JACKSON, Miss. (Legal Newsline) - With the question of the legality of daily fantasy sports popping up on a state-by-state basis, one thing is certain: The controversy isn’t going away.
“The various states that are addressing this are taking different approaches ranging from banning DFS, legalizing it but requiring a license or registration or just regulating it to protect consumers. Some states are levying separate taxes on fantasy sports,” said James Gatto, an attorney on Sheppard Mullin’s digital media industry and social media and games industry teams.
At the end of January, Mississippi Attorney General Jim Hood released an opinion that fantasy sports betting is illegal in the state under current law. A few days later, Rhode Island Attorney General Peter Kilmartin issued an opinion that the same activities are legal there.
Many other states have weighed in. Following an opinion in by Texas Attorney General Ken Paxton, one major DFS company, FanDuel, agreed to stop operating in the state beginning in May. A second, DraftKings, filed a lawsuit challenging the opinion.
In New York, where those two companies await a court decision on the issue, the state's legislature is considering various bills that would make DFS legal and regulate it.
“These differing approaches reflect different policy approaches,” Gatto said.
At issue in many cases is whether DFS constitutes illegal gambling under respective state laws. In Texas, Paxton opined that DFS sites violate state law because users make bets on the outcome of participants in a game or contest, which is illegal.
Payments or fees are considered bets because the outcome of the games partially depend on chance, he said.
DraftKings argues that the outcomes rely on skill, not chance.
In Mississippi, that argument is irrelevant, Hood said in his opinion. State law there doesn’t differentiate between games of skill or chance. Rather, Mississippi law states that betting on the outcome of a sporting event is illegal and betting or encouraging others to bet on any game is a crime.
Kilmartin said he’s confident DFS is legal in the state and encouraged lawmakers to set regulations that protect players. He concluded that fantasy sports combine chance and skill, but state law permits testing, which is dominant. A game in which chance is dominant is illegal. Kilmartin determined that isn’t the case with fantasy sports.
States that consider DFS gambling see fantasy sports sites as harmful, Gatto said, while others want to protect players while taking advantage of the money pouring in.
“It is incredibly popular and generates a lot of money. Some states see this as an opportunity to tax it and reap the financial rewards,” he said. “Most of the states that are permitting it are imposing some regulation to provide consumer protection.”
Once a decision is made in a state, it’s up to a company to comply. While compliance likely involves some cost, at least the question is answered. The uncertainty and possibility of future action poses challenges to companies because it’s affecting potential investors.
“Once the dust settles, reasonable investment decisions can again be made,” Gatto said.