Daily Fantasy Sports Under Threat As Several States Weigh Regulations

Nov 10, 2015
Originally published on November 10, 2015 11:10 pm
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KELLY MCEVERS, HOST:

Daily fantasy sports have been getting a ton of publicity. It started with nonstop TV ads from companies that allow you to play fantasy sports for money.

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UNIDENTIFIED MAN #1: You play fantasy football, but you still haven't tried FanDuel's one-week leagues.

MCEVERS: And then came charges of insider trading and that fantasy is essentially gambling. Before long, even Jeb Bush and other presidential candidates were being asked about it in a recent CNBC debate.

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UNIDENTIFIED MAN #2: Governor Bush, daily fantasy sports has become a phenomenon in this country.

MCEVERS: A phenomenon that's raised many questions about the industry's future. NPR's Nathan Rott reports.

NATHAN ROTT, BYLINE: It'd be easy to say that it's a bad time for daily fantasy sports companies. There's a growing list of class-action lawsuits filed against them. Nevada has started regulating them like other gambling operations. And just earlier today, New York's attorney general ordered the two biggest daily fantasy sports companies to stop accepting bets there, saying they constitute illegal gambling. But at the same time, there are things like this...

CARA VANDERHOOK: So welcome to our new DraftKings Fantasy Sports Bar and Lounge.

ROTT: At the Staples Center in downtown Los Angeles - home to the Lakers, Clippers and Kings - Cara Vanderhook and Lee Zeidman show off their newly opened DraftKings lounge - DraftKings being the largest operator of daily fantasy sports.

LEE ZEIDMAN: There's 35 Toshiba flat-screen TVs throughout the space. There's 15 Microsoft Surface tablets.

ROTT: They're all here, Zeidman says, ready for you to use if you want to play DraftKings and drink a beer during Staples Center sporting events on nights like this. This lounge is a great example of why things aren't really all that bad for daily fantasy sports companies. They've got a long and growing list of partners and investors.

ZEIDMAN: Major League Baseball, the NBA, the NHL - I mean, DraftKings is everywhere.

ROTT: And it shows little signs of slowing.

NIZAR TARHUNI: Fundraising's strong in these companies and I think it'll stay strong.

ROTT: Nizar Tarhuni is an analyst at PitchBook, a venture capital research firm. And that fundraising he's talking about is definitely strong. DraftKings, Tarhuni says, is raising about $200 million in investor funding in its latest push. FanDuel, its main competitor, has brought in hundreds of millions of dollars more. And a lot of that is coming from big-name media companies and sports leagues.

TARHUNI: These guys have their own shareholder they have to deal with and their own image that they have to uphold. And so when you see that get involved, it gives you a little bit more peace around the situation.

ROTT: In part, Tarhuni says, because those types of investors are doing their homework and they know what they're getting into. But also because they have the money and political power to protect those investments, something other hugely popular and fast-growing pseudo-gambling enterprises lacked. Remember this?

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UNIDENTIFIED MAN #3: Las Vegas, where...

ROTT: The World Series of Poker, with its under-table cameras, card-by-card commentary and rags to riches players, helped make online poker a huge industry not so long ago. I. Nelson Rose, a professor of gambling law at Whittier Law School, says there are a lot of similarities between internet poker and daily fantasy sports.

NELSON ROSE: Some of the operators are using the exact same words as you saw in Internet poker, say, 15 years ago.

ROTT: For example, both claim to be games of skill, not games of chance, an important difference when it comes to regulation. And both attracted the attention of regulators and lawmakers. That attention led to federal law that hurt the online poker industry here in the U.S. But Rose says that's unlikely to happen with daily fantasy sports, in part, because of the support and buy-in from those leagues and teams and giant media companies.

ROSE: But more importantly is Congress doesn't pass any substantive laws anymore.

ROTT: So instead, Rose says, it's going to come down to the states and the courts where the daily fantasy companies can have their players lobby for favorable laws and use their money to stave off and settle lawsuits until that happens. Nathan Rott, NPR News. Transcript provided by NPR, Copyright NPR.