WASHINGTON (Legal Newsline) - For years, fantasy sports were the thing of high school buddies, college pals or office mates, gathering in basements or local watering holes with their eyes on a few bucks or just bragging rights.
But in the last year, fantasy sports have emerged to include daily, online matchups that tout the possibility of immediate cash payouts.
As a result, it has become the target of various class action lawsuits and a growing number of state attorneys general.
Doug Gansler, former attorney general of Maryland and now a partner in the Washington, D.C., office of Buckley Sandler LLP, said attorneys general are mainly concerned with how the industry operates and the tax implications.
“AGs want to make sure if fantasy sports companies are going to operate in their states, they’re going to operate with transparency and integrity,” Gansler said in an interview with Legal Newsline. “That’s No. 1. No. 2 is whether the actual operation comports with the law in their states.”
They also want to make sure their states get some portion of the money that is generated, said Gansler, who handles complex litigation cases involving data breaches, cybersecurity and privacy matters, and provides regulatory compliance advice.
“There’s an enormous amount of money being made,” he said of the industry. “[AGs] are wondering, is there any money for their states in this?
“Ultimately, it’s a question of, is there regulation? If so, who is the regulator?”
Currently, daily, online fantasy sports websites like DraftKings and FanDuel are illegal in only five states: Arizona, Iowa, Louisiana, Montana and Washington.
Nevada’s Gaming Control Board announced in October that the Attorney General’s Office determined daily fantasy sports is gambling under state law. Now, the industry must adhere to the state’s licensing process.
In Massachusetts, Attorney General Maura Healey has issued proposed regulations that would raise the minimum age for participants.
By far, New York Attorney General Eric Schneiderman has been the most aggressive in the fight against daily fantasy sports.
Schneiderman sought an injunction against DraftKings and FanDuel weeks after the first class actions were filed against the companies, alleging both were operating illegal sports betting operations. The class actions were filed on behalf of the bettors who wagered with FanDuel and DraftKings and seek the return of all funds bet.
A New York Supreme Court judge last month granted Schneiderman’s motion to enjoin DraftKings and FanDuel from doing business in the state.
The attorney general has argued that daily fantasy sports are “nothing more than a rebranding of sports betting” and “plainly illegal.”
However, a New York state appellate court issued an emergency stay allowing the sites to continue to operate until this month.
Gansler said he expects more AGs to enter the fray, given varying state laws.
In most states, he explained, a “predominant purpose test” is used to determine whether a particular game is one of chance or skill. Under this test, a game is considered a game of chance if chance predominates over skill in determining the outcome.
Other states, such as New York, apply a test called the “material element test.” Under this test, a game is considered one of chance if chance has more than a merely incidental effect on the game.
Gansler said court decisions ultimately will lay the framework for regulation.
But both sides, especially the industry, he argues, should make more of an effort to reach an agreement -- and sooner rather than later.
“Once state AGs began issuing opinions and requests for information, the industry dug their heels in, as opposed to trying to resolve the issues to everyone’s satisfaction,” he explained.
“In my view, there’s a middle ground to reach that would benefit both sides.”
Of course, a multi-state investigation also remains a possibility, Gansler said.
“It’s not out of the question,” he said, noting the benefits.
A coalition would allow AGs to pool their resources and bring better bargaining power in settlement negotiations.
But he said many attorneys general probably would prefer to steer clear of such a move, or at least give pause.
“Most state AGs -- 43 of them -- have to get elected,” Gansler said. “This is not a clear political win for them.”
He continued, “A lot of people like playing fantasy sports. Do they want to be the person to deny the right to play fantasy sports? To many, it’s a harmless endeavor.”
Either way, Gansler said the industry needs to proceed cautiously, keeping an eye on the federal government, but also state legislatures.
“In the next few weeks, the football season will end and baseball doesn’t start until the spring,” he explained. “Those are the two big sports that govern in the fantasy world.”
And soon, many state legislatures will begin to convene, Gansler pointed out.
“I think a lot of states are weary of [daily fantasy sports],” he said. “So I think it’s definitely going to be a battle area in statehouses around the country, as lawmakers attempt to get something passed.”
From Legal Newsline: Reach Jessica Karmasek by email at email@example.com.