Daily fantasy sports industry waits for California’s next move
Dec. 26, 2015
SACRAMENTO When Adam Gray called for an informational hearing to discuss daily fantasy sports in October, the first time a California lawmaker had suggested addressing the controversial billion-dollar industry, he already had been more proactive than most state lawmakers.
As chairman of the Committee on Government Organization, which deals with gaming issues, Gray (D-Merced) had introduced AB1437, a bill to license and regulate daily fantasy, in early September. Given the industry’s status at the time, his foresight was noteworthy. The bill was written before a subsequent million-dollar ad blitz and data leak controversy opened Pandora’s Box for the nascent industry, subjecting its two largest operators, DraftKings and FanDuel, to federal investigations, class-action lawsuits and high-priced legal challenges.
Still, in spite of his urgency to draft a bill, Gray pumped the brakes when asked about fast-tracking action to protect consumers in California, which remains a crucial battleground for the industry.
“I would say we’ll be thoughtful,” Gray said, before suggesting that passing such legislation could take well into 2016.
Whatever step is taken next will be pivotal. As the largest state yet to address daily fantasy, California could shift the balance of the entire daily fantasy industry. With 400,000 active users and the nation’s largest pool of potential users, the implications of the state’s first move extend far beyond California’s borders. And that weight has lawmakers and daily fantasy advocates alike watching closely as the state inches toward a potential ruling.
Two months later, at the center of his hearings proceedings in Room 4202 of the State Capitol, Gray wasted no time positioning himself in that same consumer advocate role. In his opening address to the committee’s other 11 present members, he called for California to “lead the way in balancing consumer protections with consumer demand.”
Given how much the legal landscape had changed since October, it was a deliberate tone to set. A month earlier, New York Attorney General Eric Schneiderman ruled daily fantasy illegal under state law. Then, just days before the hearing, a state Supreme Court justice held up Schneiderman’s injunction, only to have an appellate court grant a temporary stay the same day.
Meanwhile, in Massachusetts, Attorney General Maura Healey took a different approach entirely, suggesting her own set of regulations for the industry. And this was still a few days before Illinois Attorney General Lisa Madigan declared daily fantasy illegal in her state.
It was a confusing sequence of events for state governments still unsure of how to address daily fantasy. Was this a matter for the legislature? Or the justice department? Was it gambling? Was it legal? The lack of consensus begged jurisdictional questions in a multitude of states, including California, where a number of competing interests continue to wonder who will – or should – decide daily fantasy’s fate.
So Gray, who is viewed as a proponent of expanded gaming, took the opportunity to weigh in. It wasn’t the committee’s job to “decide the legality of daily fantasy sports in California,” he told his fellow members, many of whom came to the hearing with only a cursory understanding of the industry.
“As far as the question of gambling or not gambling, game of skill or game of chance, legal or not legal, I just think that’s short-sighted,” Gray later told the Register.
Three seats down from the chairman, Marc Levine (D-Marin County) heartily disagreed. Shortly after Gray first commented on the industry, Levine responded with a letter to California Attorney General Kamala Harris arguing that daily fantasy is illegal under state law and imploring her to take action by halting operations in the state. The letter, first obtained by the Register, set in motion a cascade of hate mail from users who expressed their dismay with Levine’s office.
Still, Levine persisted. Just days before the hearing, he reiterated to the Register that assertions of daily fantasy as a “game of skill,” and not gambling, were “a charade.” During the proceedings, he drank from a 49ers mug and joked about his fandom, in between tough questions about the industry’s legal status.
“We need the attorney general to step in,” Levine said, “and then, we can take the time to develop the consumer protections necessary to even consider expressly permitting daily fantasy sports betting sites.”
This fundamental divide underscores the push-and-pull at the heart of California’s long-awaited response to the unchecked rise of daily fantasy. While the industry and its legal counsel has fallen in line with Gray, gladly offering to cooperate with his “common sense regulation,” Levine has positioned himself as their adversary, painting DFS as an immediate danger to the public. Both assemblymen – who, according to Gray, “have a history” – fashion themselves as the rightful protector of California consumers.
Inside Room 4202, this tension remains a subtle undertone throughout the state’s first hearing on the subject. But as the assembly heads into a new legislative cycle, the more pertinent questions – of the industry’s legality in the state, in particular – continue to linger unanswered, awaiting word from the one individual who has power to adversely impact the fate of the industry in California in the midst of the biggest political race of her life.
