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State seeks to regulate, not ban, fantasy sports betting

January 30, 2016

Indiana is joining a growing list of states proposing to regulate—not ban—fantasy sports operations, including DraftKings and FanDuel.

A bill moving through the Senate and another introduced in the House are designed to encourage fantasy wagering in Indiana.

The proposals, which have bipartisan backers, would legally distinguish fantasy wagering from gambling, which is more heavily regulated and taxed. Lawmakers have disagreed about whether the fantasy operations are legal under existing law.

Morrison Morrison

“The attorney general of Indiana hasn’t offered an opinion on this and it has been left up to the General Assembly,” said the House bill’s author, Rep. Alan Morrison, R-Terre Haute. “I think it’s time to do something.”

Twenty-four states—including neighboring Illinois, Ohio and Michigan—are either regulating or considering legislation to regulate the operators of fantasy sports contests within their borders.

Only two states—New York and Nevada—have moved to outright ban the increasingly popular games. The Illinois attorney general has also declared the games violate that state’s gambling laws, but the issue is tied up in court and lawmakers there are considering tighter regulations.

Morrison said he doesn’t want to chase away or discourage fantasy sports firms from doing business in Indiana.

“We wanted to put together legislation that would protect Indiana residents and at the same time welcome in fantasy sports operators,” he said.

He also wants to make fantasy sports more commonplace by encouraging the state’s casinos and racinos to join the fantasy games.

That’s a different tune from the one some skeptical state lawmakers were singing less than a year ago, as Draft-Kings and FanDuel gained mainstream attention with millions of dollars in TV commercials. Many policymakers—including some key Indiana legislators—saw fantasy sports as an unwanted expansion of gambling.

“The shift in attitude by lawmakers has directly correlated to the immense lobbying effort put forth by the Fantasy Sports Trade Association,” said Daniel Wallach, a sports and gambling attorney and a partner with Becker & Poliakoff in Fort Lauderdale, Florida. “They’ve retained state lobbyists in every state. That’s all that’s changed.”

Organized opposition to legalizing and regulating fantasy sports hasn’t formed in most states, either, which “has led to an easy path to legalization,” Wallach said.

But some lawmakers question the decidedly light regulation proposed in the bills.

Rep. Ed Clere, R-New Albany, said he still has questions about whether fantasy sports should be treated more like gambling.

“I’m not talking about friends who get together and have a fantasy football league,” Clere said. But the online games operated as businesses “certainly look a lot like gambling and may need to be regulated as such.”

“We see a great deal of tragedy with online gambling and that has been difficult to regulate. It’s been a Wild West,” Clere said. “It wouldn’t be unreasonable to expect [fantasy sports] might lead to similar problems in some places.”

The Indianapolis-based NCAA also had objections, which led to changes in the Senate bill that would ban fantasy companies from using college athletes in their games. An NCAA official told lawmakers in a hearing that the change is “important for the integrity of the institutions.”

The committee then passed Senate Bill 339 and it heads to the full chamber for consideration.

An exploding industry

Daily fantasy sites have escalated from an industry that three years ago had total entry fees in the tens of millions of dollars to one that this year will generate $3.5 billion, according to Legalsportsreport.com.

Fans pay to compete and draft players for their teams—working under a salary cap—for daily or weekly games in professional basketball, football, baseball and other sports. Fans then compete against one another and can win thousands of dollars—even up to $1 million. The sites also offer rookie leagues to encourage newcomers.

Despite the apparent gold rush for some firms outside Indiana, the state’s casino operators aren’t convinced fantasy sports will be profitable for them.

Keeler Keeler

“It’s something we’re looking into, but for a company that operates one or two Indiana properties, it may not make economic sense,” said John Keeler, vice president and general counsel for Centaur Gaming, which owns the pari-mutuel horse tracks and slots casinos in Anderson and Shelbyville. “It can be capital-intensive and you’ve already got some very established players in this arena.”

Indiana’s bills would allow casinos and horse tracks to partner with established firms in the field. One trend, Wallach said, is for casinos to partner with “a business-to-business” fantasy sports company that creates and operates self-branded leagues for casino operators, sports bars, cruise lines and other business-to-consumer operations.

Monmouth Park Racetrack in New Jersey is one horse track that has partnered with a fantasy sports firm—New York-based Star Fantasy Leagues Inc.—to launch Score at the Shore Jan. 2.

“This is a great way for casinos and horse tracks to brand themselves and draw in millennials,” Wallach said. “There are endless marketing opportunities: special events, tie-ins and giveaways casinos could do with fantasy sports. It’s a tremendous opportunity to build and nurture customer relations.”

In Indiana, the bills have three main objectives: Set up consumer protection, assign a state agency—the Indiana Horse Racing Commission—to oversee the regulations, and create an opportunity for already-licensed gambling facilities to offer fantasy sports games on their own or in partnership with a fantasy sports operator.

The bills include provisions to charge fantasy operators a yearly licensing fee that could generate, in total, as much as $335,000 annually, according to the nonpartisan Legislative Services Agency. But they would not tax player entry fees. The state taxes casino wagering based on a sliding scale that tops out at 40 percent.

Consumer protection

Tax provisions could be added to the bills later—and could generate millions of dollars annually—but Morrison is skeptical of the idea.

“The way that it’s set up, the way money is entered in and the way prizes are doled out, is a lot different” from traditional gambling, Morrison said. “We didn’t think taxing it was the prudent thing to do.”

Revenue from the licensing fee, he said, would be funneled to the Indiana Horse Racing Commission to fund administration of the regulations in the bill.

“At its heart, this is a consumer-protection measure,” Morrison said.

The legislation would require fantasy companies to develop plans to keep their own employees from playing, to ensure players are 18 years old or older, and to keep athletes participating in the sporting events in question from playing in the corresponding fantasy league.

For instance, Morrison said, “We wouldn’t want [Indiana Pacers guard] George Hill playing in an NBA fantasy sports league.”

Still, professional teams like the Indiana Pacers and Indianapolis Colts favor fantasy sports because they drive up interest in their teams, and TV viewing of and attendance at their games, Morrison said. And if fantasy sports leagues are incorporated at Hoosier casinos and racinos, the contests could be significant drawing cards for those facilities.

In fact, he said, fantasy sports wagering has “a positive economic impact” on the state. That’s why he wants to make the games legal.

“Banning fantasy sports was never a consideration of mine,” Morrison said. “I think banning it would be an overreach of government. This is an activity that brings family and friends together.

“We’re working on a framework to allow it to continue to be enjoyed by more than a million Hoosiers and make sure they’re on a level playing field,” he added.

Morrison is confident a fantasy-regulation bill will pass into law and take effect July 1. Even if that happens, though, the fight over fantasy sports legality might not be over.

“The real challenge for the sports fantasy industry is to have these new state laws crafted in a way that keeps them from being challenged on the federal level,” Wallach said. “With the Professional and Amateur Sports Protection Act, this landing in federal court is still a real possibility.”

The act, also known as the “Bradley Act,” attempts to define the legal status of sports betting in the United States. It effectively outlawed sports betting nationwide, excluding a few states.•

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