Daily Fantasy Sports to partner with casinos in Pennsylvania?

According to a report from the Pennsylvania Gaming Control Board published earlier this month, Daily Fantasy Sports (DFS) operators looking to operate legally in the State may have to partner with local casino operators.

The Pennsylvania Gaming Control Board (PGCB) has released its Fantasy Sports Report, which was prepared in response to state legislators’ request for the PGCB to study how DFS might fit into the state’s existing legal gambling environment. “The arena of fantasy sports has rapidly expanded during the course of the last year, with reports estimating play raising more than$ 3 billion in entry fees from approximately 4.5 million players and industry revenues of nearly $ 300 million in 2015, alone. These significant sums arise concurrently with an estimated advertising campaign, which spent in excess of $200 million over the same time period. The rise of fantasy sports and more particularly daily fantasy sports (DFS), has also brought intense scrutiny premised on whether DFS constitutes illegal gambling, whether contests are fairly played, and whether DFS should be regulated by the States in a manner to assure a variety of consumer protections and provide compulsive and problem gambling assistance”, reads the report, stating that “DFS gained its foothold through an exemption in the definition of “bet or wager” found in the federal Unlawful Internet Gambling Enforcement Act (UIGEA). UIGEA did not, however, legalize fantasy sports. Rather issues of the legalization of gambling and related activities have largely been left to the States to address based upon the definitions and nuances of gambling laws in each of the states, which often depend on the degree of skill or chance involved in the play of a contest”.

Pennsylvania law defines gambling as “an activity involving consideration, an outcome predominated by chance, and a reward or prize for winning the contest.
The determination of whether DFS constitutes gambling and hence is illegal in Pennsylvania depends on whether chance or skill is the predominant factor in determining the winner of the contest. While there undoubtedly are elements of both chance and skill involved in the DFS contest, no Pennsylvania court or other body has issued an authoritative pronouncement relative to this issue”. 

Should the path of regulating DFS be pursued, the Agency responsible for regulation must be identified and licensing fees and/or revenue taxation rates must be determined. “If the Gaming Control Board should be given oversight responsibility, the Board suggests that the play of fantasy sports in Pennsylvania be provided through the existing slot machine licensees as a gaming- related amenity operated through the licensee’s web-site. DFS providers would thus contract with slot machine licensees much like current gaming service providers and would be vetted and licensed as determined appropriate by the Board”, states the report. “Operating DFS through the already-licensed slot machine licensees provides several significant advantages to the Commonwealth. It provides an in- state presence for the Board’s oversight, eliminates potential jurisdictional disputes, partners DFS providers with established entities which have an existing relationship with the Board and regard for Pennsylvania’s regulatory environment, and does not disrupt the funding mechanism for the Board’s oversight of slot machine licensees”.

If Pennsylvania pursues a path of oversight and regulation of DFS, the Board advocates “the development of a regulatory system which assures broad discretion to the regulator to prescribe rules and respond to ever-changing technological advances, strong internal controls providing appropriate accounting of revenues, audit protocols and suspicious activity identification, adequate security of patron accounts and monies, a minimum age restriction of 21 years of age to play, age and location verification systems, self-exclusion opportunities and options for periodic monetary entry fee limitations”. The Board also suggests “game fairness measures be required such as restricting computer script or computer algorithm-based selection of team entries, prohibiting the offering of DFS based upon collegiate sports, restrictions on professional athletes from entering contests involving the sports in which they play, and restrictions on employees of DFS providers from participating in DFS contests”.