It's a new day for daily fantasy sports betting

It's a new day for daily fantasy sports betting
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Only three weeks after the Supreme Court’s decision to strike down the federal prohibition on sports gambling, Delaware has allowed its casinos to begin accepting single-game bets, and other states are expected to follow suit soon. It is worth thinking through the dramatic shift the Supreme Court’s decision represents for the American public and state and federal lawmakers, as well as America’s major sports leagues, including the NFL, NBA, MLB, and NCAA.

Not only does this decision have widespread implications for the gilded brick-and-mortar casinos across the United States, but it also marks a new day for daily fantasy sports websites.

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In the five-plus years that New Jersey fought to legalize sports gambling, states across the country considered how to handle the new and wildly popular online daily fantasy sports games. Were the deposits its residents placed on fantasy sports sites to be considered bets, making those online services illegal sports gambling operations? Or were these websites offering contests of skill that steered clear of prohibitions on sports betting?

 

The answers varied considerably: Montana ordered two websites to stop accepting bets from its residents despite its state lottery offering its own fantasy football contest. Virginia became the first of several states to legalize fantasy sports contests as a game of skill, steering daily fantasy sports operators clear of their gambling bans while also imposing annual registration fees and various consumer protection rules. Nevada, meanwhile, declared that daily fantasy sports operators needed to register with the state’s gaming commission to operate as licensed sports gambling enterprises. 

A prevailing trend emerged whereby regulators interpreted their existing gambling laws for self-interested reasons: either to fill state coffers or serve some influential special interest. In Montana’s case, the Montana Horse Racing Board receives the largest share of revenues raised by the Montana Lottery’s fantasy football and fantasy racing contests after winners have been paid.

The Supreme Court’s decision opens the door for lawmakers to reconsider the entire issue by making moot the “game of chance” vs. “game of skill” distinction. Eilers & Krejcik Gaming, a consultancy, projects that up to 32 states could pass laws to legalize sports betting in some form within five years, some of which have declared online fantasy sports contests to be illegal gambling.

Illinois is an illustrative example: In 2015, Attorney General Lisa Madigan determined that two sports-betting websites were operating illegally in the state and ordered them to stop accepting deposits from Illinois residents. Both firms filed lawsuits arguing each offered legal “games of skill.” Yet the Illinois legislature is considering legislation that may legalize daily fantasy sports contests and sports gambling before those lawsuits are resolved.

States' openness to sports betting is largely a result of its ever-growing popularity and the acceptance of daily fantasy sports cash contests by the public and major sports leagues. Both have become cultural juggernauts — the Fantasy Sports Trade Association estimates that the number of fantasy sports players in the United States and Canada more than doubled between 2009 and 2017 to 59.3 million. The UNLV Center for Gaming Research found that legal sportsbooks in Las Vegas took over $4.8 billion in bets in 2017.

Looking to Nevada, governors and legislators in other states eye sports gambling as an untapped reserve of tax revenue, which perhaps explains the interest in legalization from New Jersey and Illinois, both states in poor fiscal condition.

Furthermore, most professional sports associations have changed their views on sports gambling — maintaining the integrity of their games once demanded the long-standing federal ban but now requires gambling to be legalized and regulated. Even the NFL, which opposed New Jersey’s lawsuit to allow states outside Nevada to legalize sports gambling to the bitter end, has asked Congress to create a federal framework for legalized sports gambling, a proposal the NBA has supported for years. Meanwhile Major League Baseball, given its checkered past with gambling, is also working to have a hand in shaping state laws so that safeguards are in place. 

Legal sports gambling is here to stay, satisfying consumer demand for daily fantasy sports and betting, attracting new viewers to professional sports leagues that have struggled with TV ratings, and offering a potential new source of revenue to states in a fiscal squeeze. Until Congress acts, states are free to legalize sports gambling as they wish, which likely means a new beginning to the daily fantasy sports debate without federal questions.

Christopher Koopman is senior director of strategy and research with the Center for Growth and Opportunity at Utah State University and a senior affiliated scholar with the Mercatus Center at George Mason University. Michael Kotrous is a Mercatus program associate.