Harris’ quandary
Since she was elected to the office of California’s attorney general in November 2010, Kamala Harris has quickly endeared herself as one of the nation’s fastest-rising politicians. Her name has been floated for high-ranking national positions – from the U.S. Justice Department to the Supreme Court. Even President Barack Obama has called her “brilliant.”
With so much momentum, Harris has set her sights on a 2016 run for California’s U.S. Senate seat being vacated by retiring longtime Sen. Barbara Boxer. It’s a race she leads by a significant margin, but with a crucial year ahead for her political career, some have questioned whether her political ambitions could weigh on her current office.
In the case of daily fantasy sports this concern is especially germane.
Harris did not respond to a Register request to talk about the issue, but recently discussed her general approach.
“We have to be guided by answering one question,” Harris told the San Jose Mercury News in a recent profile. “What's the right thing to do?”
In November, New York’s Schneiderman took a bold step toward what he believed would answer that question in his state. In cease-and-desist letters sent to DraftKings and FanDuel, Schneiderman declared that, given the “material degree” of chance involved, daily fantasy not only constituted illegal gambling under state law, but also represented a serious public health concern.
He promised to protect New Yorkers by shutting down the industry. DFS advocates accused him of grandstanding, but his judgment – politicized or not – was a critical blow to daily fantasy, the results of which would reverberate in state justice departments across the country.
“Daily fantasy sports is neither victimless nor harmless,” Schneiderman wrote, “and it is clear that DraftKings and FanDuel are the leaders of a massive, multi-billion-dollar scheme intended to evade the law and fleece sports fans across the country.”
New York’s ruling has no direct impact on daily fantasy in California, where the distinction between a “game of skill” and a “game of chance” is determined by a more lax “predominant purpose test.” But as state attorneys general make their stances known and gaming interests in the state grow antsy, the pressure to act continues to increase.
And Harris, according to several insiders, has followed suit, launching her own investigation.
What steps Harris takes from there – and when she takes them – remain purely speculative. Her office will not comment on pending investigations. Though, her first matter of business is evident: Determine whether daily fantasy is legal in the state.
Interpretations of relevant California law are not exactly clear-cut, given the sheer complexity of state gambling statutes. But the lodestar of the industry’s legal argument – that daily fantasy is a game of skill – might not be much of an impediment in the state, according to I. Nelson Rose, a gaming expert and professor of law at Whittier College.
Rose says the existence of a learning curve for daily fantasy players – a major sticking point for operators – would be enough to prove that skill serves a “predominant purpose.” The test alleges that chance can play a part, but must not outweigh skill. Under the same requirements in Massachusetts, the attorney general’s office ruled daily fantasy legal.
In actuality, the biggest legal hurdle for DFS in California, unlike other states, has little to do with questions of skill versus chance.
In an October letter declaring her organization’s opposition to Gray’s bill, Cheryl Schmit, executive director of gambling watchdog group Stand Up! California, cited California Penal Code statute 337(a) as definitive proof of daily fantasy’s illegality. Under 337(a), pool selling and bookmaking are explicitly banned. By the letter of the law, even an office March Madness pool is considered illegal in the state. But, no matter the fallout, Schmit contends that there’s no room for discretion on Harris’ part.
“She is a constitutional officer of the state that is obligated to enforce the law,” Schmit said. “Here, the law explicitly says you have illegal gambling. She’s smart. She knows it’s illegal.”
This argument has some relevant precedent in evaluating DFS. A similar statute was used by Nevada’s attorney general in his October ruling requiring operators to obtain a license in the state. And while legal counsel for the industry could theoretically argue the definition of a “bet” or “wager” in California court, “it’s pretty conclusive this is pool selling,” says Vincent Oliver, a Los Angeles attorney who has written about gaming law.
The question of Harris’ intervention, however, is hardly that black and white.
While some, such as Schmit, feel Harris should enforce the law to its letter, no questions asked, many others wonder whether the daily fantasy industry, even in its current unregulated and legally questionable state, is injuring consumers to the degree Schneiderman has suggested. When asked directly, Gray stated he had “no reason” to believe the industry is threatening enough to warrant a shutdown.
