PA Joins States Looking To Tax & Regulate Daily Fantasy Sports

By Andrew Staub | PA Independent 

Pennsylvania wants to profit on the popularity of daily fantasy sports as lawmakers may vote on a bill to regulate and tax the fast-growing industry.

A state representative from western Pennsylvania plans to introduce legislation that would require daily fantasy sports vendors — such as DraftKings and FanDuel — to partner with existing casinos already licensed by the Pennsylvania Gaming Control Board.

Daily fantasy sports leagues operate outside the boundaries of state regulation, partly because they are new, but also because a 2006 federal law exempted fantasy sports from the rest of the gambling world.

While state Rep. George Dunbar, R-Westmoreland, also sees DFS more as a game of skill than chance, he also sees striking similarities to gambling: Players place a wager, choose an imaginary team of professional athletes and score a payout if their fantasy squad performs well enough.

“That’s pretty much gambling,” he said.

Dunbar originally proposed a bill that simply allowed casinos to offer fantasy sports tournaments, but he’s now drafting more comprehensive legislation that would regulate DFS for the first time in Pennsylvania.

In addition to having DFS vendors strike deals with casinos, who would offer the fantasy games on their websites, the proposal would tax the difference between collections and payouts at a 14 percent rate. Casinos would have to pay one-time fee of $5 million, and vendors would pay $1 million, giving the state a one-time shot of revenue and some recurring funds thereafter.

Dunbar said he’s trying to work with the industry and its customers in crafting the legislation, which has yet to be introduced. A public hearing on fantasy sports and sports betting is scheduled for Tuesday.

Pennsylvania joins several other states racing toward regulating daily fantasy sports leagues, which have come under increasing scrutiny thanks to their ubiquitous advertising campaigns.

“I don’t think I can watch an NFL football game anymore without seeing advertisements for FanDuel and DraftKings constantly,” House Majority Leader Dave Reed, R-Indiana, said after his chamber struck down one of Wolf’s tax plans. “The gaming world’s changing; our laws need to change with it.”

The scrutiny over DFS intensified in September, when a DraftKings employee inadvertently leaked player ownership data online the same week he won $350,000 in a FanDuel tournament. That raised concern among players that employees at the two DFS giants, though prohibited from playing on their own websites, could use inside information to win on competitors’ sites.

“If the advertising blitz was the ‘tipping point’ for regulation, then the data leak scandal made it a ‘fait accompli,’ said Daniel Wallach, a sports and gaming attorney with Becker & Poliakoff in Florida.

“While government regulation is a certainty, the question is what form will it take?” he asked. “Will it fall under a gambling regulatory regime? Will it be a consumer protection regime?”

Aside from New Jersey Congressman Frank Pallone’s call for hearings on daily fantasy sports, the federal government has largely been silent on regulation. That’s left states to handle the issue on their own.

Massachusetts, New Jersey and Indiana are all considering oversight measures. Nevada has already banned unlicensed DFS operators.

“We call for smart regulations that protect consumers, but we won’t impose regulations that are anti-competitive or anti-innovative. Fantasy sports isn’t gambling — and should not be regulated as such,“ FanDuel said in a statement.

DraftKings did not immediately respond to a request for comment.

Dunbar said the intent of his legislation is to deter underage and compulsive gaming, and to ensure the sanctity and fairness of the game itself.

Pairing DFS vendors with licensed casinos, which Dunbar said offered the easiest path to regulation, wouldn’t merely be a cosmetic fix, either, according to industry experts. It would place DFS under the purview of previously vetted gaming entities and allow regulators access to servers and other operational elements if they needed to conduct an investigation.

If something goes wrong, consumers, policymakers and regulators wouldn’t have to take the industry’s word about what happened, said Chris Grove, editor of LegalSportsReport.com, which covers the DFS industry.

“There’s only so long that you can run a billion-dollar-plus company held together by tape and bubble gum,” Grove said. “At some point, there needs to be this external force that provides that accountability and guards you against your worst self.”

Dunbar has already heard from DFS enthusiasts who have offered suggestions — such as limiting the number of entrants per tournament. But he’s also heard from people who’d prefer the government not meddle with the current system.

A fan of online poker, Dunbar said he wants to remove DFS from shaky legal ground. He also wants to avoid what happened in 2011, when the federal government shut down online poker.

While his legislation is fluid and could change as quickly as the fantasy sports industry has, Dunbar said he’s hoping to create a “win-win” for everyone, including DFS vendors.

“Somewhere down the road,” he said, “this may be their one best option of how to continue operating under their present business structure.”