Gambling or game of skill? Debate swirls over fantasy sports

There is a reason Nevada’s gaming industry has avoided getting involved in the estimated $15 billion a year online fantasy sports business.

Most believe the growing activity constitutes unregulated gambling.

Sports fans pay a fee to enter single-day or seasonlong contests that pay out millions of dollars in cash prizes.

“You put up of something of value, cash, to win something of value, cash,” said Joe Asher, CEO of sports book operator William Hill U.S. “It’s the classic definition of gambling.”

Fantasy sports leagues have caught the attention of casino and sports book operators. It’s hard to ignore the marketing efforts by DraftKings and FanDuel, the two sites that control an estimated 90 percent of the fantasy sports market.

However, Nevada gaming regulators have cautioned the industry to keep its distance.

Gaming Control Board Chairman A.G. Burnett has never issued a directive to avoid fantasy sports. All he has said is for the industry to do its homework.

“Gaming licensees need to do an analysis on the legal ramifications,” Burnett said. “They need to understand the legal issues if they step into that arena.”

Burnett said the fantasy sports leagues operate despite four federal laws covering gambling and sports betting — the Unlawful Internet Gambling Enforcement Act, the Wire Act, the Illegal Gambling Business Act, and the Professional and Amateur Sports Protection Act.

Sports wagering is legal in four states, although Nevada is the only state with full-scale race and sports books. Many Nevada sports book operators offer mobile wagering applications that allow betting from anywhere in the state. The applications shut down when the mobile devices leave the state.

Fantasy sports leaders said the federal government does not define fantasy sports as gambling. The Unlawful Internet Gambling Enforcement Act makes it illegal for banks or financial institutions to allow transactions for online wagering. However, there is a “carve out” language that exempts fantasy sports, online state lotteries and horse racing.

Gaming Control Board investigators have not looked into the legal implications surrounding fantasy sports.

“It’s something we may have to look at in terms of it being legal under Nevada gaming law,” Burnett said.

DraftKings and FanDuel claim they offer games of skill and are not considered gambling websites.

“We are a U.S.-based skill games company and all of our contests are operated 100 percent legally under United States and Canadian law,” DraftKings states on its website.

In an email, a FanDuel spokesman said the business “is a daily fantasy sports experience, classified as a skill game and NOT gambling.”

Residents of five states — Arizona, Iowa, Louisiana, Montana, and Washington — can’t participate in the websites because of state-specific regulations against cash prize awards.

The fantasy sports businesses cite partnerships with professional sports leagues and individual teams as a sign of legality.

FanDuel has a marketing deal with the National Basketball Association and, separately, multiyear partnerships with 13 NBA teams. DraftKings has deals with the National Hockey League and Major League Baseball.

The National Football League does not have an agreement with the fantasy sports websites. However, five teams have marketing deals with DraftKings and 16 teams have similar arrangements with FanDuel.

DraftKings said the legal status of the contests are taken “seriously” and the company operates in compliance with federal and state laws.

“This is gambling,” said Asher, whose company operates sports books throughout Nevada and handles football parlay card wagering in Delaware.

“Any suggestion that (fantasy sports) is not gambling is the biggest bunch of baloney I’ve ever seen,” Asher said.

MGM Resorts International Chairman Jim Murren echoed Asher’s sentiments during an April round-table discussion with media at the Washington offices of the American Gaming Association. The trade group is studying fantasy sports, which he said mushroomed into an unregulated multimillion-dollar business.

“Clearly this cannot be ignored, and it is gambling,” Murren said. “We have not engaged in it as a commercial enterprise because we haven’t gotten comfort by our regulators that we should.”

Murren said sports officials are “absolutely, utterly wrong” when they argue that daily fantasy games are not gambling.

“I don’t know how to run a football team, but I do know how to run a casino, and this is gambling,” he said.

Canada-based Amaya Inc., which owns PokerStars and Full Tilt Poker, plans to launch a daily fantasy sports website sometime this year and will target U.S. customers, a company spokesman said. Amaya isn’t licensed in Nevada.

Las Vegas gaming attorney Greg Gemignani worries the fantasy sports world is heading toward a fate similar to the April 2011 “Black Friday” crackdown by federal prosecutors on Internet poker. He said there is “a lack of enforcement” but that could easily change.

The Unlawful Internet Gambling Enforcement Act, he said, was written long before there were daily fantasy sports leagues.

“There really isn’t a good definition of what constitutes fantasy sports,” Gemignani said. “We really don’t have a real definition of sports wagering.”

Fantasy sports is big business.

The Chicago-based Fantasy Sports Trade Association says 56.8 million people from the United States and Canada participate in leagues, spending an average of $257 a year on daily fantasy sports and $162 a year on traditional seasonlong contests.

The Walt Disney Co., which owns ESPN, intended to invest $250 million into DraftKings but canceled those plans last month, according to technology news website Recode. DraftKings still has exclusive rights to advertise on all ESPN brands.

According to Fantini Gaming Research, DraftKings has raised $75 million in investments since 2012 and FanDuel has reportedly raised $85 million.

Despite the gaming industry’s reluctance to get involved with fantasy sports, there is a connection to Las Vegas.

Last month, the NFL stopped its players — including Dallas Cowboys quarterback Tony Romo — from participating in the 2015 National Fantasy Football Convention planned at the Sands Expo and Convention Center.

The crackdown, however, had nothing to do with fantasy sports. A league spokesman said the NFL didn’t want players or NFL personnel participating in events held or sponsored by casinos, even though the Sands Expo is attached only to The Venetian and Palazzo.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871. Find @howardstutz on Twitter.