California DFS bill passes committee vote amid legal uncertainty

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The Golden State now looks closer than ever to establishing a regulated Daily Fantasy Sports industry with a bill that would allow operators to obtain licenses via the Justice Department – despite disagreements over whether the activity actually constitutes “gambling” in the first place.

California lawmakers are pushing ahead with a bill to regulate the popular Daily Fantasy Sports industry in spite of ambiguity over whether state Legislature has authority over the issue without a public mandate.

Assembly Bill 1437 – a piece of legislation that would require DFS operators to apply for a license to provide services in the state – sailed through the Assembly Government Organisation Committee on a vote of 17-1, taking it one step closer to passing into state law.

Adam Gray, the author of the bill, argued that the bill was a necessary response to the surging popularity of the game, stating: “Millions of our constituents in California (are) participating in this activity right now, today, unprotected. Nothing in place to guard against some of dangers we know exist. We have an obligation to move forward.”

But Assemblyman Mark Levine – one of the bill’s most vocal critics – has argued that DFS constitutes gambling and must therefore be put to a public vote before being passed into law.

“This is gambling. There’s no doubt about it. Let’s not fool ourselves,” he said. “An entry fee is a wager; cash prizes are gambling winnings; (daily fantasy sports companies) are bookies.”

AB 1427 states that licenses would be provided by the Justice Department on the basis of background checks well, and that operators would have to pay an annual regulatory fee that has not yet been specified. Fees would be deposited into the Fantasy Sports Fund, which would largely be used to support the reasonable costs of license oversight, consumer protection, state regulation, and other purposes related to the bill.

According to Gray, this would redress the fact that “revenues generated from these games are being realized by unlicensed operators and do not provide any benefits to the citizens of California.”

An estimated 56.8m people in North America currently participate in DFS,but the game has come under fire from Attorney General in New York and Illinois, who argue that the activity counts as gambling and is therefore illegal under state law. In Nevada, legislators have ruled that operators cannot operate in the state without a license.

Nevertheless, states such as Kansas, Massachusetts and Michigan have explicitly allowed major DFS players such as DraftKings and FanDuel to operate, while a handful of other states – Iowa, Montana, Arizona, Louisiana, Texas and the state of Washington – are also considering legislation. More recently, Dallas Mavericks owner and billionaire investor Mark Cuban announced that he had invested in Massachusetts-based DFS start-up Fantasy Labs, signalling a vote of confidence in the industry.

Estimates from consulting firm Eilers Research suggest that DFS currently generates approximately $370m in revenues each year – with California accounting for around 15 percent of the nation’s total spend – and that the industry as a whole could be worth around $2.5bn by 2020.

California Assemblyman Scott Wilk, who voted for Gray’s AB1437, stated: “Whether it ultimately is legal or illegal, I think that’s for others to decide. I think it’s for us to do what we can do to protect our constituents.”


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