Las Vegas Sun

March 28, 2024

DraftKings, FanDuel head back to drawing board after Nevada meeting

FanDuel

Michael Nagle / The New York Times

The offices of FanDuel, a leading daily fantasy sports operator, in New York, Sept. 24, 2015. New York passed signed legislation this month saying daily fantasy sports sites fall under the category of “games of skill,” rather than games of chance that are illegal online.

DraftKings and FanDuel want to re-enter the Nevada market. Policymakers want the popular daily fantasy sports platforms back.

That’s the easy part.

More complicated are details of how that happens with the sides debating potential solutions in advance of a gaming policy group meeting aimed at establishing a path toward regulation.

Representatives from the companies in the upcoming weeks will talk to regulators about issues in draft legislation the industry presented Tuesday to a Gaming Policy Committee chaired by Gov. Brian Sandoval. The group is expected to have one more meeting before it releases its recommendations this fall.

At issue is how daily fantasy sports would be taxed, regulated, licensed and classified — either as gambling or non-gambling.

Regulators appear to believe their current framework is suitable for overseeing daily fantasy. DraftKings and FanDuel, which likened themselves to Uber and have eschewed the idea that their platforms facilitate gambling, believe a new framework is needed.

With a deadline looming, the focus is on finding a middle ground, and much of that hinges on whether there is enough will, on both sides, to ease their positions and forge a compromise.

“I feel like there’s a perception that this state is intransigent and is unwilling to be flexible,” Sandoval said to the industry at the Tuesday meeting. “But on the other hand, I also kind of hear the same thing on your side, that you’re intransigent — ‘that we have our business model and we’re not willing to really move outside of that model.’ I think it’s unfair to both (sides).”

A few solutions are being floated, from legislation to a regulatory change, but as companies and policymakers debate these paths, questions remain about whether there is a will to move forward.

Mixed feelings

For DraftKings and FanDuel, which left the state in October after gaming regulators ruled that the firms offered gambling and required sports book licenses, Nevada represents a small share of the U.S. market. They want to operate here to show their products clear Nevada’s rigorous gaming rules, but not if those rules prevent them from operating its contests nationwide.

“Because of the way that Nevada has decided that we should apply for a gaming license as a sports pool or bookmaker, we are unable to offer our service here,” Scott Ward, a lobbyist representing DraftKings and FanDuel, told the committee. “So we had a choice. Operate in Nevada or operate in every other state. And honestly, that is not a very hard decision to make.”

As other states have started labeling DraftKings and FanDuel as a non-gambling activity, the companies also worry that a gambling designation here could affect their viability elsewhere. The industry’s draft legislation would create a separate regulatory structure for fantasy sports in Nevada.

Members of the policy group — comprising state officials, industry experts and executives — are also torn. They do not want to sacrifice the integrity of Nevada’s regulations and see few economic advantages tied to bringing daily fantasy sports back to the state, but also do not want Nevada to become a regulatory pocket if other states continue to legalize daily fantasy contests.

“It clearly will take wagering dollars out of sports books,” said Frank Schreck, an attorney and former gaming regulator who also testified at the policy committee meeting on Tuesday. “If you are going to do that, what’s the offsetting benefit to the state of Nevada or the industry?”

Most sports book operators are not opposed to daily fantasy sports in Nevada, yet they do not want a new law to put them at an unfair advantage. Executives from seven companies, including William Hill U.S., Caesars Entertainment Corp. and Station Casinos, wrote a letter this week arguing that regulations for the daily fantasy should adhere to Nevada’s statutory structure.

Potential legislation

In other states, DraftKings and FanDuel have had some success working through the legislative process. After New York’s attorney general said the activity was akin to illegal gambling, the state’s legislature resolved the issue by defining daily fantasy sports as a skill-based game.

Both companies suggested a legislative fix here with their proposal on Tuesday, though it was less burdensome than the New York legislation. Under that draft, the companies would pay an annual license fee up to $10,000 and cap civil penalties at $1,000 for violations. In New York, a large market for the companies, they are required to pay an annual fee of up to $50,000 and a tax.

“We are continuing to meet with regulators, and we hope that the discussion will eventually resolve itself into a solution that works for the industry as well as the state,” Ward told the Sun.

The companies have refrained from political giving in Nevada, with the exception of FanDuel, which gave one contribution — a $2,500 donation to NV Majority PAC that is controlled by Sen. Ben Kieckhefer.

Or a regulatory fix

Another idea that emerged during the meeting could circumvent the legislation. Under an existing statute, some believe gaming regulators could create a new regulatory device for overseeing peer-to-peer skill-based contests, including daily fantasy sports.

The move might alleviate some of the state’s concerns about ceding regulatory control while simultaneously addressing the daily fantasy industry’s desire to be classified as non-gaming.

“It’s an idea I floated, and it does need to be evaluated,” said Chris Grove, an analyst who called it a “middle ground” and brought up the idea during his testimony at the policy meeting Tuesday.

A.G. Burnett, chairman of the Gaming Control Board, cautioned that such a move would still raise some revenue issues and that daily fantasy sports would need to meet certain requirements to prove it did not constitute gambling. But the proposal caught the attention of several parties, including MGM Resorts International CEO Jim Murren, a member of the policy group who said it was worth exploring, and Ward, who said the companies would also look into the option.

“We do have some concern that a regulatory fix does not address the statutory opinion of the Attorney General,” Ward said on Thursday, referring to the state’s decision that unlicensed daily fantasy sports constituted gambling. “Assuming that is resolved ... it would seem to address many of the concerns I raised about running a national non-gambling contest while being able to operate in the state of Nevada.”

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