Nevada Daily Fantasy Sports: Now Classified As Gambling

Nevada DFS apps and sports fans just received a gut-punch piece of news. Earlier today, the Nevada Gaming Control Board issued a statement explaining that it considers daily fantasy sports to be gambling, that all operators must immediately cease all activities in the state, and anyone wishing to offer DFS products in Nevada going forward must apply for a gaming license.

Regulators have been eyeing the industry for a while now, so this doesn’t come as too much of a surprise. Something was bound to happen eventually. However, this really is a red line that pits DFS operators who claim to have a federal exemption to anti-gaming laws against a state that takes a different point of view.

Let’s start with a summary of the statement released today and then follow that up with a good dose of wild speculation. I’m not a lawyer so take my words with a grain of salt. We’ll get better information as the various interested parties (DFS operators, legal counsels, state regulators, etc.) react to the news. Remember, this is all brand new, and these are just my initial thoughts. Things will clear up a lot more in coming days and weeks.

From the statement:

“…I, along with Board staff, have concluded that DFS constitutes gambling under Nevada law. More specifically, DFS meets the definition of a game or gambling game pursuant to Chapter 463 of the Nevada Revised Statutes. Moreover, because DFS involves wagering on the collective performance of individuals participating in sporting events, under current law, regulation and approvals, in order to lawfully expose DFS for play within the state of Nevada, a person must possess a license to operate a sports pool issued by the Nevada Gaming Commission. Further, a licensed operator who offers DFS must comply with all laws ad regulations that apply to licensed sports pools.

Therefore, since offering DFS in Nevada is illegal without the appropriate license, all unlicensed activities must cease and desist from the date of this Notice until such time as either the Nevada Revised Statutes are changed or until such entities file for and obtain the requisite licenses to engage in said activity…”

Nevada Draws a Line in the Sand

The daily fantasy industry has faced its fair share of challenges, but this looks like a definitive line in the sand. As of today, Nevada has outlawed all DFS apps operating within the state. There is no grace period for negotiations or legal challenges; get out now or we’ll come after you.

Nevada daily fantasy sports sites must now decide if they’re willing to comply and seek licenses (which are far from guaranteed) or if they are going to fight. Compliance may be the path of least resistance in Nevada, but it would also set a precedent. If DraftKings, FanDuel, and the others comply in Nevada, they are basically admitting that they peddle gambling and that the federal UIGEA exemption holds little away at the state level. Setting such a precedent could make things extremely challenging in states that have no intention to legalize new forms of gambling.

The other option is to challenge the ruling in court. The DFS sites do indeed have an exemption written into the 2006 UIGEA. A legal challenge would most likely be expensive, lengthy, and controversial, with no guarantee of victory.

Even worse, the fantasy sports exception written into the UIGEA may not prove very useful in a legal battle. The UIGEA does allow individual states the right to “opt out” of exempted activities. If a state wants to ban online horse racing betting or fantasy sports, the UIGEA isn’t going to stop them. Although, the whole “state vs. federal law” debate can get complex in a hurry. There may still be a valid legal challenge somewhere in there for the DFS providers.

What About those Live Finals in Vegas?

One of the recurrent themes in major DFS promotions has been those year-end fantasy contests that feature a massive prize pool and a live final that takes place in Las Vegas.

This is just personal speculation, but it seems to me there are two obvious options for FanDuel, DraftKings, and the other big DFS sites that planned to host live finals in Vegas:

1. Move the live final to a different location: It would be annoying for DK and FD to change to a new location, but it wouldn’t be all that difficult. They would have to go back and change itineraries, rent new locations, and change travel plans, but none of that is an insurmountable challenge.
2. Alter the live final but keep it in Vegas: DFS sites could possibly also host the actual fantasy contest online and then send everyone to Las Vegas to watch the games, party, and drool over all the money they’ll be given as soon as they get home. I’m not sure if hosting such an event would break Nevada law, but you can imagine some creative setup in which people still go to Las Vegas but don’t actually play in any real money contests while there.

Two Ways to Look at This

Well, Nevada did what it did. All we can really do now is wait and see how the DFS industry reacts. I have come up with two ways to look at today’s news: one cynical and one optimistic.

The Cynical Point of View: Nevada politics are tainted by casino interests, and this is just a move to protect the multi-billion-dollar industry from competition.

Daily fantasy sports grew too quickly, too many people deposited money, and the hype spread too far. Nevada casinos want to be the only ones in the sports business, especially since they cannot compete on the Internet.

All we have to do is look at the efforts of casino mogul Sheldon Adelson. He once promised he would spend “whatever it takes” to have all online poker and casino games banned, even in states that specifically changed their laws to accommodate online gambling. One of his lobbyists may have even written legislation for a house bill aiming to outlaw online betting.

With people like Sheldon Adelson making it rain hundred-dollar bills in Nevada, who knows what’s being said in backroom negotiations and meetings? Someone doesn’t like letting Americans do what they want with their own money.

The Glass Half-Full Point of View: Maybe DraftKings and FanDuel pushed too hard, too fast, and a little regulation is a good thing.

They inundated NFL viewers with so many ads this season that it nearly drove us all to madness. Then, that whole insider trading scandal came along at the worst possible time and confirmed many people’s suspicions that something didn’t smell right what with all those “I won a million dollars at FanDuel” commercials.

The industry needs a little regulation to retain its legitimacy and finally cement its place as a legitimate gaming activity. If other states follow suit in reclassifying DFS as gambling, maybe it will push us all to rethink our attitude toward prohibition. Let’s let this all come to a head so we can decide once and for all if Americans are capable of managing our own money.

Maybe Nevada really does want a piece of the billion-dollar pie and will grant licenses to all worthy applicants. DFS sites can get their licenses, establish legitimacy, and continue doing what they’ve always done, except now with customers more confident that everyone is being run on the up-and-up.