Congressman raising concerns over legality
Fantasy sports firm FanDuel facing US ‘gambling’ challenge
Both companies insist they comply with strict rules banning online gambling in the US.
This has not impressed opponents including Congressman Frank Pallone who has demanded a hearing in what is believed to be the first direct legal challenge to the explosive growth of the daily fantasy sports industry.
FanDuel, founded and still co-headquartered in Edinburgh, shares market leadership with DraftKings and in just a few years they have both come to be valued at about $1 billion. Daily Business last week reported that investors are trying to encourage them to seek a flotation or even merge.
A battle in the courts over their legality would put a spoke in those plans. Mr Pallone wants the hearing to examine the relationship between fantasy sports and gambling.
The two companies have enlisted thousands of players who are prepared to pay up to $1,000 a day to play in the Las Vegas clubs with a chance to win huge prizes, in some cases running to six-figure sums. FanDuel alone pays out $2 billion a year.
But the “gambling” issue hangs over the sector. In an interview with Daily Business last month, co-founder of FanDuel Lesley Eccles told how the firm was rejected 87 times by potential funders. Among those who refused to back the business was the Disney owned ESPN sports channel.
“They invited us in with a view to investing but they were not interested because they could not get comfortable with the legal issues,” she said.
She insisted that FanDuel’s business is “a game of skill and is not gambling”, explaining that this is now clearly defined in the company’s set up.
Since then the company has received more than $360m in funding from venture capitalists and other investors. The fantasy companies have also become entwined with sports clubs. Major League Baseball owns a small equity stake in DraftKings, and the National Basketball Association owns a share of FanDuel. Both DraftKings and FanDuel sponsor a number of individual professional teams.
Mrs Eccles revealed that she spends some $60m a year on marketing. This is mainly through advertising which has not only drawn new players but has attracted the attention of those opposed to gambling.
Mr Pallone, who lodged his objections on Monday, said in statement: “Anyone who watched a game this weekend was inundated by commercials for fantasy sports websites, and it’s only the first week of the NFL season.”
“These sites are enormously popular, arguably central to the fans’ experience, and professional leagues are seeing the enormous profits as a result. Despite how mainstream these sites have become, though, the legal landscape governing these activities remains murky and should be reviewed.”
Major League Baseball commissioner Rob Manfred said in April: “The difference is, one is legal and one is not.”
Objectors say that the difference is not too obvious. DraftKings offered a $2 million first prize for a National Football League game during the first weekend of the new season.
“Fans are currently allowed to risk money on the performance of an individual player,” Pallone said. “How is that different than wagering money on the outcome of a game?”
By definition the fantasy sports companies are operating within a loophole in the United States’ sports gambling laws. Online sports wagering and online gambling are outlawed under the Professional and Amateur Sports Protection Act, or PASPA, which was passed in 1992.
In 2006, the Unlawful Internet Gaming and Enforcement Act (UIGEA) specifically defined fantasy sports and created a law protecting them. The legislators did not consider daily fantasy sports, because they did not exist at the time.
Nigel Eccles, FanDuel’s chief executive, designed a game based around UIGEA.
His counterpart Jason Robins at DraftKings told the Washington Post: “If you look at what the law says today, it is very clearly within that.
“So the law would have to change.”