WASHINGTON — A little over a month ago, WTOP chronicled the daily fantasy sports experience and examined whether it should be qualified as a form of gambling. While the booming industry had sailed along without backlash or oversight up until that point, in the five weeks since, the entire landscape has shifted dramatically, casting doubt on the industry’s once promising future.
On the day the article was published, Rep. Frank Pallone, D-N.J., called for a congressional review of daily fantasy sports, and of the professional sports leagues’ involvement and investment in them. Some at the time dismissed this as nothing serious, simply sour grapes for not being able to secure legalized sports gambling in the Garden State as exists in Nevada.
But last week, the Nevada Gaming Control Board ruled that the sites constitute sports gambling, as they involve “wagering on the collective performance of individuals participating in sporting events.” This designation is crucial, as it forces the companies into a decision between bad and worse.
As Deadspin pointed out, this presents a catch-22 for daily fantasy sports sites. The sites would then have to apply for licenses to operate as gambling sites within the state to continue to operate. The mechanics of applying aren’t particularly difficult or expensive — an interactive gaming license runs $500,000 for two years, well within FanDuel’s or DraftKings’ budgets.
But by even applying for such a license, the companies would be admitting that their businesses are, in fact, gambling, which would undermine the technicality currently allowing them to continue to operate under the fantasy sports umbrella. Unsurprisingly, the sites have instead chosen to simply halt their operations in Nevada, as they have been forced to do in a number of other states, based on individual state laws.
Both DraftKings and FanDuel recently brought unwanted attention on themselves when an employee of the former won $350,000 in a contest on the latter platform, potentially using proprietary information. While an attorney hired by DraftKings said the company did nothing wrong, the allegations of insider trading only furthered the suspicions of those worried about the lack of regulation in the industry.
Now the sites may have much more to worry about, as The Wall Street Journal revealed Wednesday that the very same U.S. Attorney who spearheaded the online poker shutdown in 2011, Preet Bharara, is leading the investigation of the daily fantasy sports business model. It was already known that the Justice Department was investigating, but Bharara’s particular presence adds additional weight to the scrutiny, especially given how suddenly the plug was pulled on the online poker industry.
Such an instantaneous shutdown seems unlikely, given the investment of the broadcast companies and the professional sports leagues in the $2.6 billion industry, which had been projected to grow as large as $40 billion by 2020. But the real losers in the 2011 poker shutdown were the players themselves, who had millions of dollars frozen in their accounts, completely inaccessible. If growing fears of a similar impending action cause players to pull their money from the sites — and investors to do the same — the fantasy sports bubble may be quick to burst.