Public misgivings about compulsive behavior in daily fantasy have primarily been muted in the state, outside of a single question at the Dec. 16 hearing. Other concerns – over stricter age restrictions, potentially misleading advertising and a top-heavy winners pool – were also addressed at the hearing, with minimal dissent.
Historically, gaming legality issues have proved to be a low priority in California, and statewide opposition against daily fantasy – the kind that could force Harris’ office into action – has been mostly limited. Other gaming interests in the state have also mostly stayed on the sidelines.
“Sometimes, for tough questions, you need to have tough opponents,” Rose said.
For Harris, with her political decisions under a microscope, the toughest question of all might be whether the impact of closing down a legally questionable industry is in California’s – and her own – best interest.
In a fourth-floor hallway of the Capitol, three members from the hearing’s daily fantasy consumer panel wondered aloud what involvement from Harris could mean.
DFS Players Alliance executive director Steven Miller called it “a major concern.” Brian Greenwood, a professor at Cal Poly, hoped Harris might ignore Schneiderman’s response and follow Massachusetts’ lead, with a “productive, measured approach” that included regulatory requirements. But of the three, Cory Albertson, a professional daily fantasy player from San Francisco, seemed the most optimistic, for one major reason.
“I don’t think, before a statewide election, that taking fantasy sports away from the people of California is such a good idea,” he said.
OK with regulation
A few hours earlier, as six industry voices made their case for daily fantasy’s survival, their collective message indicated a dramatic and necessary shift in the industry’s vision for its future. After balking at even the suggestion of regulation just months ago, there was now only a chorus of agreement on the floor of the Capitol between the industry and those, such as Gray, who seek to regulate it in California.
“We’re here to work with your concerns and address them,” Griffin Finan, legal counsel for DraftKings, assured the committee.
“We want to work together to ensure that this is safe for consumers,” added Cory Fox, legal counsel for FanDuel.
They preached transparency and even listened to suggestions, as the previous headstrong approach of September and October gave way to a far more strategic and cooperative one. Ultimately, California’s hearing would turn out to be one of the least contentious in any state thus far, and advocates of the industry left optimistic.
“California is setting the model right now for the rest of the country, not trying to come down with a heavy hand,” Albertson said. “There’s no major political agenda here. It seems like they just want to do what’s best for the consumer.”
That consensus would seem to suggest a straightforward legislative fix, which could ease the pressure on Harris to act. Levine maintained that a bill may not go into effect until 2017, leaving Californians “without the strongest protections possible” for a full calendar year. But Gray, unsurprisingly, disagrees, suggesting the process could move “fairly quickly.”
“When everybody is rowing in the same direction, it may not take quite as long,” he said.
But expecting such painless proceedings is probably unrealistic, given the diverse number of interests that comprise the state’s gaming industry. Steve Stallings, chairman of the California Native Indian Gaming Association, said he has spent countless hours trying to convince the necessary parties to agree on online poker legislation and “put their toes in the water” with Internet gaming. But that legislative fight continues to rage on, after more than a half-decade of disagreements.
“There are too many unanswered questions for this to happen in the short term,” Stallings said. “I just don’t see it happening.”
With significant power in California’s gaming industry, tribal gaming interests could be another serious impediment to the passage of DFS legislation. Thus far, they’ve remained mum on daily fantasy in the state; though, Stallings did contend that daily fantasy be held to the same standard of heavy regulation as tribal gaming, even if “people in fantasy sports aren’t really ready for that.”
The possibility still exists, of course, that Harris could render any action from the legislature or elsewhere unnecessary. Ultimately, she wields the only unilateral power of judgment on legality and the protection of California consumers. Besides, legislative action takes time. By some interpretations, a ballot measure and constitutional amendment might even be necessary to legalize.
Daily fantasy’s industry leaders seem willing to find any means to reach that conclusion without executive intervention. After all, losing New York and California, its two most critical states, could be catastrophic to the industry.
Asked by Levine if they’d considered a future without daily fantasy in California, the panel fell silent for a moment, before Mike Olsen, chief financial officer of Aliso Viejo-based Fantasy Aces, spoke up on the industry’s behalf.
“We don’t want to (leave),” he said. “That’s why we’re here.
