Why The US Pro Sports Leagues Are Partially Responsible For The Daily Fantasy Sports Mess

Dustin Gouker, June 20, 2017

There were hot takes flying around the internet yesterday when the Federal Trade Commission announced it would seek to block the merger between daily fantasy sports sites DraftKings and FanDuel.Dallas Mavericks owner Mark Cuban — who is never shy about giving his opinion and has spoken about DFS at length in the past — joined the fray.
Cuban pointed out one of the underlying problems of the DFS industry that led to the merger being blocked. But what Cuban missed in his analysis is that US pro sports leagues — the NBA included — are at least partially responsible for the situation that DFS finds itself in.

What Cuban said on the DFS merger

Cuban went off on a mini-Twitter rant on Monday after the FTC news dropped:
1) This is ridiculous. The only reason there is little competition is because of backwards and confusing regulations. https://t.co/2PAPpMb3qT
— Mark Cuban (@mcuban) June 19, 2017
3) There are probably a thousand companies that want to compete but can't. Fix that first. https://t.co/2PAPpMb3qT
— Mark Cuban (@mcuban) June 19, 2017
Cuban certainly isn’t wrong here. The network of laws that govern gambling and paid-entry “games of skill” around the country are different in nearly every state.
Without getting too in the weeds on state-level gaming law, DFS is likely entirely legal under a variety of previously existing state statutes. In addition, a dozen states have enacted laws to give the DFS industry legal clarity.
It’s not Cuban’s first foray into DFS territory. He spoke at a Fantasy Sports Trade Association conference in 2016 and is an investor in fantasy sports analytics site Fantasy Labs.

The ‘backwards regulations’ start at the federal level

Cuban’s own league is somewhat culpable for the regulatory and legal mess that the DFS industry must muddle through.
There are three laws in particular at the federal level in play — PASPA, the Wire Act and the UIGEA.
The Professional and Amateur Sports Protection Act makes it illegal for states other than Nevada to offer single-game sports betting. The UIGEA prohibits payment processing related to online gambling unless clearly authorized under state law; it carves out “fantasy sports” from its definition of gambling, however. There’s also the Wire Act, which prevents information regarding sports betting to be transmitted across state lines.
That creates the weird dynamic under which the DFS industry formed and continues to exist. DFS has to separate itself from being a form of sports betting to avoid running afoul of PASPA or the Wire Act. And it also has to meet the specific definition of fantasy under the UIGEA.

The NBA helped make two of those laws reality

Here’s what Cuban misses: The NBA helped two of those laws that created the minefield that the DFS industry tries to navigate. The pro sports leagues — including the NBA, NFL, MLB and NHLsupported the UIGEA of 2006. The leagues also supported the passage of PASPA in 1992.
They also continue to use PASPA to turn back sports betting efforts. That includes their continuing status as plaintiffs in the New Jersey sports betting case, where the NBA and its other co-plaintiff leagues are backing PASPA’s restrictions.
The existence of these laws complicates how DFS and sports betting takes place in the US. They send Americans to unregulated offshore sites in the case of the latter. States have to tiptoe around these laws in addition to their own in legalizing DFS.
The state laws, of course, are a different story, and had nothing to do with the leagues. But almost all of those laws existed long before DFS was a thing.

The chicken or the egg

Here’s the other part of the calculus: The DFS industry started despite a lack of legal clarity. (This is obviously a point of contention, as the DFS industry and its lawyers would argue that it’s clearly a game of skill, even though its status is far from settled law.)
The UIGEA carveout planted the seed for daily fantasy, but the UIGEA also doesn’t usurp any other law, state or federal.
You can blame DFS’ travails on the complicated mess that is gambling law around the US. But at the same time, the DFS industry cropped up knowing that landscape existed and that it could be a problem down the road.
The bottom line: Cuban’s idea to fix the laws that complicate things for gambling — and daily fantasy — is a worthy goal. But it’s easier said than done.