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Year is shaping up a make or break for daily fantasy sports industry

Lawmakers in more than two dozen states are considering daily fantasy sports proposals that would either legalize and regulate the activity, ban it outright, or do nothing.

One might believe the controversial industry is on life support.

The analysts at Eilers & Krejcik Gaming have a differing view.

In a comprehensive research report authored last month, firm partner Adam Krejcik and consultant Chris Grove of LegalsportsReport.com laid out a host of approaches facing the daily fantasy sports market.

“It is easy to imagine a number of wildly divergent trajectories for daily fantasy sports,” the pair wrote, adding that political, legal, economic, consumer and market pressures will influence the outcome.

Based on survey data and proprietary information, Krejcik and Grove estimated daily fantasy sports websites — led by DraftKings and FanDuel — took in more than $3.1 billion in entry fees in 2015. The top 10 U.S. markets accounted for almost $1.94 billion of the overall total.

California, where legislation is pending that would legalize, regulate and tax the activity, was the nation’s top market with $357 million in entry fees. New York, where the activity was halted briefly after the state’s attorney general declared the daily fantasy sports was illegal gambling, was No. 2 with $267 million.

Krejcik and Grove laid out three scenarios for the daily fantasy sports industry.

In what they termed a “base case” situation, the pair had the market growing to more than $8 billion a year in entry fees by 2020. The figure includes the loss of one top 10 state and other states enacting laws that don’t reduce the number of participants.

A best case setting had the figure reaching $14 billion in entry fees, which assumed daily fantasy sports was legalized nationally.

If the bottom falls out of the market, daily fantasy sports industry entry fees could range between $2 billion and $4 billion a year.

“The daily fantasy sports industry is at a crossroads,” Krejcik and Grove wrote. “This year will undoubtedly mark a year of change and transformation. We are witnessing a monumental shift from the status quo, which will impact the underlying market dynamics and competitive landscape.”

The operators know this.

Peter Schoenke, chairman of the Fantasy Sports Trade Association, told The Associated Press the industry has hired some 65 lobbying firms in 44 states to promote bills favorable to the activity.

“We’ve been operating in a gray area for a long time, and, up until now, it hasn’t been a problem,” he said. “What we want to do in all of these states is to clarify that it is legal.”

Nevada gaming regulators ruled last fall that daily fantasy sports was a form of sports wagering, thus, operators needed to be licensed and regulated. The Gaming Control Board issued a “cease and desist” letter and DraftKings, FanDuel and others pulled out the market.

“No one said daily fantasy sports was illegal,” Control Board Chairman A.G. Burnett said in January. “All we said is play by the rules.”

On Monday, Gov. Brian Sandoval and the state Gaming Policy Committee will take up daily fantasy sports along with other gambling issues. But daily fantasy sports is expected to dominate the conversation.

After Nevada declared the activity was sports gambling and New York followed along with its own ruling, seven other states offered a negative opinion of daily fantasy sports, including two of the top 10 states, Texas and Maryland.

Massachusetts and Rhode Island offered a positive view of daily fantasy sports, but the confusion didn’t help the industry.

DraftKings and FanDuel, which control 90 percent of the market, raised investment funds and brought in high-profile partners, such as ESPN and professional sports leagues. The money was used to fund a massive advertising campaign that cost a combined $300 million.

”Controversy and regulatory attention likely undermined the return on investment on (the) massive ad spend,” Krejcik and Grove wrote.

Also, ESPN canceled its exclusive DraftKings advertising deal.

The report predicted the daily fantasy sports industry will experience a “widely disruptive event” this year. However, there is still a “growing acceptance among sports leagues” for a product that shares many similarities to traditional sports wagering.

“As states enter the conversation, the definition of what daily fantasy sports is – and what daily fantasy sports can be – will continue to evolve,” the pair wrote.

Howard Stutz’s Inside Gaming column appears Wednesdays and Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. Find on Twitter: @howardstutz

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