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Fantasy sports on the hot seat

Fantasy sports on the hot seat
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The daily fantasy sports industry is preparing to face its congressional critics for the first time.

A House Energy and Commerce subcommittee is set to hold a hearing Wednesday morning where lawmakers have an opportunity to explore allegations that the sports websites facilitate illegal gambling.

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The hearing is likely to produce fireworks, with Rep. Frank Pallone Jr. (D-N.J.), perhaps the biggest critic of the industry in Congress, getting his first opportunity to question industry groups in person about the companies’ business practices.

“The issue of daily fantasy sports leagues has been at the forefront of the news over the last few years,” said Rep. Michael BurgessMichael Clifton BurgessTexas Republicans condemn state Democrats for response to official calling Scott an 'Oreo' Americans have decided to give professionals a chance Six ways to visualize a divided America MORE (R-Texas), who chairs the subcommittee, in a statement. “The committee is providing a forum for all stakeholders to discuss the many aspects of this complicated issue.”

Pallone has questioned whether the sites offer illegal gambling, and the issue hits close to home.

Professional sports leagues have sued to block traditional sports betting from being legalized in New Jersey while, at the same time, supporting the daily fantasy sites either tacitly or explicitly.

“So, this is gambling, outright, and yet they continue to spend millions of dollars, in a hypocritical sense, to try and stop sports betting through their lawsuits because they claim it’s immoral or it’s going to get the players ... involved in organized crime,” Pallone told The Hill in September, shortly after he asked Chairman Fred Upton (R-Mich.) for the hearing.

“Congressman Pallone, among others, wants to know a little bit more about the relationship between the leagues [and] the fantasy sports sites, whether this is gambling, why daily fantasy sports is treated differently than sports betting, and whether and to what extent it should be regulated,” said Daniel Wallach, a lawyer who tracks the debate over daily fantasy. 

Pallone won’t get answers from the leagues or DraftKings and FanDuel directly, which will not be represented among the seven witnesses. An ESPN reporter tweeted on Friday that all had been invited but declined to attend.

“We greatly respect the committee’s desire to learn more about fantasy sports,” said FanDuel in a statement. “FanDuel is a member of the Fantasy Sports Trade Association, a representative of which has offered to testify at the hearing and can comprehensively answer any questions about our industry.”

The industry will be represented by Peter Schoenke, the chairman of the Fantasy Sports Trade Association and editor of Rotowire.com, which offers information services for fantasy sports. Also appearing will be Steve Brubaker, a lobbyist who is the executive director of a new trade association that represents smaller operators wary of laws that could shut them out of a market dominated by DraftKings and FanDuel.

Schoenke, through a spokesman, declined to be interviewed. Brubaker’s association did not respond to a request for comment.

It remains to be seen how much support Pallone will get from other lawmakers on the subcommittee, as few have overtly expressed worries about the sites.

“That’s what I’m looking for: whether he is in a minority or whether that is something all of his colleagues want to delve deeper into,” Wallach said of Pallone’s concerns regarding the professional leagues.

It is expected that the hearing will touch on more traditional sports betting, as well. One source at a daily fantasy operator said they expected Pallone to use the debate over fantasy sports to press his broader case on sports betting. Several of the witnesses have deep roots in the gaming industry, including two professors who work on gaming issues and an executive from MGM Resorts International.

The subcommittee said in a release that it would take stock of the workings of the industry and look at the consumer protection landscape around the games, which allow players to draft virtual teams of real-life players and complete on a daily or weekly basis. Lawmakers will also weigh what the appropriate role of the federal government is with regards to the industry.

It’s a high-profile moment for a crop of startups that has been fighting policy battles on several fronts since Pallone first took note of the websites.

Some states have legalized the games. Most recently, the governor of Tennessee signed a law legalizing daily fantasy after the state’s attorney general declared them to be against the law. Several other states have legalized and enacted regulations for the games.

But there have also been setbacks. In 10 states, daily fantasy is either illegal or requires a gambling license, according to data compiled by Legal Sports Report, a blog that tracks the industry. That has led DraftKings and FanDuel to stop serving customers in some states.