Mark Cuban calls regulatory challenges to fantasy sports growing pains

By Conor Shine, Dallas Morning News (TNS)

Thursday, Jan. 21, 2016 | 2:08 p.m.

Fantasy sports entrepreneurs thought they were decamping to friendly territory when they moved their convention from Las Vegas to Dallas after Nevada regulators cracked down on the industry last year.

Instead, they were greeted with unpleasant news: Texas Attorney General Ken Paxton's opinion that wagering on daily fantasy sports could be considered illegal gambling.

Paxton's opinion cast a cloud over the convention Wednesday, as hundreds of people gathered at the Omni Dallas Hotel to discuss legal challenges across the country that threaten to derail the multibillion-dollar industry.

"We weren't looking to pick a fight, but fights have come to us," said Paul Charchian, president of the Fantasy Sports Trade Association. Words like "turbulent" and "tumult" were used to describe the industry's past few months.

Still, attendees were bolstered by an encouraging speech from Dallas Mavericks owner Mark Cuban, who said the regulatory challenges are necessary growing pains.

"I think there's a whole lot of upside to this industry," said Cuban, who has investments in two fantasy sports-related companies. "While this is a steppingstone that we have to step over and on and across, I think it's going to happen and it will create a foundation that makes fantasy sports, in particular daily fantasy sports, much, much stronger."

Cuban predicted the industry will have to deal with more regulations and taxes, but said the process will leave it on firm legal footing and allow it to flourish.

"Let's just say no one ever said anything. No one ever filed suit. Nobody ever issued an opinion," he said. "There would always be the question: Is it legal? Are you allowed to do this? What's next?"

Daily fantasy sports companies allow players to win or lose money by building a roster of athletes and competing based on their collective statistics in each day's games. The fantasy sports industry has exploded in popularity, growing from 32 million players nationwide in 2010 to 56 million -- including 4 million in Texas -- in 2015, according to the trade association.

The industry's two biggest companies, DraftKings and FanDuel, have drawn hundreds of millions of dollars in investments from professional sports leagues and major media companies.

That success has spawned a network of smaller businesses, many of which were represented in Dallas on Wednesday. Those include companies providing support services: statistics, analytics, fantasy news and advice, and more.

Legal concerns about whether the business model is akin to gambling emerged last fall, with attorneys general in New York and Illinois issuing opinions that daily fantasy sports violate state law. Other states have since issued similar opinions or launched inquiries. Paxton cited the "element of chance" involved in daily fantasy sports when issuing his opinion.

Attendees at the Dallas convention pushed back against the gambling characterization, insisting that theirs is a game of skill that's misunderstood by regulators.

"There have been a lot of political statements that on the surface are scary, but the underlying facts are the same as they've always been," said Ted Kasten, founder of Advanced Sports Media, a subscription-based service out of Austin.

"It's a game of skill. It's a hobby and a passion of a lot of people. At the end of the day, it should succeed."

Kasten has watched the industry grow from a niche hobby into a mainstream obsession over the past 12 years. He said the last six months have been stressful and challenging for his five-person company, but added that he's optimistic the regulatory concerns will be resolved.

For now, daily fantasy sports companies will continue to operate in Texas. Paxton's opinion is nonbinding. Essentially, it's the attorney general's prediction of what might happen if the issue were brought to court.

The industry has hired lobbyists in several states, including Texas, to craft legislation explicitly to let them operate. The Texas Legislature next convenes in 2017.