“We really want to find a marriage where DFS can stay in California.”
http://www.ocregister.com/articles/fantasy-697565-daily-industry.html
Dec. 26, 2015
SACRAMENTO When Adam Gray called for an informational hearing to discuss daily fantasy sports in October, the first time a California lawmaker had suggested addressing the controversial billion-dollar industry, he already had been more proactive than most state lawmakers.
As chairman of the Committee on Government Organization, which deals with gaming issues, Gray (D-Merced) had introduced AB1437, a bill to license and regulate daily fantasy, in early September. Given the industry’s status at the time, his foresight was noteworthy. The bill was written before a subsequent million-dollar ad blitz and data leak controversy opened Pandora’s Box for the nascent industry, subjecting its two largest operators, DraftKings and FanDuel, to federal investigations, class-action lawsuits and high-priced legal challenges.
Still, in spite of his urgency to draft a bill, Gray pumped the brakes when asked about fast-tracking action to protect consumers in California, which remains a crucial battleground for the industry.
“I would say we’ll be thoughtful,” Gray said, before suggesting that passing such legislation could take well into 2016.
Whatever step is taken next will be pivotal. As the largest state yet to address daily fantasy, California could shift the balance of the entire daily fantasy industry. With 400,000 active users and the nation’s largest pool of potential users, the implications of the state’s first move extend far beyond California’s borders. And that weight has lawmakers and daily fantasy advocates alike watching closely as the state inches toward a potential ruling.
Two months later, at the center of his hearings proceedings in Room 4202 of the State Capitol, Gray wasted no time positioning himself in that same consumer advocate role. In his opening address to the committee’s other 11 present members, he called for California to “lead the way in balancing consumer protections with consumer demand.”
Given how much the legal landscape had changed since October, it was a deliberate tone to set. A month earlier, New York Attorney General Eric Schneiderman ruled daily fantasy illegal under state law. Then, just days before the hearing, a state Supreme Court justice held up Schneiderman’s injunction, only to have an appellate court grant a temporary stay the same day.
Meanwhile, in Massachusetts, Attorney General Maura Healey took a different approach entirely, suggesting her own set of regulations for the industry. And this was still a few days before Illinois Attorney General Lisa Madigan declared daily fantasy illegal in her state.
It was a confusing sequence of events for state governments still unsure of how to address daily fantasy. Was this a matter for the legislature? Or the justice department? Was it gambling? Was it legal? The lack of consensus begged jurisdictional questions in a multitude of states, including California, where a number of competing interests continue to wonder who will – or should – decide daily fantasy’s fate.
So Gray, who is viewed as a proponent of expanded gaming, took the opportunity to weigh in. It wasn’t the committee’s job to “decide the legality of daily fantasy sports in California,” he told his fellow members, many of whom came to the hearing with only a cursory understanding of the industry.
“As far as the question of gambling or not gambling, game of skill or game of chance, legal or not legal, I just think that’s short-sighted,” Gray later told the Register.
Three seats down from the chairman, Marc Levine (D-Marin County) heartily disagreed. Shortly after Gray first commented on the industry, Levine responded with a letter to California Attorney General Kamala Harris arguing that daily fantasy is illegal under state law and imploring her to take action by halting operations in the state. The letter, first obtained by the Register, set in motion a cascade of hate mail from users who expressed their dismay with Levine’s office.
Still, Levine persisted. Just days before the hearing, he reiterated to the Register that assertions of daily fantasy as a “game of skill,” and not gambling, were “a charade.” During the proceedings, he drank from a 49ers mug and joked about his fandom, in between tough questions about the industry’s legal status.
“We need the attorney general to step in,” Levine said, “and then, we can take the time to develop the consumer protections necessary to even consider expressly permitting daily fantasy sports betting sites.”
This fundamental divide underscores the push-and-pull at the heart of California’s long-awaited response to the unchecked rise of daily fantasy. While the industry and its legal counsel has fallen in line with Gray, gladly offering to cooperate with his “common sense regulation,” Levine has positioned himself as their adversary, painting DFS as an immediate danger to the public. Both assemblymen – who, according to Gray, “have a history” – fashion themselves as the rightful protector of California consumers.
Inside Room 4202, this tension remains a subtle undertone throughout the state’s first hearing on the subject. But as the assembly heads into a new legislative cycle, the more pertinent questions – of the industry’s legality in the state, in particular – continue to linger unanswered, awaiting word from the one individual who has power to adversely impact the fate of the industry in California in the midst of the biggest political race of her life.
