The Nevada Gaming Control Board said Thursday that daily fantasy games are considered gambling in the state and must be licensed as sports betting pools to operate there. Within hours, most, if not all, daily fantasy sites announced plans to cease business in the state.
The morning after, the industry is left grappling with the question of what comes next.
The NGCB decision is the latest and perhaps most severe blow dealt to daily fantasy, which has been waylaid in the last two weeks. In the wake of allegations of unfair insider play by DFS site employees, numerous investigations have been launched by both state and federal entities across the country, including the FBI.
The movement that resulted in Thursday’s announcement in Nevada precedes the recent scandal by nearly two months. NGCB chair A.G. Burnett began a legal analysis into daily fantasy games in August, seemingly spurred by an outcry from the state’s powerful casino interests, which vocally lamented the booming daily fantasy sites’ unregulated status.
Burnett commented on the decision to ESPN on Thursday:
We are saying that daily fantasy sports are a gambling game under the statutory definition. We’re also saying that these are sports pools, which is when someone is in the business of accepting wagers on sporting events through any system or method of wagering. We have found that it is a wager, and obviously, it’s on a sporting event, and DFS companies are in the business of accepting those wagers.
The NGCB’s ruling leaves open the possibility for daily fantasy sites to return to Nevada as licensed operators, but doing so could invite further complications, warned Darren Heitner, an attorney and contributor to Forbes.com.
“It is highly inadvisable for a daily fantasy sports operator to seek the appropriate license within the State of Nevada, as it could then be construed as a tacit admission to engaging in sports betting in other states as well,” Heitner wrote Thursday. “DraftKings has applied for and received a gaming license in the United Kingdom and has thus far escaped scrutiny in the U.S. for same. However, with added emphasis in dissecting every move made by the daily fantasy industry, that too may soon become an issue that regulators explore.”
In the immediate aftermath, it’s unclear what larger effect the Nevada decision may have. Daily fantasy sports games were crafted to fit with in the Unlawful Gambling Enforcement Act, a federal law that created a distinction between a bet or a wager and a fantasy sports entry fee as long as certain other criteria are satisfied.
However, UIGEA does not override state law, and Nevada is now the sixth state in which the majority of DFS sites will not operate. Sites have typically avoided Arizona, Iowa, Louisiana, Montana and Washington due to unfriendly legal environments, but Nevada is the first to explicitly declare the daily fantasy contests as gambling.
In most states, the balance of perceived skill vs. chance is a chief determinant of whether a contest is considered gambling. Nevada, like many states, judges what is or is not gambling from a skill/chance perspective by applying the dominant factor test, meaning that games must require more skill than chance to avoid classification as a gambling activity. But Burnett said the amount of skill required in daily fantasy was not the deciding factor in his decision.
“A lot of people have the idea that all of gambling is determined by skill versus chance,” Burnett told ESPN. “That’s just not the case, because in a state like Nevada, our statutes and definitions override that.”
For now, most sites, including DraftKings and FanDuel, continue to operate in Arkansas and Tennessee, where activities can be considered gambling if any chance is deemed at play in determining a contest’s outcome.
Though little discussion has surrounded these states previously, last week’s reports that a federal grand jury was being convened in Florida to investigate whether daily fantasy operators had violated Illegal Gambling Business Act could change that. IGBA stipulates that an entity is considered an illegal gambling business if it violates the law of a state in which it is conducted.