So far, I’ve been accurate on my predictions. Back in February 2014 I wrote,
Unfortunately, many states look at just an element of chance to determine if something is gambling. And there’s no doubt that daily fantasy sports have such an element. The problem is that these sites are starting to bring in large dollars. That attracts attention, and some state attorney general is going to wonder the same thing that I am. He or she will conclude that the Duck Test applies and that these are gambling sites in violation of his or her state’s laws. [emphasis in original]
I expect DFS to follow two different paths in the majority of states. Some states will simply declare it as gambling, making it effectively illegal in those states. Other states will tacitly declare it as gambling but allow regulation of the activity. There will be a minority of states that allow DFS to continue as an unregulated activity. Where one month ago you could play DFS in 45 of the 50 states, that number is down to 42 to 44 states (depending on the DFS site). I expect that number to continue to fall.
Events have moved faster than I thought they would. The New York Attorney General declared DFS to be gambling, and has asked a court for an injunction. One of the two major sites, FanDuel, has stopped offering contests for New Yorkers. The hearing will be next Wednesday. The Massachusetts Attorney General has proposed regulations.
As for New York, I think FanDuel is operating far wiser than DraftKings. DraftKings is still allowing New York residents to play on the site. Given that there is a non-zero chance that the company will find it outself ordered to stop, and that operating in violation of state law would be a predicate offense for possible federal charges, I think DraftKings is making the wrong decision. (I will point out again that I am not an attorney, and nothing I’m writing should be construed as legal advice.) If you ask me the most likely result of the New York Attorney General’s action, it’s that the sites will find themselves enjoined from serving New York customers. This isn’t a certainty, but if you’re going to place a bet on the results that’s the favored side.
I still think we will end up with a dichotomy within the states. States that are notoriously anti-gambling or have constitutional provisions against gambling (including much of the South: Texas, Florida, and Tennessee; Utah, and Hawaii) will ban DFS, either by Attorney General rulings or by court actions. Other states will regulate DFS. Some states will order the DFS companies to shut down until regulations are in place. A very small number of states will just ignore the issue, and leave DFS in an unregulated state.
DFS proponents need to remember that a regulator’s first instinct when confronted with something new is to ban it. Add that to the fact that DFS is legal by way of a loophole (in the view of regulators) and you get a strong inclination for them to end DFS.
That’s the most likely outcome. However, there is still the chance that DFS could end completely. There are federal investigations of the sites which could, if indictments result, end the industry.
This is a fascinating story–and the greed of the sites has sped up the story line. It was inevitable that DFS would attract scrutiny. The pace of that scrutiny sped up because the sites went overboard in their advertising and had very poor visuals. We’ll all be able to see the future of this product unfold in the next few weeks.