Harris’ quandary
Since she was elected to the office of California’s attorney general in November 2010, Kamala Harris has quickly endeared herself as one of the nation’s fastest-rising politicians. Her name has been floated for high-ranking national positions – from the U.S. Justice Department to the Supreme Court. Even President Barack Obama has called her “brilliant.”
With so much momentum, Harris has set her sights on a 2016 run for California’s U.S. Senate seat being vacated by retiring longtime Sen. Barbara Boxer. It’s a race she leads by a significant margin, but with a crucial year ahead for her political career, some have questioned whether her political ambitions could weigh on her current office.
In the case of daily fantasy sports this concern is especially germane.
Harris did not respond to a Register request to talk about the issue, but recently discussed her general approach.
“We have to be guided by answering one question,” Harris told the San Jose Mercury News in a recent profile. “What's the right thing to do?”
In November, New York’s Schneiderman took a bold step toward what he believed would answer that question in his state. In cease-and-desist letters sent to DraftKings and FanDuel, Schneiderman declared that, given the “material degree” of chance involved, daily fantasy not only constituted illegal gambling under state law, but also represented a serious public health concern.
He promised to protect New Yorkers by shutting down the industry. DFS advocates accused him of grandstanding, but his judgment – politicized or not – was a critical blow to daily fantasy, the results of which would reverberate in state justice departments across the country.
“Daily fantasy sports is neither victimless nor harmless,” Schneiderman wrote, “and it is clear that DraftKings and FanDuel are the leaders of a massive, multi-billion-dollar scheme intended to evade the law and fleece sports fans across the country.”
New York’s ruling has no direct impact on daily fantasy in California, where the distinction between a “game of skill” and a “game of chance” is determined by a more lax “predominant purpose test.” But as state attorneys general make their stances known and gaming interests in the state grow antsy, the pressure to act continues to increase.
And Harris, according to several insiders, has followed suit, launching her own investigation.
What steps Harris takes from there – and when she takes them – remain purely speculative. Her office will not comment on pending investigations. Though, her first matter of business is evident: Determine whether daily fantasy is legal in the state.
Interpretations of relevant California law are not exactly clear-cut, given the sheer complexity of state gambling statutes. But the lodestar of the industry’s legal argument – that daily fantasy is a game of skill – might not be much of an impediment in the state, according to I. Nelson Rose, a gaming expert and professor of law at Whittier College.
Rose says the existence of a learning curve for daily fantasy players – a major sticking point for operators – would be enough to prove that skill serves a “predominant purpose.” The test alleges that chance can play a part, but must not outweigh skill. Under the same requirements in Massachusetts, the attorney general’s office ruled daily fantasy legal.
In actuality, the biggest legal hurdle for DFS in California, unlike other states, has little to do with questions of skill versus chance.
In an October letter declaring her organization’s opposition to Gray’s bill, Cheryl Schmit, executive director of gambling watchdog group Stand Up! California, cited California Penal Code statute 337(a) as definitive proof of daily fantasy’s illegality. Under 337(a), pool selling and bookmaking are explicitly banned. By the letter of the law, even an office March Madness pool is considered illegal in the state. But, no matter the fallout, Schmit contends that there’s no room for discretion on Harris’ part.
“She is a constitutional officer of the state that is obligated to enforce the law,” Schmit said. “Here, the law explicitly says you have illegal gambling. She’s smart. She knows it’s illegal.”
This argument has some relevant precedent in evaluating DFS. A similar statute was used by Nevada’s attorney general in his October ruling requiring operators to obtain a license in the state. And while legal counsel for the industry could theoretically argue the definition of a “bet” or “wager” in California court, “it’s pretty conclusive this is pool selling,” says Vincent Oliver, a Los Angeles attorney who has written about gaming law.
The question of Harris’ intervention, however, is hardly that black and white.
While some, such as Schmit, feel Harris should enforce the law to its letter, no questions asked, many others wonder whether the daily fantasy industry, even in its current unregulated and legally questionable state, is injuring consumers to the degree Schneiderman has suggested. When asked directly, Gray stated he had “no reason” to believe the industry is threatening enough to warrant a shutdown.
