Despite ruling, DraftKings allows some customers in Nevada to play

By J.D. Morris

Monday, Oct. 19, 2015 | 5:30 p.m.

One of the two leading daily fantasy sports websites has reportedly allowed Nevada customers to continue participating in contests with real money at stake despite a recent decision from regulators that requires the website to cease operations in the state.

The Gaming Control Board declared Thursday that providers of daily fantasy sports, including the popular websites FanDuel and DraftKings, can no longer operate in Nevada until and unless they receive gaming licenses. But as of Monday morning, customers in Nevada could apparently circumvent the state restriction on DraftKings, according to the publisher of another website that analyzes the daily fantasy sports industry.

Legal Sports Report publisher Chris Grove wrote during the weekend that, based on tests conducted by his website, Nevada customers could still play with real money on DraftKings — as long as the mailing address tied to their account was from another state that permits daily fantasy sports. That remained true Monday morning, Grove said in an interview.

“It would be like if WSOP here in Nevada basically let you play, or didn’t let you play, based on the mailing address on your account,” Grove said, referring to one of the state’s regulated online poker providers. “That would make no sense. Your mailing address has functionally nothing to do with identifying where you are at a particular point in time that you do something online.”

Grove said identical tests conducted on two other daily fantasy sports websites, including FanDuel, were unsuccessful. That suggested that those websites were using more robust methods than DraftKings did to determine whether customers were actually in Nevada.

DraftKings said in an emailed statement that the company took the state’s stance seriously and had told its Nevada customers to withdraw all funds and shut down their accounts. The company said it also put “blocking mechanisms” in place to prevent Nevada customers from “creating new accounts, depositing money or playing new games.”

The company admitted it had let some Nevada players continue.

“Because we allow late swaps in our games, we permitted players who had already entered games on Thursday to be able to complete those games,” DraftKings’ statement said. “It is now against DraftKings terms of use to play our games if you are a Nevada resident, and those who violate this policy will be disqualified.”

Based on a similar response from DraftKings, however, Grove wrote Monday that the company’s comment “in no way explains” how his website was able to enter new contests from Nevada.

The announced exit of DraftKings, FanDuel and others like them came after A.G. Burnett, chairman of the Nevada gaming board, concluded in a one-page memo that daily fantasy sports fits the definition of gambling under state law.

A longer legal analysis from the Nevada Attorney General’s Office, which was provided to the board at Burnett’s request, said that viewing daily fantasy sports as gambling is also “consistent with how operators of certain daily fantasy sports describe themselves.” The analysis pointed to a three-year-old thread on Reddit.com in which Jason Robins, the chief executive of DraftKings, described the concept behind his business as “almost identical to a casino.”

DraftKings fired back at the attorney general’s office for latching onto those comments, defending itself in another company statement that described the Reddit remarks as “casual comments” made not long after the company was launched.

“Those comments were taken out of context and in any event are far less relevant than the facts about the way our business operates today,” DraftKings’ statement said.

The attorney general’s analysis also noted that DraftKings received licenses to operate in the United Kingdom. Although that country’s gaming law is “fundamentally different” from Nevada’s, the analysis said it was still worth noting that DraftKings was licensed for “pool betting” and “gambling software.” The company did not include those terms in a news release announcing that it was licensed in the United Kingdom.

“It appears that DraftKings recognizes the appearance of inconsistency between its position that it should be unregulated in the United States and its decision to submit to gaming regulation in the United Kingdom,” the attorney general’s analysis said.

The daily fantasy sports industry — and DraftKings in particular — has faced scrutiny in other ways, too. Most significantly, questions about possible insider trading arose recently after a DraftKings employee accidentally released sensitive data before winning $350,000 on FanDuel. A law firm hired by DraftKings has concluded that the employee did not have access to the data until it was too late to use in his FanDuel contest.

Still, daily fantasy sports providers are dealing with mounting public pressure outside Nevada: The FBI and the federal Justice Department are reportedly looking into the industry’s business model, Congress may hold hearings about it and other states are also investigating its legal status.