FanDuel, Draft Kings strike out with Nevada Policy Committee

August 30, 2016 3:00 AM
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In part to respond to Gov. Brian Sandoval’s urging of months ago and in part to seemingly continue their quest for respectability, the daily fantasy operators pitched legislative language to the Nevada Gaming Policy Committee last week that would allow the operators of daily fantasy sports (DFS, i.e. FanDuel, Draft Kings) to enter Nevada under a new class of license.

Sadly their proposal did not consider the standards Nevada currently operates under and missed the mark of finding something the state could realistically consider by multiples of the proverbial “country mile.” They missed the target so badly it was almost a waste of Station Casinos VP of Race and Sports Book Operations Art Manteris’ time to speak against the DFS operators. I also suspect Vic Salerno, founder of US Fantasy, saw their effort as so weak he held back from aggressively expounding the deficiencies in the proposed legislative language.

Just as a reminder, daily fantasy operators were offering their products in Nevada until an opinion from the state attorney general’s office came out basically stating fantasy operators need a Nevada gaming license, at which point the DFS operators beat a hasty retreat from Nevada.

After suffering similar issues in other states, they started their own state by state campaign, with varying degrees of success, to get daily fantasy sports approved. The governor, in his quest to keep Nevada on the forefront of changes in the gaming world, empanelled the Nevada Gaming Policy Committee to look into a range of new areas of gaming such as fantasy sports and eSports, which ultimately provided the forum for the DFS operators to plead their cause in Nevada.

Back to the “bad pitch.” The language proposed by the DFS operators would have set nominal licensing requirements, had virtually no regulatory oversight (compared to Nevada standards), no regulator review of the software, nominal fees and taxes, and nowhere near the protections that are currently in place in Nevada for sports betting patrons, pretty much giving zero reasons for state regulators to jump on the DFS train.

As one regulator speculated, “the fees generated by the proposed language would not even cover the cost of regulatory oversight for fantasy sports.”

During the question and answer session between the committee and DFS representatives, a question was asked, and paraphrased here: Why can’t you follow our processes and just link up to the other jurisdictions?

The response from the Fantasy representative cited a few operational concerns but ultimately declared, again paraphrasing: If licensed as sports wagering in Nevada it could not be linked with other participating states as it is deemed skill there.

While that answer did not resonate with the committee, I suspect the real reason is tax related.

If DFS were deemed sports wagering in Nevada as would be suggestively affirmed if the operators obtained a Nevada gaming license, then they could be required to pay the Federal excise tax on sports betting, which is a tax on all money wagered in a sports pool.

Since DFS operators had previously operated without a license all money wagered prior to licensure would be at the highest rate and likely include penalties such that the catch-up tax could possibly break an operator or two. Rather surprised that no one asked about that particular tax.

The real question is, as Dr. Tony Alamo, chairman of the Nevada Gaming Commission, pointed out (and as has been past referenced in this column), that the Federal government has not declared their position about if DFS is sports wagering or not and the Fed’s silence cannot be taken as acceptance. Which also begs the question as to where were the representatives from Nevada’s congressional delegation, particularly as the Fed seems to have final say on the survivability of fantasy sports.

At the end of the day, the committee kindly left the door open for DFS to pitch again, though I suspect they won’t. But if they do, they should look to existing sportsbook requirements, account wagering requirements and geo location requirements, and take a lesson from Vic Salerno about making the casinos their commercial partners in the Nevada side of the deal. Then they might have a chance to have their request seriously considered.

In the alternative, a smart move might be for a DFS operator to buy US Fantasy from Mr. Salerno, run the business parallel to their existing business and use either DFS or pari-mutuel fantasy as the laws of the various jurisdictions allow. It takes out a competitor while expanding their business flexibility in one shot!