Public misgivings about compulsive behavior in daily fantasy have primarily been muted in the state, outside of a single question at the Dec. 16 hearing. Other concerns – over stricter age restrictions, potentially misleading advertising and a top-heavy winners pool – were also addressed at the hearing, with minimal dissent.
Historically, gaming legality issues have proved to be a low priority in California, and statewide opposition against daily fantasy – the kind that could force Harris’ office into action – has been mostly limited. Other gaming interests in the state have also mostly stayed on the sidelines.
“Sometimes, for tough questions, you need to have tough opponents,” Rose said.
For Harris, with her political decisions under a microscope, the toughest question of all might be whether the impact of closing down a legally questionable industry is in California’s – and her own – best interest.
In a fourth-floor hallway of the Capitol, three members from the hearing’s daily fantasy consumer panel wondered aloud what involvement from Harris could mean.
DFS Players Alliance executive director Steven Miller called it “a major concern.” Brian Greenwood, a professor at Cal Poly, hoped Harris might ignore Schneiderman’s response and follow Massachusetts’ lead, with a “productive, measured approach” that included regulatory requirements. But of the three, Cory Albertson, a professional daily fantasy player from San Francisco, seemed the most optimistic, for one major reason.
“I don’t think, before a statewide election, that taking fantasy sports away from the people of California is such a good idea,” he said.
OK with regulation
A few hours earlier, as six industry voices made their case for daily fantasy’s survival, their collective message indicated a dramatic and necessary shift in the industry’s vision for its future. After balking at even the suggestion of regulation just months ago, there was now only a chorus of agreement on the floor of the Capitol between the industry and those, such as Gray, who seek to regulate it in California.
“We’re here to work with your concerns and address them,” Griffin Finan, legal counsel for DraftKings, assured the committee.
“We want to work together to ensure that this is safe for consumers,” added Cory Fox, legal counsel for FanDuel.
They preached transparency and even listened to suggestions, as the previous headstrong approach of September and October gave way to a far more strategic and cooperative one. Ultimately, California’s hearing would turn out to be one of the least contentious in any state thus far, and advocates of the industry left optimistic.
“California is setting the model right now for the rest of the country, not trying to come down with a heavy hand,” Albertson said. “There’s no major political agenda here. It seems like they just want to do what’s best for the consumer.”
That consensus would seem to suggest a straightforward legislative fix, which could ease the pressure on Harris to act. Levine maintained that a bill may not go into effect until 2017, leaving Californians “without the strongest protections possible” for a full calendar year. But Gray, unsurprisingly, disagrees, suggesting the process could move “fairly quickly.”
“When everybody is rowing in the same direction, it may not take quite as long,” he said.
But expecting such painless proceedings is probably unrealistic, given the diverse number of interests that comprise the state’s gaming industry. Steve Stallings, chairman of the California Native Indian Gaming Association, said he has spent countless hours trying to convince the necessary parties to agree on online poker legislation and “put their toes in the water” with Internet gaming. But that legislative fight continues to rage on, after more than a half-decade of disagreements.
“There are too many unanswered questions for this to happen in the short term,” Stallings said. “I just don’t see it happening.”
With significant power in California’s gaming industry, tribal gaming interests could be another serious impediment to the passage of DFS legislation. Thus far, they’ve remained mum on daily fantasy in the state; though, Stallings did contend that daily fantasy be held to the same standard of heavy regulation as tribal gaming, even if “people in fantasy sports aren’t really ready for that.”
The possibility still exists, of course, that Harris could render any action from the legislature or elsewhere unnecessary. Ultimately, she wields the only unilateral power of judgment on legality and the protection of California consumers. Besides, legislative action takes time. By some interpretations, a ballot measure and constitutional amendment might even be necessary to legalize.
Daily fantasy’s industry leaders seem willing to find any means to reach that conclusion without executive intervention. After all, losing New York and California, its two most critical states, could be catastrophic to the industry.
Asked by Levine if they’d considered a future without daily fantasy in California, the panel fell silent for a moment, before Mike Olsen, chief financial officer of Aliso Viejo-based Fantasy Aces, spoke up on the industry’s behalf.
“We don’t want to (leave),” he said. “That’s why we’re here.
“We really want to find a marriage where DFS can stay in California.”
http://www.ocregister.com/articles/fantasy-697565-daily-industry.html
