Industry Updates

DFS Industry Continues to Overestimate the Strength of Their Argument

The daily fantasy sports is currently fighting for its life in statehouses across the country, but if you were to only listen to the DFS crowd you’d think it was the other way around, and it was the lawmakers who were coming to the DFS industry to lure them to the state.

I feel the industry is badly misplaying their hand in the way DFS is framing the debate.

The licensing fee is too onerous

Almost immediately after Virginia passed a bill that legalized daily fantasy sports, the industry simultaneously applauded and jeered the effort. The applause was for the passage of a bill that legalized DFS, the jeers were for the $50,000 annual licensing fee the state imposed on operators – a fee that many felt was unnecessarily high.

The Virginia bill leaves oversight and licensure to the Department of Agriculture and Consumer Services, and calls on that agency to investigate and enforce violations, such as violations of the 18 years of age requirement. The new law also calls for a yearly audit of licensed sites.

In a letter sent to its members, Fantasy Sports Trade Association president, Paul Charchian, praised the bill, but also questioned the $50,000 licensing fee in Virginia as well as in a bill being considered in Indiana.

“However, both states have an onerous mandatory regulation fee that makes both states untenable for the majority of the FSTA’s members. We are deeply concerned that these states have made it impossible for so many of our member companies to do business. The FSTA will work toward improving those bills as quickly as possible.

“At this time, the majority of the bills introduced in other states have fees that should allow our contest operators to remain viable in those states. The FSTA will remain vigilant to ensure that state lawmakers understand the ramifications of high registration fees.”

The FSTA sentiments were echoed by many on Twitter:

There were certainly other ways the state could have collected their tithing from DFS operators that would have removed the barriers of entry for smaller operators, but all in all, a $50,000 annual fee is a pretty good deal. Yes, it’s restrictive, but the alternative is taxpayers footing the bill in order for Virginia to provide oversight to the DFS industry.

Actually, oversight isn’t cheap, service providers (not operators) in New Jersey’s online gambling market were hit with licensure and vetting costs that ran into the high five- and even six-figures.

The notion that the state could provide adequate oversight and enforcement at a cost of $5,000 per operator is wishful thinking. Even a minimal vetting for licensure would far exceed this amount, and then there are investigative costs and the cost of poring over the annual audit and compliance reports operators are required to submit to DACS to consider.

But, in my opinion, what is more troubling than licensing costs, is the industry’s continued insistence that toothy regulations are either unnecessary or make the industry unviable.

You can’t impose strong regulations on us because…

At a hearing in front of the Nevada Gaming Policy Committee on Monday the CEO’s of FanDuel and DraftKings continued their now familiar refrain that they are in favor of regulations, but those regulations need to be industry-friendly.

In essence, the DFS industry is lobbying state legislatures to ‘go easy on them’ based on the belief that the health of their business model is in direct correlation to the amount and price proposed regulations would cost, and that some balance between the two needs to be reached.

This notion, that DFS should only be regulated if it allows the companies to thrive, is essentially the case why strong regulations of this industry are so sorely needed. The CEO’s of the industry’s two leading companies didn’t make the argument that consumers needed to be protected through x, y, and z, instead their position, as I understand it, is consumers only need to be protected up to a point that doesn’t place to much of a burden on the companies’ bottom lines.

My guess is they don’t realize how poorly this plays to the masses, as if imposing adequate consumer protections need to consider the viability of the business.

The reason regulations are needed is to adequately protect consumers. The cost of said regulations should not be a bargaining chip used by one side, except in cases where the regulation in question is gratuitous. If the cost of imposing needed regulations doesn’t line up with your business model than it’s your business model that is flawed, not the other way around.

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