Anyone watching sports on television can see that the business of daily fantasy sports contests has exploded.
Fueled by incessant TV advertising, the daily fantasy sports market — led by the two privately held online giants of the sector, FanDuel Inc. and DraftKings Inc. — has swelled into a multibillion-dollar business in just a few years.
Now the U.S. government and some state authorities, responding in part to a recent scandal involving a DraftKings employee, are taking a closer look at the legality of daily fantasy sports. That’s raising the specter of more regulations and a slowdown in the games’ soaring popularity.
“Right now most legal observers have viewed fantasy sports as falling on the side of being a game of skill” and thus legal and largely unregulated, said Jodi Balsam, an associate professor of law at Brooklyn Law School and a former lawyer with the National Football League.
“But this latest scrutiny is leading people to reevaluate if it’s truly a game of skill,” she said.
The daily fantasy sports business is expected to generate $3.7 billion in players’ entry fees this year, with the figure skyrocketing to $17.7 billion in 2020, according to Eilers Research, a Los Angeles-area firm that tracks the market.
Eilers also estimates that 3 million to 4 million people compete in daily fantasy sports contests.
A key recruiting tool has been the massive advertising. DraftKings and FanDuel together have spent $235 million on national TV ads so far this year, much of it after Aug. 1 in tandem with the start of the NFL season, according to the research firm ISpot.tv.
Fantasy sports leagues have been around for decades, of course. Fans draft professional athletes for their virtual teams and then, using points based on the athletes’ real-world performances, calculate how the teams finish after the season ends.
But with daily fantasy sports contests, contestants pay entry fees and build teams that can compete daily if they like, with prize money for winners that can reach hundreds of thousands of dollars.
Big-name investors have flocked to the sites, as have most of the major sports leagues. FanDuel has raised $363 million from investors including Alphabet Inc.’s Google Capital, KKR & Co., Shamrock Capital Advisors and NBC Sports Ventures.
In July, DraftKings said it raised $300 million from a group including Fox Sports, Major League Baseball, the National Hockey League and Major League Soccer.
There has always been a debate about whether daily fantasy sports amounts to gambling, and that debate has intensified lately.
DraftKings, FanDuel and other proponents say it’s a game of skill, not chance, and thus isn’t gambling. Daily fantasy sports has been allowed at the federal level because it was left untouched by the Unlawful Internet Gambling Enforcement Act of 2006.
“We strongly believe the games on our site — and daily fantasy sports in general — are legal,” Janet Holian, DraftKings’ chief marketing officer, said in a statement to the Los Angeles Times.
California and 44 other states allow daily fantasy games; five states don’t: Arizona, Iowa, Louisiana, Montana and Washington.
This month Nevada ordered a stop to daily fantasy sports in that state on the grounds that it “involves wagering” on sports and “constitutes gambling under Nevada law.” The state said DraftKings, FanDuel and others would need to obtain a gambling license to continue there.
“Everybody knows that daily fantasy sports is gambling; the contestants are wagering something for a chance to win money,” said Marc Edelman, an associate law professor and sports-law expert at Baruch College in New York.
“The question is whether this is illegal gambling, and the definition of illegal gambling varies by state,” Edelman said.
It’s a question other authorities are increasingly asking.