On Thursday, the Nevada Gaming Control Board ordered fantasy sports sites to shut down operations in the state after determining they constitute gambling, and thus require a license. The ruling comes at a time when fantasy sport betting sites like FanDuel and DraftKings are under increasing scrutiny from state and federal regulators.
The sites, which you've surely seen advertising for if you've been anywhere near a sports broadcast recently, have their roots in fantasy "leagues" that allowed fans to create their own dream teams, with scores based on how the players perform in IRL games. The betting sites, which exploit an exemption for pay-to-play fantasy sports in the federal law against online gambling, allow betters to enter multiple games on a daily or weekly basis, with cash prizes sometimes in the millions.
After a legal analysis, Nevada's board concluded that fantasy sports are another form of gambling under Nevada law because it "involves wagering on the collective performance of individuals participating in sporting events," according to a notice issued Thursday.
To provide fantasy sports services in the state, sites would have to "possess a license to operate a sports pool issued by the Nevada Gaming Commission…All unlicensed activities must cease and desist from the date of this Notice."
Websites can resume operations in the state only if Nevada law is changed or the owners request licenses, according to the notice. With that, websites like FanDuel and DraftKings were ordered to shutter their doors, effective immediately. In a statement, FanDuel spokesperson Emily Bass said:
“On behalf of our users in Nevada, FanDuel is terribly disappointed that the Nevada Gaming Control Board has decided that only incumbent Nevada casinos may offer fantasy sports. This decision stymies innovation and ignores the fact that fantasy sports is a skill-based entertainment product loved and played by millions of sports fans. This decision deprives these fans of a product that has been embraced broadly by the sports community including professional sports teams, leagues and media partners. We are examining all options and will exhaust all efforts to bring the fun, challenge and excitement of fantasy sports back to our Nevada fans. In the interim, because we are committed to ensuring we are compliant in all jurisdictions, regrettably, we are forced to cease operations in Nevada.”
Fusion reached out to DraftKings, but as of this writing, we had not heard back.
Today's notice comes after a scandal alleging that an employee of one of the sites used data unavailable to the general public to place bets and make $350,000 on games on a rival site. It's being called a new type of insider trading. FanDuel and DraftKings are now facing federal investigations.
Nevada isn't the first to enact rulings that prohibit fantasy sports sites from operating. Arizona, Iowa, Louisiana, Montana, and Washington have blocked these services too, according to Legal Sports Report. Others have blocked some providers, but not others:
Twelve states, including California, Indiana, Iowa, Kansas, Massachusetts, and Texas, have introduced bills to regulate it. In Massachusetts, where DraftKings is based, the bill would allow the state lottery to operate fantasy sports. It's currently under review. New York, home to FanDuel, has not yet introduced legislation.
But Nevada is special. It's the hotbed for gambling and has some of the country's toughest gambling rules. After all, the state depends on it. An unregulated industry translates into lots of lost tax revenue. Analysts estimate the young fantasy sports industry "will generate around $2.6 billion in entry fees this year," according to The New York Times. That's expected to grow to $14.4 billion by 2020.
Still, unlike physical gambling in casinos, betting over the internet presents special problems. Sometimes, betting that's illegal in the U.S. is legal elsewhere. So as U.S. regulators shut down sites domestically, internationally ones crop up to cater to their wants. The internet, after all, has no borders. A New York Times investigation revealed that when "betting sites are based offshore, in countries where gambling is legal, American prosecutors say they are limited mostly to rounding up people who recruit bettors and move money in this country, leaving the overseas sites free to replace those who were arrested." It's possible we'll see the same happen in fantasy sports as regulators try to dial back the industry.
You might be wondering why fantasy sports sites have been allowed to operate in the first place, since they do have a whiff of gambling. Well, as WIRED's Davey Alba reports:
The saga began in 2006, when lawmakers passed the Unlawful Internet Gambling Enforcement Act. Federal law prohibited Internet gambling—so online poker, online bingo, online casinos, and the like, became illegal—and major sports leagues lobbied for the ban, too. But at the last minute, a carve-out for fantasy sports was added, with approval from professional leagues. Fantasy sports, the leagues reasoned, boost fan interest, which is good for business.
In other words, if professional leagues had wanted to crush fantasy sports from the start, they could have. But the NFL actually championed for the exemption, according to The New York Times, because fantasy sports increases viewership. It's unclear how well thought-out the exemption was. It was passed by Congress at 12:32 a.m. on September 30, 2006, likely by lawmakers who wanted nothing more than to adjourn and go home for the night.
Daniela Hernandez is a senior writer at Fusion. She likes science, robots, pugs, and coffee.