Fantasy sports fans, it might be time for you to move to Richmond. Virginia became the first state to officially legalize Daily Fantasy Sports (DFS) this week when lawmakers signed the Fantasy Contests Act into law. It's a massive victory for DFS, but the landmark decision doesn't mean they'll easily pave the way for more states embrace the embattled industry.
"Each state is its own political animal," says Daniel Wallach, a sports and gaming legal expert and a shareholder at Becker & Poliakoff in Ft. Lauderdale. "This is not the birth of a nation."
DFS operators like DraftKings and FanDuel, which have been fighting for the survival of their billion-dollar industry for months, might not celebrate for long. While this is their first significant victory, legislation is still being considered in 30 other states. "They'll be lucky if they get six to 10 this year," Wallach says. "That would be a success. Any more than that would be a fantasy." A 2006 federal law banned online gambling but allowed fantasy sports sites to operate in a gray area.
Late last year, the DFS industry came under siege as lawmakers across the country struggled with identifying fantasy sports as either a game of skill or one of chance. DFS operators maintain their product is a game of skill and should be legalized across the board, but the matter comes down to the state-by-state definition of what constitutes gambling. In New York, for example, DFS operators were forced to shut down because state law considers any game, with even the slightest bit of luck involved, gambling. Because the outcomes of DFS games are out of the hands of players once their rosters lock, it can be considered a game of chance.
The other knock against DFS sites, which seems to be addressed at length in the Virginia law, were allegations of insider trading. In October 2015, a DraftKings employee was cleared of any wrongdoing after Ethan Haskell was accused of using proprietary information to gain an advantage playing DFS on another site. In prohibiting DFS employees from playing and in ensuring there are certain consumer safeguards, Virginia lawmakers clearly took the Haskell case into consideration when drafting the law.
DraftKings spokesman Griffin Finan called the law "thoughtful and appropriate" in a statement, adding, "We will continue to work actively to replicate this success with dozens of legislatures and are excited to continue these efforts."
Virginia Gov. Terry McAuliffe signed the bill into law this week, placing fantasy sports under the jurisdiction of the state's Department of Agriculture and Consumer Service. The bill creates the first legal framework governing DFS in any state.
Here's a closer look at the requirements the Virginia law places on DFS operators:
- Sites must register with the state.
- DFS operators are required to pay a $50,000 licensing fee.
- Fantasy sites must ensure players are 18 or older.
- Consumer safeguards include preventing the sharing of confidential information with third parties that can impact fantasy play until that data is made publicly available.
- Player funds are to be separated from company operational funds.
- DFS employees are prohibited from competing in public contests.
- DFS operators will be subjected to two yearly performance audits to ensure compliance.
While DFS operators continue to fight for their future in statehouses across the country, the Virginia law represents a first step toward broader acceptance.
It's a state-by-state issue, and just like marijuana legalization, it appears different states have different stances on legalized gambling. For example, while Indiana Gov. Mike Pence has expressed a willingness to sign a fantasy sports bill, a similar initiative has failed in Florida.
"There's no question, the Virginia law is a huge development," Wallach says. "It's an important first step. But there is going to be a three- to five-year process to bring legal clarity to DFS."