Congress Now Investigating Legality of Daily Fantasy Sports

Here is a tip for DraftKings and FanDuel — tone it down.

The problem with running $31 million worth of commercials every five seconds this past weekend, aside from annoying your target customer base, is that eventually someone with the power to throw a wrench into your whole non-gambling gambling operation is going to hear about the millions of dollars they can win by skillfully not betting on sports and think, “Hey how in the hell is that legal?

One such person is 14-term U.S. Congressman Frank Pallone, Jr. (D-NJ). Congressman Pallone, whose district includes most of Middlesex and Monmouth Counties in Central Jersey, is the Ranking Member of the House Energy and Commerce Committee, which has jurisdiction over issues pertaining to energy, environment, health care, telecommunications and — the big one— commerce. This week, Congressman Pallone requested that the Committee hold a hearing to review the legal status of daily fantasy sports.

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“Anyone who watched a game this weekend was inundated by commercials for fantasy sports websites, and it’s only the first week of the NFL season,” said Congressman Palone. “These sites are enormously popular, arguably central to the fans’ experience, and professional leagues are seeing the enormous profits as a result. Despite how mainstream these sites have become, the legal landscape governing these activities remains murky and should be reviewed.”

Sure, Congressman Palone is a huge supporter of legalized sports betting and he knows that his home state stands to gain millions in new tax revenue if sports betting is ever allowed. So he obviously wants to take shots at the richest and loudest DFS kids on the block.

However, he is not wrong for questioning the legality of DFS.

As has been well-documented, DFS exists in a carve-out of the Unlawful Internet Gambling Enforcement Act (UIGEA). Under this law, fantasy sports are exempt from the federal ban of Internet gambling so long as the games meet three criteria:

(I) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.

(II) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.

(III) No winning outcome is based— (aa) on the score, point-spread, or any performance or performances of any single real-world team or any combination of such teams; or (bb) solely on any single performance of an individual athlete in any single real-world sporting or other event.

The key question in regards to DFS is whether winning is based predominantly on skill or chance aka luck. It certainly seems that DFS has a large component of skill, which is why many people this weekend blew a lot of money entering contests dominated by advanced statistical gurus hoping for deposit bonuses they will never receive.

However, if Congress accepts that DFS is predominantly skill, then online poker and sports betting should be legal in all 50 states. To say that winning at DFS requires significantly more skill than winning at poker or winning a sports bet is ridiculous. Sure, they all have elements of luck, but how can only DFS fall into the “skill” category?

Either legalize them all or ban them all. The current conflicting and incoherent treatment of sports betting vs. DFS needs to end, which is where Congress now comes in since the Courts have passed on sports betting.

Certainly, there are much bigger fish to fry in the world than DFS. However, in terms of interstate commerce and tax revenue, sorting out the messy situation created by PASPA, UIGEA and the Wire Act is worthy of attention.

We should have a system where people are free to use their money to play poker, bet on sports, and play fantasy as they see fit.

However, the more DraftKings and FanDuel inundate all forms of media with their “deposit $5, win millions” ads, the more unwanted attention they will draw. Congressman Pallone has his agenda, but imagine if his Committee’s investigation gained some traction with anti-fun advocates like Sen. Lindsey Graham (R.-SC) or Rep. Jason Chaffetz (R-Utah). Suddenly, the DFS industry could face a logjam of Republicans who hate all forms of gaming mixed with Democrats who want to skewer DFS until sports betting is legalized.

Such a combination is not what the deep-pocketed investors in DraftKings and FanDuel are hoping for.

So please, stop the commercials. We get it. You figured out how to toe the line between unlawful sports betting and lawful paid fantasy sports. But if I see that idiot Patriots fan win $1 million again I’m throwing a deflated football through the TV.

Steve Silver is the founder of TheLegalBlitz.com. He is a former sports reporter for the Las Vegas Sun and is now a lawyer in Philadelphia. You can reach him at steve@thelegalblitz.com or on Twitter @thelegalblitz.

Image via Getty Images.

Daily Fantasy Sports Congressional Hearing Request