Virginia Gov. Terry McAuliffe( D) on Monday signed a sweeping package of regulations to govern daily fiction athletics operators, five months after an “insider trading” scandal engulfed DraftKings and FanDuel, the two largest companies in the daily fantasy athletics industry.
Virginia is now the first country to legislate new regulations over the industry since the scandal erupted. The regulatory package, “ve called the” Fantasy Contest Act, could be a sign of things to come in other states, dozens of which have applied their own scrutiny to the legality of daily fiction athletics, legal expert and industry commentators said.
“I think it is the start of a major change in how daily fantasy athletics operators are approached on a state-by-state basis, ” said Darren Heitner, a Florida-based athletics lawyer who has advised smaller daily fiction operators and closely monitors the industry. “I don’t think we should underestimate the value of Virginia passing the bill and having it signed by the governor, because this is the start and not the end of what I believe will be a state-by-state enactment of these types of laws.”
DraftKings, the largest daily fantasy athletics web site, hailed Virginia’s package of “thoughtful and appropriate” regulations in a Monday statement, and indeed suggested that other states should follow suit.
“We thank Governor McAuliffe for his leadership and advocacy and are hopeful that other states across the country are as follows Virginia’s lead, ” Griffin Finan, DraftKings’ director of public affairs, said in the statement. “We will continue to work actively to replicate this success with dozens of parliaments and are excited to continue these efforts.”
Virginia’s regulatory law is based partly on model legislation the Fantasy Sports Trade Association, the industry’s lobbying arm, has pushed in recent months. It aims to address many of the chief concerns raised in the aftermath of the scandal, which blew up after a DraftKings employee won thousands of dollars in a fantasy contest on the rival site FanDuel.
The law will ban employees of daily fiction operators from playing in competitions on rival sites — a practice DraftKings, FanDuel, and many smaller companies moved to implement in the aftermath of the scandal — and prohibits the sharing of proprietary information about competitions before it is publicly available.
It also sets a minimum age of 18 for entry in daily fiction competitions, and includes potentially major elements regarding the companies’ financial practises. The law requires twice-annual independent audit, and mandates that the companies segregate monies used for operational purposes from the money paid out to contest wins.( The Virginia Department of Agriculture and Consumer Services will oversee regulation of the industry under the law .)
How effective those regulations will be in addressing concerns raised by the scandal is “subject to debate, ” said Marc Edelman, a athletics lawyer at the City University of New York’s Baruch College of Law.
“But even minimal requirements with respect to age participate, geographical location and segregating of entry fees from other company revenues are incredibly important, ” Edelman said. “The regulatory requirements are a step in the right direction.”
Dustin Gouker, a writer at LegalSportsReport.com, which covers the gaming the enterprises and has followed the scandal’s fallout, agreed.
“Something is better than nothing, ” Gouker said. “DraftKings and FanDuel will be regulated at the least to some extent.”
Still, the industry commentators who spoke to The Huffington Post also raised major concerns with the legislation — especially if other states look to Virginia as an example.
The Virginia law, for instance, requires daily fiction companies that wish to operate in the country to pay a $50,000 annual enrollment fee, a sizable quantity that won’t affect lucrative companies like DraftKings and FanDuel but could push smaller operators out of the state altogether.
The law McAuliffe signed will not fully resolve all of the legal issues around daily fantasy athletics, Edelman and Heitner said. It absence clarity in some areas, including its definition of fantasy athletics contests.
The Virginia rules will apply not only to daily fiction operators, but also to those that operate traditionally bred season-long fantasy competitions. While long-term competitions have always been regarded as different from daily ones from a legal perspective, the Virginia law requires the season-long operators to pay the licensing fees.
“In essence, the bill is a big win for FanDuel, DraftKings, and perhaps Yahoo, which are companies that can afford the licensing fee, ” said Edelman, who has consulted for fiction companies and helped full-season fiction operators draft a letter of opposition to the bill McAuliffe signed. “By contrast, the bill was a great loss for almost everyone else in the marketplace, especially season-long fiction operators … which likely may not be able to operate without paying that hefty licensing fee.”
“It adds a very large monetary obligation for many season-long operators that seemed to have no real cause for concern up until the occur of this law, ” Heitner said. “With a bit more deliberation, the country of Virginia would have understood that it’s probably improper at this time to include season-long[ fiction leagues] under the same regulations that you impose on daily fiction sports.”
The FSTA said in a statement Monday that it was “deeply concerned” with Virginia’s “onerous” enrollment fee.
That other states will follow Virginia in regulating the industry seems almost certain. Many are weighing similar legislation or regulations, especially in the wake of scrutiny from attorneys general in states like Illinois, Massachusetts and New York. Others, like Nevada, have put the industry squarely under gaming commissions.( In October, the Nevada Gaming Commission ruled that daily fiction companies required a lottery license to operate in the country .)
In that sense, Virginia may not become a word-by-word model for other states, Gouker said, even as many of them are also operating off of the same FSTA model legislation that helped drive Virginia’s effort. New Jersey, for instance, has considered taxing the industry, while Indiana’s proposal, which passed the country Senate this week and is expected to be signed by Gov. Mike Pence( R ), puts the industry under its country gaming authority.
“I guess states are arriving at it from their own views, ” Gouker said. “A lot of states are dealing with their own concerns, and each state is attaining changes as they go.”
Virginia, too, is a relatively small market for daily fantasy athletics companies, and many commentators, and perhaps even the companies themselves, will likely turn to much larger states for a glimpse of what the atmosphere around the industry will look like in the future.
“It’s definitely a milestone. But it’s not like this was a giant market, ” Gouker said. “Florida, California, Illinois, New York, Texas. Those are the states that are most important. We need clarity in those big marketplaces, and whether progress in the little states translates into the big states remains to be seen.”