Thursday, November 5, 2015

Congress Isn’t Going After Daily Fantasy Sports Yet

Scott Olson / Getty Images

WASHINGTON — There have been allegations of insider trading, lawmakers are calling for investigations, and lobbyists have been retained. But drastic changes aren’t necessarily coming to the daily fantasy sports industry — at least not anytime soon.

Led by FanDuel and DraftKings, the daily fantasy industry has exploded into a $2 billion industry in recent years. That success has brought new scrutiny, especially following the disclosure last month that a DraftKings employee released data, then won $350,000 on FanDuel in the same week.

In Washington, some lawmakers are aggressively calling for tighter regulation — something that could significantly affect the industry, which is exempt from the federal laws that prohibit online sports betting and poker. FanDuel and DraftKings have responded by hiring up lobbying firms in the past month on the federal level, and spending big on the state level. But hearings aren’t yet scheduled, no major legislation has been introduced in Congress, and if either happen, it won’t be for a while.

The chairmen of the two Senate committees that would have jurisdiction on the issue — Sen. John Thune of the Commerce Committee and Sen. Chuck Grassley of the Judiciary Committee — told BuzzFeed News that although they are paying some attention to it, they don't currently have plans to look into the industry.

"Right now, I don't have an opinion," Grassley said. "None of my colleagues have asked me to have hearings. It's relatively new. I know it's seven or eight years old, but it's relatively new in terms of people talking about it politically."

Thune said he had heard from some of his Democratic colleagues, but he hasn't "decided on any specific course of action."

"We're obviously paying attention to the issue and following some of the reporting," he said. "We've had some discussions about it. Obviously, our issue area of involvement would be the consumer protection issue because we have jurisdiction over the Federal Trade Commission. So we're following it."

The House Energy and Commerce Committee Chairman Fred Upton has said a hearing is "likely" — after ranking member New Jersey Democratic Rep. Frank Pallone became the most vocal critic of the industry — but also said it won’t happen soon. "There’s a lot of things on our front burner right now," Upton said recently.

There is some bipartisan concern. South Carolina Republican Sen. Lindsey Graham, who has sponsored legislation to ban all online gambling, told BuzzFeed News he would also “like to deal with fantasy sports.” And Connecticut Democratic Sen. Richard Blumenthal, a ranking member on the consumer protection subcommittee, said “the more that's learned about fantasy sports, the more momentum and evidence there will be for stricter oversight and scrutiny.” But it’s clear the issue isn't a priority for either chamber.

Insiders say the lobbying firms were mostly hired as a defensive strategy to educate members of Congress — more a preventative measure. DraftKings and FanDuel hired the lobbying firms less than 10 days before third-quarter lobbying reports were due and had already reported spending a combined $30,000. Fantasy Sports Trade Association spent another $20,000 in the third quarter.

“I don’t see a fantasy sports bill passing out of Congress anytime soon,” said Jeremy Kudon, a lobbyist who represents FanDuel, DraftKings, and the Fantasy Sports Trade Association on the state level.

"We've certainly been focused on the states since February," he said. "We have a robust infrastructure that's only getting more robust by the day."

Before the recent push for regulation, fantasy sports companies had already been banned from operating in five states. Nevada, which ruled last month that fantasy sports companies needed a gaming license, essentially became the sixth — a major setback for the industry.

But the decision in Nevada might not be one that could as easily be replicated in other states, except New Jersey, which also has a competing casino industry. The growing popularity of fantasy sports combined with the intense behind-the-scenes lobbying efforts in states is expected to produce less aggressive proposals in state legislatures, based on interviews with various stakeholders.

Although the industry is gearing up for legislation in up to 35 states, most state legislatures won’t come back to session until next year, when the issue might have faded.

In the meantime, there’s a proposal from Illinois — introduced last week — that some are expected to use as a potential model. The bill, which would add consumer protection measures and require auditing policies, has some support from the industry.

“Other jurisdictions don’t have entrenched gaming interests that deal with casino issues and have not traditionally regulated the gaming industry,” said David Klein, a managing partner at a New York-based firm who specializes in fantasy sports and gaming law and represents some fantasy sports companies. “For them to take the Illinois approach — which is of lighter touch — would make more sense.”

Chris Grove, who follows the issue closely as author of an influential website Legal Sports Report, said some movement in Massachusetts and Pennsylvania are also worth watching, but he expects more states to follow Illinois’ approach.

“States recognize that while there is the appearance of a lot of money in the industry... there isn’t really a lot of tax revenue,” Grove said. “As they get educated on the issue, that moves them away from gambling regulation.”

Grove also said that although change through state or federal legislation that could dramatically hurt the industry seems less likely at this point, there are some civil and criminal investigations facing companies that could be considered long-shots, but could also serve as “pressure points that could bring about rapid and violent change.”

The attorney general of New York and the Federal Bureau of Investigation are among those investigating fantasy sports companies. A federal grand jury in Florida is also reportedly looking into possible criminal violations, and Washington Redskins’ Pierre Garcon has filed a class-action lawsuit against FanDuel for using his name and likeness without his permission.

With little clarity so far on where the industry is headed, Klein summed up how he sees it playing out: “The industry will be different. There will be more checks and balances, but I expect the industry to survive and thrive.”


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