DraftKings and FanDuel have been shut down in Nevada, and the daily fantasy sports sites could face bigger trouble nationwide as they come under increasing scrutiny.
On Thursday, regulators in the state of Nevada ordered all daily fantasy sports sites to shut down, saying they needed a gambling license to operate in the state. It is the latest blow against sites like DraftKings and FanDuel, which have been rocked by scandal and gathered a growing number of opponents.
The sites allow users to compile lineups of players to compete against others on a daily basis, winning money based on the performance of the team they have assembled. Both FanDuel and DraftKings call themselves a game of skill and not chance, arguing that they are covered under the Unlawful Internet Gambling Enforcement Act of 2006.
But Nevada’s decision could have a devastating effect on these DFS sites, Fox News noted.
The decision comes amid growing backlash by investigators and regulators over the sites, which have grown in popularity in the past year, and could cause ripples in other states that have questioned their legality. Regulators elsewhere often watch decisions made by Nevada’s Gaming Control Board since it governs Las Vegas area casinos.
For now, DraftKings and FanDuel will have to drop their contests for Nevada residents, joining a handful of other states that bar the sites. It was not a surprising step for experts of sports law, which predicted that DFS sites would eventually be categorized as gambling.
FanDuel, DraftKings temporarily suspend operations in Nevada http://t.co/1AraKVlAiH
— ProFootballTalk (@ProFootballTalk) October 16, 2015
But will this mean that FanDuel and DraftKings are getting shut down across the country? Maybe, but not yet, it appears. Daniel Wallach, a sports law expert from Florida, told Fox News that he doesn’t believe Thursday’s ruling will spread to other states. Nevada’s ruling could not be the only trouble ahead for DFS sites, NBC News noted.
This week, a lawsuit was filed against DraftKings and FanDuel in Louisiana, accusing the sites of racketeering. The suit is seeking class-action status, attempting to join with four similar lawsuits filed in the past week after reports that employees of each company have won more than $6 million.
Critics say these employees are privy to insider information about the most common lineups, allowing them to pick teams with lower-percentage picks that are more likely to generate a payout for them.
This issue also caught the attention of Senator and former Nevada Gaming Commission chair Harry Reid, who called the move a “warning shot” to DFS sites and said they will likely come under greater scrutiny.
“We learned yesterday… that there’s absolutely scandalous conduct taking place with those programs — fantasy sports,” Reid was quoted by The Huffington Post in response to a question about whether the sites should be more strictly regulated. “So the answer is yes, and I think it should also be a warning shot to everybody that online gaming is a real scary thing and we’d better look at all of it.”
Breaking News: The F.B.I. is said to have begun an inquiry into the practices of daily fantasy sports websites http://t.co/OzAdVZ3Ouj
— The New York Times (@nytimes) October 15, 2015
The sites appear to be taking the allegations seriously. DraftKings has hired former U.S. attorney John Pappalardo to lead an investigation of the allegations, promising “strong and immediate action.” FanDuel has asked former U.S. Attorney General Michael Mukasey to review its internal controls.
If FanDuel and DraftKings were to be shut down — even in a few more states — it could be devastating. The companies have dominated the sports landscape, going on an advertising blitz that has spread their names and logos virtually everywhere on sports broadcasts and highlight shows. As Inc.com noted, the sites spent a combined $203 million on the ad campaign. This also brings the approval of sports leagues, as the NFL approved player appearances in ads that ran at the start of the season.
[Image via DraftKings.com]