What’s next for DraftKings and FanDuel after Nevada gaming board’s ruling?

By J.D. Morris

Published Friday, Oct. 16, 2015 | 4:45 p.m.

Updated Friday, Oct. 16, 2015 | 6:29 p.m.

The legality of daily fantasy sports in Nevada is now crystal clear: State regulators consider it a form of gambling, so any company that wants to provide it must be licensed.

What is less clear is whether the leading fantasy sports companies, FanDuel Inc. and DraftKings Inc., will eventually find a way to return to the state after suspending operations here this week. Also up in the air is the question of which established Nevada gaming operators, if any, will enter the fantasy sports market.

The state Gaming Control Board upended Nevada’s fantasy sports industry in a public notice on Thursday that said daily fantasy sports meets the definition of gambling under state law and therefore requires a license to operate a sports pool. Later that day, FanDuel and DraftKings announced they were withdrawing from the state.

Now FanDuel, DraftKings and others like them seem to have three main options: apply for a license, try to challenge the board’s decision or remain out of the state. Meanwhile, licensed casinos and sportsbooks will need to decide whether and when they should act on their newfound approval to provide daily fantasy sports.

For their part, FanDuel and DraftKings do not appear eager to seek Nevada licenses. FanDuel criticized the gaming board’s decision for only benefiting “incumbent Nevada casinos,” and DraftKings called it an “exclusionary approach” against the fantasy sports industry.

Emails sent on Friday to Nevada customers of FanDuel and DraftKings encouraged them to sign an online petition objecting to the gaming board’s decision. The petition, which is affiliated with the Fantasy Sports Trade Association, asked its recipients to sign in order to “tell lawmakers that you love daily fantasy sports and want them to be legal in Nevada.” The emails said Nevada customers can still withdraw funds from their accounts.

To be clear, FanDuel and DraftKings can try to legally operate in Nevada — but they will have to submit to an intense licensing process first. And for those companies, the path toward regulatory approval is fraught with challenges.

Greg Gemignani, a Las Vegas-based gaming attorney, said that if FanDuel and DraftKings do seek licensure from gaming regulators, they would be challenged by the state’s view that their product is sports wagering — which is, for the most part, illegal outside Nevada. Regulators would not license them if they continued to operate in other states, Gemignani said, because “you can’t get a license in Nevada to break the law elsewhere.”

Even putting that consideration aside, Gemignani said the companies would likely have a hard time winning the approval of Nevada regulators.

“It’s going to be difficult for them to get licensed, because they’ve been operating what regulators say is an illegal sports pool now for several years,” Gemignani said. “We generally don’t license people or companies that have been engaged in illegal gambling activity.”

Casinos and sportsbooks could try to fill the void left by FanDuel and DraftKings’ departure from Nevada, but none has stepped forward yet. A.G. Burnett, chairman of the gaming board, wrote in the Thursday notice that while gaming licensees who are already approved to operate a sports pool can provide daily fantasy sports, they “should exercise discretion” in associating themselves with unlicensed operators.

Aside from any practical challenges tied to offering daily fantasy sports, other legal and business considerations may deter Nevada gaming companies from entering the market in the near future.

Most significantly, the FBI and the federal Justice Department are examining the legality of the daily fantasy sports industry’s business model, according to the Wall Street Journal. And Reuters reported in September that neither FanDuel nor DraftKings was profitable, although that seemed to be largely the result of heavy advertising spending.

William Hill U.S. chief executive Joe Asher said his company, which operates more than 100 sports betting locations in Nevada, has no plans to start offering daily fantasy sports.

“I think the viability of the business model is still up for debate,” Asher said. He stressed that anyone who wants to get involved with daily fantasy sports in Nevada should apply for a license.

MGM Resorts International, which operates 10 sportsbooks at its casinos on the Strip, said in a statement emailed by a spokesperson that it does not intend to become a daily fantasy sports provider just yet. The company also expressed some support for the fantasy sports industry.

“We are hopeful that the daily fantasy industry will be able to return to the Nevada market in the future and provide consumers with its innovative brand of entertainment,” the MGM Resorts statement said.

Becoming a daily fantasy sports provider would entail much more than just deciding to be one.

Casinos and sportsbooks that decide to go that route would still have to figure out how best to provide fantasy sports alongside their current products, according to Chris Grove, the publisher of Legal Sports Report, a website that follows the daily fantasy sports industry.

Grove said the established gaming operators may have not yet “wrapped their heads around the best way to deploy it,” but he noted that daily fantasy sports is a popular product — and one that has drawn the interest of professional sports leagues.

“I think there’s certainly an interest in the casino industry to having stronger ties to those kinds of entities,” Grove said.