Fantasy Sports/Sports Gambling

This week, the U.S. Supreme Court issued a landmark decision authorizing the states to decide whether sports betting should be legal within their borders. In its decision, the Court struck down certain provisions of the federal Professional and Amateur Sports Protection Act of 1992 (“PASPA”) that previously provided a general ban on legalized sports betting outside of Nevada. Below are key things every league, team, conference, and school should know about the Court’s decision to prepare for a future where sports gambling is commonplace.

Why The Court Found PASPA To Be Unconstitutional

As a key message in its opinion, the Court conveyed that PASPA was not unconstitutional because individuals enjoy a federally-protected right to participate in legalized sports betting. Rather, the Court struck down PASPA because of the specific manner in which the statute prohibited sports betting. More precisely, the Court held that PASPA’s prohibition on states from authorizing legalized sports betting “unequivocally dictates what a state legislature may and may not do” in violation of the anti-commandeering rule reflected in the Tenth Amendment of the U.S. Constitution.

Hold Your Bets, At Least For Now

Another key takeaway from the decision is that legalized sports betting still faces significant threats, even after the Court’s ruling. For instance, each state must undertake the potentially lengthy process of enacting new legislation to legalize sports betting within its borders. And even after a state completes that process, its new sports betting laws will likely face vigorous challenges from opponents and robust scrutiny by the courts because, as the Court noted in its opinion, “the legalization of sports gambling is a controversial subject” about which “Americans have never been of one mind.” Additionally, the Court’s decision also leaves the door open to future federal bans on sports betting, noting that “Congress can regulate sports gambling directly” if it chooses to do so.

So What Should You Do Now

In the wake of the Court’s decision, there are several actions that leagues, teams, conferences, and schools should take to prepare for a world where state-sanctioned sports betting is commonplace. Of course, the foremost priority across the sports industry is preserving the integrity of the game, and all stakeholders should work closely with state governments to develop appropriate laws and regulations in furtherance of that goal. Beyond that rather obvious imperative, leagues, teams, conferences, and schools should also consider:

  • Tightening restrictions on athletes’ affiliations with entities or investors in gambling enterprises;
  • Enacting new rules to regulate on-site sports gambling at sports venues;
  • Analyzing applicable bylaws, policies, and practices to identify any limitations on sports gambling activities;
  • Exploring appropriate “sports betting right and integrity fees” that might be collected from sports betting enterprises;
  • Creating robust internal controls to monitor compliance with applicable laws, league/conference rules, and team/school policies related to sports betting; and
  • Developing a framework to address sports gambling issues in collective bargaining agreements, player contracts, and scholarship offers.

The above list is far from exhaustive, as the prospect of legalized sports betting creates countless issues for all stakeholders in the sports industry. Still, leagues, teams, conferences, and schools should take immediate action to prepare for future laws legalizing sports gambling. Because with an increasing number of states introducing and enacting sports betting laws, the future may be upon us sooner than we think.

Although the Federal Trade Commission currently is short-handed with one Democrat and one Republican serving on the Commission (out of a normal lineup of five), today they showed that bi-partisan consensus still can exist in Washington.  The FTC, along with California and DC, have sued to block the proposed merger of DraftKings and FanDuel, the two largest daily fantasy sports sites.

The federal court complaint alleges that paid daily fantasy sports contests in the United States represent a distinct antitrust product market.  According to the complaint, consumers of paid fantasy sports are unlikely to view season-long fantasy sports contests as a meaningful substitute due to the length of season-long contests, the limitations on number of entrants and other issues.  The FTC claims that entry or expansion by other providers is not likely to provide timely or effective new competition.

DraftKings and FanDuel are the two largest daily fantasy sports sites, controlling together more than 90 percent of the United States market.  The complaint alleges they are each other’s closest and most significant competitor and they have battled head-to-head to offer best prices, product quality, largest prize pool and greatest variety of contests.

A federal judge will decide whether to enjoin the merger pending an administrative trial at the FTC.  That hearing will turn on whether the FTC can factually demonstrate its view that daily fantasy sports is its own market.  DraftKings and FanDuel issued a statement that they are “considering all their options.”

The New York State Gaming Commission issued temporary permits to five major daily fantasy sports operators on August 22, 2016, allowing DraftKings, FanDuel, Yahoo, FantasyDraft, and Draft to resume operations in the state of New York.  The timing is key as this occurs before NFL season kickoff and the Major League Baseball playoffs.  This development constitutes a huge win for these operators as well as the professional sports leagues holding an equity interest in DraftKings or FanDuel and the franchises holding sponsorship deals with those operators.

The permits are the final step in a lengthy and contentious process to establish rules for daily fantasy operators in the state of New York.  Last October, New York Attorney General Eric Schneiderman began an inquiry into daily fantasy, which concluded with the AG’s Office issuing cease and desist letters to DraftKings and FanDuel.  Shortly thereafter, the issue was taken to the courts where the AG’s Office sought an injunction prohibiting DraftKings and FanDuel from operating in New York. Continue Reading Welcome Back: New York State Gaming Commission Issues Temporary Permits to Five Daily Fantasy Operators