DraftKings and FanDuel are being ordered out of Nevada.
The Nevada Gaming Control Board ruled today that daily fantasy sports sites are considered gambling and ordered the companies to stop operating until they receive state gambling licenses.
“Moreover, because DFS involves wagering on the collective performance of individuals performing in sporting events, under current law, regulation and approvals, in order to lawfully expose DFS for play within the State of Nevada, a person must possess a license to operate a sports pool issued by the Nevada Gaming Commission,” the board wrote in a notice. “Further, a licensed operator who offers DFS must comply with all laws and regulations that apply to licensed sports pools.”
The ruling follows weeks of controversy related to allegations of “insider trading” after a DraftKings employee released internal data and won $350,000 in a FanDuel contest that same week.
While fantasy sports have been around for a while, these new daily games are becoming more popular as of late. Rather than a typical season-long fantasy league that forces users to keep the same roster for months, FanDuel and DraftKings let people compile different lineups each week and pick from an array of money pools that have some serious payouts to top finishers.
Both sites hand out millions of dollars to participants. For example, a DraftKings pool for this past NFL weekend featured an entry fee of $20 for each lineup, with a top prize of $2 million.
However, many have called for more regulation of daily fantasy sports companies. Earlier this week, the Wall Street Journal reported how federal investigators were investigating how DraftKings and FanDuel conduct business and determining whether they should fall into the “gambling” category. The Washington Post noted last month that a ranking member of the Energy and Commerce requested a hearing to discuss “how participation in fantasy sports differs from gambling, as well as the relationship between professional leagues, teams, and players and the fantasy leagues.”
Residents of Arizona, Iowa, Louisiana, Montana, or Washington cannot participate in daily cash fantasy sports contests due to state-specific regulations against cash prize awards.
With Nevada now deeming the sites as “gambling,” it will be interesting to see if other states follow suit.
DraftKings, which inked an exclusive partnership with ESPN in June, calls itself a “U.S.-based skill games company,” and says that its contests are legally operated under U.S. and Canadian law.
“The legality of daily fantasy sports is the same as that of season long fantasy sports,” the company notes. “Federal law and 45 of the 50 U.S. states allow skill-based gaming. Daily fantasy sports is a skill game and is not considered gambling.”
On its FAQ page, FanDuel has a similar answer to the question of “Is FanDuel legal?”:
Yes, Fantasy Sports is considered a game of skill and received a specific exemption from the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA). FanDuel uses exactly same rules as season long fantasy sports game, the only difference is that our games last only a day. Thanks to fantasy sports being specifically excluded from laws affecting online sports betting, FanDuel is not illegal in any way. Trust us, our lawyers drive very nice cars so that we can keep it that way. We’re also members of the The Fantasy Sports Trade Association (FSTA).
In July, FanDuel raised a $275 million round from investors like KKR, Google Capital, and Time Warner that valued it at more than $1 billion. A few weeks later, DraftKings raised a $300 million round led by Fox Sports, which valued the startup at more than $1.2 billion.
DraftKings, founded in 2011, brought in $30 million in revenue last year, the Wall Street Journal reported. FanDuel, founded in 2009 — it spun out of news startup HubDub in 2010 — made $57 million last year. The companies make money by taking a small commission from each entry fee; FanDuel said that it takes about 10 percent from each fee.
Both companies, which have partnerships with sports leagues, teams, and media giants, have spent huge amounts of money on advertising for the past few months as the 2015 NFL season gets underway.