Earlier this week, the FBI and the Justice Department announced they were investigating whether the business models of daily fantasy-sports sites violate a Congressional exemption around the legality of transfers from financial institutions to online gambling sites.
Effectively, sites like DraftKings and FanDuel rely on a loophole for “games of skill.” Here’s WSJ with the explanation:
The probe is in the preliminary stage, two people said. It is part of an ongoing discussion within the Justice Department about the legality of daily fantasy sites, in which customers pay entry fees to draft virtual sports teams that compete against each other for prize money based on the real-world performances of athletes. Congress in 2006 prohibited financial companies from transferring money to online gambling sites and several were shut down. But so-called games of skill were exempted. Fantasy-sports sites have since operated under that exemption.
The idea, we suppose, is that betting on the “skills” of others is itself a “skill.” That is, if I know more about how the skills of say, one NFL player stack up against the skills of another NFL player, well then I too have a “skill”, and so therefore, sites which pay me to play my skills against the skills of other fans can exploit the above mentioned exemption.
Obviously, that’s to a certain extent ridiculous, but whatever the case may be, the game (no pun intended) appears to now be up. Or at least in Nevada where you can gamble, but like the mob bosses who once ran the casinos, the state wants its cut of the action. Here’s AP:
Nevada regulators have ordered daily fantasy sports sites like DraftKings and FanDuel to shut down, saying they can't operate in the state without a gambling license.
The decision comes amid growing backlash by investigators and regulators over the sites, which have grown in popularity in the past year.
The sites insist they are skill-based games and not chance-based wagers, and are therefore not subject to gambling regulations.
The state's Gaming Control Board issued a notice Thursday saying the sites must stop offering their contests to Nevada residents effective immediately. Operators face felony fines and 10 years in prison.
So there you have it FanDuel and DraftKings. Pay your protection money to run your gambling racket like everyone else.
Of course with a federal investigation looming, this is just the start of what, in sports terms, is likely to be a prolonged and deep slump for the industry - you can bet on that.