As fantasy sports betting has become increasingly popular in the US, with players from all over the country coming together to test their skills and win prizes, there have been increasing calls to give a legal definition to the industry and put regulations in place. As it stands, most major fantasy sports betting sites are trustworthy and have even formed extensive business relationships with the NFL, MLB, NHL and the NBA. However, no federal framework exists for regulating daily fantasy sports, which has attracted the concern of lawmakers and special interest groups.
In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act (UIGEA), which effectively outlawed online gambling but created an exception for fantasy sports betting classifying it as a game of skill, not chance. However, each state is allowed to make its own decisions about the nature of fantasy sports betting.
To that end, some states – Arizona, Iowa, Louisiana, Montana, Nevada and Washington State – have explicitly stated that they consider the contests offered at sites like DraftKings and FanDuel to be gambling and thus are illegal. Residents of these states cannot sign up to fantasy sports betting sites and deposit money in order to enter contests. If you are unsure as to whether or not fantasy sports betting is legal in your state, you may want to consider contacting your local representative.
What Regulation Could Mean for the Industry
The insider betting scandal concerning DraftKings and FanDuel in late 2015 quickly led to calls for external regulation to better protect players and provide external accountability. As more attention has been directed towards the industry, its major players have started backing off from an anti-regulatory stance and indicated that they would be open to some established guidelines for operation in the United States. In October 2015, FanDuel released a statement, saying that they and their partners “believe some regulation may be warranted and want to work with lawmakers to ensure fans continue to have access to all the fantasy games they love”.
This new attitude has been backed by commissioners for professional sports leagues, including Adam Silver of the NBA. As quoted in USAToday, Silver argued that regulation and transparency would “ultimately aid the industry. In fact, I think we’re seeing the marketplace impacted, because there’s not a clear regulatory framework right now”.
Regulation of fantasy sports betting would also provide a structure for taxation. Currently, fantasy sports betting players are required to pay taxes on their winnings, with those who net $600 or more in profit sent a 1099 tax form from the fantasy sports betting site they use. Future legislation could provide for regulating tax payments made by the sites themselves, not just the players involved. Fantasy sports betting companies could face taxes on their gross gaming revenue. While big players could handle the hit, smaller operators might be driven out of the market altogether.
At the moment, it remains to be seen as to whether or not Congress will continue to uphold the exemption from the UIGEA that fantasy sports betting sites currently enjoy. It may be more productive to keep track of any analysis or legislation produced by individual states as their own attorneys decide whether or not fantasy sports betting is considered gambling, thus requiring strict regulation.