To the casual observer, the current explosion in the popularity of Daily Fantasy Sports looks like a harbinger of bright days and big profits for the industry’s major companies. But those closer to the nexus of this rapidly expanding universe paint a more nuanced picture of the future.
Of the potential hurdles looming on the horizon, perhaps none is more menacing than the question of legality. DFS, like traditional fantasy formats, operates under the legal protection provided within a carve-out of the UIGEA of 2006, and those within the industry maintain that daily contests are games of skill—not chance—and as such are fully protected.
However, some have questioned whether the daily-game format would pass legal merit under close inspection.
Those fears are not unfounded, but each day that passes and each new partnership formed with pro leagues lessens the probability of a Black Friday-like DFS apocalypse, according to numerous industry observers.
Adam Krejick of Eilers Research went into detail on the matter Wednesday on The Eric Jackson Podcast:
“It’s a polarizing issue. I guess from our perspective, we try to monitor both sides. I’m far from a legal expert, but an area that we always come back to that gives us increased comfort is just the partnerships that DFS companies have been able to cut with major media corporations and the sports leagues themselves. I think their approach to working with the sports leagues and working with these very big media conglomerates is very smart in the way that once you have some of these big leagues on board, and in some cases as equity holders, to us that greatly reduces the chance – not that regulation won’t come, but that this industry will just be shut down.
“The analogy a lot of people like to use, the bearish people on this issue, is that this is similar to what happened with online poker, where all of the sudden you woke up one morning and these sites were shutdown and players couldn’t withdraw their money. We think this is a much, much different scenario and landscape, and really don’t think that will ever happen. I’m not saying that increased regulation won’t, but again, we kind of fall back to the investments made by very big and powerful companies, and to us, it’s kind of tipped the scale in favor of the DFS companies here.”
That echoes the opinion of attorney/Forbes contributor Darren Heitner. Similarly, Justin Fielkow, an attorney and legal columnist for RotoWire, pointed out that “no DFS operator has ever been prosecuted by the federal government,” and as the DFS industry continues to grow, the likelihood of prosecution dwindles.
That doesn’t imply that high-profile partnerships will provide fool-proof assurances against any or all future regulations, but they do appear to provide a valuable layer of insulation.