Burton added that Nevada’s robust regulatory infrastructure for gambling is uncommon. “Other states ...might not be as nimble” to benefit financially from classifying daily fantasy sports sites as gambling enterprises, he said, which could dampen enthusiasm for regulation.

Congress to Examine Fantasy Football Pay Sites?

In a way, daily fantasy sports are a victim of their own success, Edelman said. “Government entities, which once looked at this as maybe too small … will now look very carefully,” at the sites’ operations, he said.

In the long run, Burton said this could be bad news for players. If daily fantasy sports sites need to comply with a patchwork of state licensing rules and regulations, the costs of that compliance could be passed along to players.

In the interim, Nevadans shouldn’t try to find sites that still let them into play daily fantasy sports, Edelman warned, saying these were likelier to be fly-by-night operations operating from offshore locations.

But he said that people who participate in long-term fantasy sports leagues with friends or family needn’t sweat the crackdown in the Silver State. If you fly to a bachelor party in Las Vegas, he said, you can still check your stats or change your lineup without running afoul of the law.

NBC News' Matthew DeLuca contributed to this report.

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