Daily Fantasy Sports Are Gambling, But It’s Cool, Massachusetts AG Says

It’s probably the best scenario companies like DraftKings and FanDuel could hope for.

Massachusetts Attorney General Maura Healey is not interested in debating whether daily fantasy sports are gambling or “games of skill.” In either case, she wants to regulate them in a way that should have the industry’s biggest players, FanDuel and DraftKings, cheering. “This is a form of gambling. The question is whether it’s legal or illegal,” Healey said in a press conference announcing her plan to regulate the industry. “As I’ve said in the past, as I look at the criminal laws that apply to gambling, it is not unambiguously clear that they apply to this new industry that was never envisioned at the time those laws were drafted.”

If the recent crackdown in New York is the worst-case scenario for DraftKings and FanDuel, Healey’s proposed rules offer an alternative they’ll find welcome. She would prohibit the sites from advertising to minors and require them to block players under 21, and ban daily fantasy contests based on college sports. None of these regulations would add significant costs to the companies, and by not going further, Healey is giving them permission to have at it. She did say she was keeping open the option of taking further action against daily fantasy companies, although she has said previously that she’s not looking to shut them down. 

"We believe the process followed by AG Healey and the Commonwealth of Massachusetts will ultimately result in a positive outcome for the millions of fantasy sports fans around the country who want to be able to enjoy DraftKings' games in a fun, fair, and transparent environment," DraftKings said in a statement. 

In spelling out her approach, Healey stated what is already obvious to many: There’s no intellectually honest distinction to be drawn between daily fantasy sports and other games that have been addressed under gambling laws. Both DraftKings and FanDuel defend themselves by arguing that their contests are games of skill. But there are skillful sports gamblers and poker players who have to ply their trades illegally unless they want to live in Las Vegas, and anyone willing to slap down a dollar can make a perfectly legal bet on skill-less scratch-off lotteries run by the state. The only relevant question for betting games is whether lawmakers have blessed them with legal status.

For this very reason, Jeff Ifrah, an attorney who represents several small daily fantasy companies, tries to avoid the debate over skill. “Once you start having that discussion, you lose,” he said. Ifrah also represented online poker companies in 2011, when that industry collapsed after criminal charges were brought against its major players. Like daily fantasy operators, poker companies have argued that poker should be legal because it’s a skill game. This is almost certainly true as an academic argument. But poker never recovered from the crackdown, largely because the companies that operated within the industry were based overseas and engaged in other unsavory activities, such as bank fraud and using player deposits to fund their operations. “There was no one around defending the poker industry, and when you look at the laws that were involved, they’re the same laws. It was the same arguments,” said Ifrah. “It makes you scratch your head. Why is that so?”

One major difference, of course, has been the endorsement of daily fantasy sports from professional sports leagues. While most leagues still oppose traditional sports betting—the NBA is the notable exception—they have encouraged daily fantasy sports. Having a bit of money riding on one part of an otherwise meaningless game keeps people tuned in. Outright betting on the games would do the same, of course, and for some proponents of legalized sports gambling, daily fantasy sports have long been seen as the kind of transitional activity that could pave the way to the real thing.

That seems unlikely, at least in the short term. The negative publicity that DraftKings and FanDuel have inspired through omnipresent—and allegedly misleading—advertising hurts that cause. So does a patchwork of consumer protections that many see as inadequate. But actions like Healey’s would allow the industry to clean itself up without shutting down. If more states adopt her approach, as opposed to that of New York Attorney General Eric Schneiderman, there’s no legal reason the industry couldn’t still be around in several years. If it is, and if the business model proves sustainable (as yet unclear), it could bolster the case for further loosening.

At Healey’s press conference, she was asked explicitly whether she thought sports gambling itself should be legal. She didn’t answer.

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