DFS Legal Update - Part 1
October 14, 2015
By Bruce Marshall
Fantasy Fact and Fiction...Part One
In the biography Knight, authored with the respected Bob Hammel, legendary basketball coach Bob Knight related a brief discussion he once had with President Gerald Ford shortly after "The General" had come under familiar criticism. Lamenting his fate with the press to the president, Ford reminded Knight that things could be worse. "Bob," said President Ford, "if you think the sports pages are rough, you ought to try the front pages."
Fast-forward nearly forty years, and now the heretofore blissful fantasy sports marketplace is about to get hit with the same warning that Gerald Ford gave to Bob Knight in 1976.
It was only a matter of time, we suppose. Last week, the two major US sports fantasy companies (FanDuel and DraftKings) were forced to deal with their businesses' integrity after reports of an employee using "insider information" to place bets within the unregulated industry. Specifically, a DraftKings manager would win $350,000 on FanDuel. Subsequently, New York Attorney Gerneral Eric Schneiderman opened an inquiry after the allegations. DraftKings ads were briefly pulled from ESPN. Thus, after a non-stop barrage of mostly-good publicity and ad campaigns that would make those of the biggest beer and auto companies look small by comparison, the fantasy market was finally dealing with some real negativity.
Meanwhile, as some sports journalists were treating the matter as if it were the Benghazi investigation and trying to figure out the nuts and bolts aspect of this particularly escapade, many others (like us) were focused on the bigger picture of the fantasy phenomenon. And, as it related to this particular matter, what sort of damage this unwelcome news could do to the fantasy industry. More on that in part two of this story next week.
In the meantime, allow us to digress.
We at "The Gold Sheet" have long been aware of the fantasy marketplace, participating in our first fantasy and "rotisserie" (baseball) leagues way back in the late '70s. Like many, we suppose, our leagues were about as well-organized as Saturday night card games. But the appeal of these stat-leagues for sports junkies was always undeniable.
It was no surprise, then, that a peripheral industry would soon develop, acting as a record-keeper for the leagues, an angle that would grow ever-more sophisticated into the 90s when the internet would burst into prominence and some major media concerns (such as CBS Sportsline) would offer enhanced record and lineup-keeping services online, complete with stats, tailored to the individual leagues. For most of the neighborhood fantasy leagues, this was major news. Various fantasy "preview" magazines would also surface and take spaces on the shelves of book stores each summer. The marketplace mostly stayed within that orbit for years until the fantasy concept would eventually be revolutionized by a select few, specifically the creators of FanDuel (in 2009) and DraftKings (in 2012). Those sorts would push the fantasy concept much further, with advanced technology that allowed for daily and/or weekly contests that could draw fans/customers (and entry fees) from anywhere, not just a local collection of friends.
Of course, there had been a lane created for these forward-thinking fantasy operators by the Unlawful Internet Gaming Act (UIGA) of 2006 that granted a waiver to fantasy leagues and would make them legal, effectively because they were contests of "skill" and not "chance," as traditional sports wagering would be defined.
Some much-needed distinctions, however, need to be drawn between what have almost become standard talking points within the fantasy industry and the reality of the past as it relates to the federal provisions that legalized, or rather did not de-legalize, the fantasy model, in the 2006 UIGA. To hear the fantasy sorts talk, this was legislation akin in importance to the Affordable Care Act, designed to make lawful the fantasy sports industry.
In truth, however, the fantasy sports provisions were merely adjuncts to much-broader legislation that reflected the times as well as the composition of Congress and White House, which nine years ago were all under GOP control. To put the subject in proper context, a review of UIGA's origin is in order.
The Unlawful Internet Gaming Act was birthed under dubious circumstances, which means it has plenty of company with other measures adopted in the past on Capitol Hill. And fantasy sports were hardly the crux of UIGA at its implementation in 2006. Rather, UIGA was aimed at what then was a wildly-expanding market of offshore sports books and casinos (and, specifically, the transfers of funds to those concerns), some of which having aggressively marketed in the states within the previous twelve months.
Even so, UIGA had to be attached at the last second to a port security bill ("SAFE Port") that passed through Congress in the early hours of September 30, 2006. Then-Senate Majority Leader Bill Frist (R-Tenn.) was responsible for this classic case of political sleight-of-hand, an oft-used Washington trick usually reserved for pork barrel legislation that would otherwise have little or no chance making it through to the President's desk on its own. By attaching internet gaming to port security, however, Frist effectively check-mated the majority of senators into compliance, as few were willing to risk the political repercussions of voting down a security-related bill because of any anti-internet gaming provisions included.
The political winds were blowing in the fall of 2006, however, with midterms approaching in November and the GOP at risk of losing both the House and Senate. Which it did. But in late September of that year, a coalition of conservative and anti-gambling groups could still influence and drive legislation like UIGA, in this case to perhaps activate the party's base for a much-needed turnout in a difficult election year. It has not been lost upon observers that UIGA had a small window in which it could attach itself to a larger and unrelated bill such as SAFE Port; just over three months later, with Democrats having gained majorities in the House and Senate, UIGA would have been unlikely to even make it to the floor, much less get attached to a more-significant piece of legislation.
That is the origin of UIGA, in which the fantasy industry would ride almost like a trojan horse into greater prominence.
For the record, the major sports leagues, all proponents of UIGA, were not terribly concerned with the still-nascent fantasy marketplace in 2006. Granting an exemption to fantasy sports allowed UIGA authors to draw further distinctions with "illegal" sports gambling and the offshore operators who were the focus of their crackdowns nine years ago. The NFL, MLB, NBA, and NHL were not required to make a significant lobbying effort on behalf of fantasy leagues, at the time considered rather harmless.
While the federal legality, or non-illegality, of fantasy sports was confirmed by UIGA, there have been other recent developments regarding the industry that have not only strained credulity, but effectively stretched it beyond recognition. All to be addressed, along with the role Las Vegas might have inadvertently played in the "new generation" of fantasy, when we attempt to close the circle on these subjects in the coming weeks.
With a VI Gold Membership, you can SAVE 20%
off Daily Pick packages, SAVE 10%
off a Live Odds Pro subscription, and receive access to up to 1,000
Member Plays each month!