States Move to Regulate Fantasy Sports

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Numerous states are considering legislation to permit fantasy sports betting.

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During this year’s March Madness, around 40 million people took part in a growing cultural tradition and made a bracket for the men’s NCAA basketball tournament, wagering around $9 billion.

“Fantasy sports” betting, which involves creating customized online teams and betting money on real sports outcomes, has become a multi-billion dollar industry in recent years.

However, fantasy sports betting is still illegal in most states. But in response to its growing popularity, around 30 states appear to be moving toward legalizing the practice.

In March, Virginia became the first state to legalize and regulate fantasy sports by passing the Fantasy Contests Act, which applies to any online fantasy sports games that charge an entry fee. The law contains provisions aimed at ensuring the games’ integrity. For example, it requires fantasy sports operators to register with the Virginia Department of Agriculture and Consumer Services for a fee of $50,000, to separate player funds from operational funds, and to undergo an annual independent audit. The law also gives the Department the power to investigate and enforce violations of its provisions. Indiana and Tennessee have passed similar laws.

Massachusetts also recently finalized an administrative rule regulating fantasy sports betting, which contains similar provisions. The rule implements certain consumer protections by increasing transparency online; for instance, players must be a minimum age of 21, cannot use multiple screen-names to avoid being identified, and must identify themselves if they are highly experienced. The measures are intended to prevent novice players from unknowingly entering into contests with professional players, who frequently use computer algorithms to make their bets and have made up to millions of dollars.

Unlike Virginia’s law, the Massachusetts rule exempts season-long fantasy sports leagues from having to follow the regulations. The exemption for season-long contests was created because legislators were more concerned with daily sports contests, which can offer potentially large payouts on a hyper-compressed timeline.

The efforts to regulate fantasy sports have received substantial bipartisan support. FanDuel and DraftKings, the two largest websites for daily fantasy sports contests, have also shown support for regulation because it will allow them to operate with legality and certainty. According to a statement released by FanDuel, it promotes “advancing fantasy sports legislation” because regulation ensures fantasy players “can continue to play games they know and love.” Supporters also believe that regulation will safeguard consumers.

However, some consumer protection advocates worry that recent legislation does not do enough to protect consumers.

For example, some advocates worry that regulation will only increase gambling addiction, by allowing sports gambling to be done almost instantaneously by computer. Keith Whyte, director of the National Council on Problem Gambling, reportedly called the current protections “absolutely inadequate.” According to Whyte, “regulating fantasy sports without decent minimum standards will exacerbate gambling addiction problems.”

Some consumer advocates are also concerned by several instances of fantasy sports operators going out of business without paying money owed to the players.

Other consumers have noted that most of the new rules do not have monitoring mechanisms to ensure that the sites’ computer algorithms are fair. They argued that regulations should give states “access into the platform and operational backend” of the sites.

Last year, consumers brought a charge of insider trading against FanDuel when an employee won $350,000 from fantasy sports contests in one week, which raised questions about the operations’ integrity.

To address these concerns, fantasy sports sites have taken measures to work with legislators to pass appropriate regulation. For example, at the end of March Madness this year, DraftKings and FanDuel voluntarily agreed to suspend college sports betting in all states to allow time to work on creating a regulatory structure to monitor the activity.

Fantasy sports bills are still under consideration in many other states. In Colorado, where 800,000 residents participate in some form in fantasy sports, the state house passed a bill that would impose certain registration and licensing requirements on fantasy contest operators, and which would task the state’s Division of Professions and Occupations—a regulatory body aimed at providing consumer protection—with overseeing these requirements. Pennsylvania has also commissioned a study to determine whether the Gaming Control Board should regulate fantasy sports. It is likely that other states will soon follow in legalizing and regulating fantasy sports.