LAS VEGAS — Regulators in Nevada ordered daily fantasy sports websites like DraftKings and FanDuel to shut down Thursday, saying the hard-to-miss sites that have flooded the marketplace with TV and Internet ads cannot operate in the state without gambling licenses.
The decision coincides with a growing backlash by regulators and investigators, including New York’s attorney general, since it was revealed that employees often played on competing sites, raising questions about insider information being used to win.
Nevada regulators govern the country’s main gambling hub, Las Vegas, and their actions could hold sway with regulators elsewhere.
Participants on the unregulated sites can compete in games involving professional or college sports, paying entry fees that go into a larger pool. They try to assemble teams that earn the most points based on real-life stats in a given period, with a certain percentage of top finishers earning payouts.
Entry fees on DraftKings range from 25 cents to more than $5,000. Some prizes top $1 million.
Nevada’s decision doesn’t affect season-long fantasy sports, long popular online and in office pools. Daily fantasy sports is similar, but with the contests limited to a day in most cases, not stretched out over a season.
DraftKings and FanDuel say the sites provide games of skill, not chance, and are therefore protected by the 2006 Unlawful Internet Gambling Enforcement Act, which carved out a specific exemption allowing fantasy sports.
The distinction has been important for the industry, which has dodged the type of regulation that governs traditional casinos and sports books. Avoiding the “gambling” label also has made the contests palatable to professional sports leagues that have partnered with the sites or, in some cases, invested directly.
Until now, the sites have been available in all but five states, where their legality has been called into question.
“If you’re licensed in Nevada, you’re good to go,” said A.G. Burnett, chief of the state’s Gaming Control Board. That includes traditional sports books where gamblers generally wager on the outcome of given games.
No daily fantasy sports sites are licensed in Nevada, but they can apply for licenses.
A notice issued by the Gaming Control Board said the sites must stop offering their contests to Nevada residents immediately, and until they are licensed. Operators face felony fines and 10 years in prison for running illegal gambling sites. The board said it worked with the state attorney general’s office for several months to look into the sites’ legality.
Joe Asher, CEO of William Hill’s sports book operations in the U.S., has repeatedly said daily fantasy sports is gambling and should be treated like all other legal gambling. He said the board’s decision speaks for itself.
“It shouldn’t come as a surprise,” Asher said.
Spokesmen for DraftKings and FanDuel did not respond to requests for comment.
Seth Young, chief operating officer of the much smaller site StarFantasy, said he took it a step further than most, commissioning the same lab that tests casino slot machines to determine whether the site’s games are skill-based. Young said the tests confirmed it, but “it doesn’t mean we can disrespect state laws.” He noted his company pulled out of 10 states before Thursday, to stay on the right side of the law. His site pulled the plug in Nevada, too.
“We saw regulation on the horizon,” he said. He said the company plans to get licensed in Nevada and hopes to license its own technology to other companies that want to do business there.
The American Gaming Association, which is doing its own review of the legality of daily fantasy sports, said it appreciates the Nevada board’s determination. It provides clarity, “as well as a roadmap for daily fantasy companies and casinos to provide popular fantasy sports within Nevada borders,” the association said.
Daniel Wallach, a sports law expert from Florida, said the board’s decision is not going to “cause an extinction of fantasy sports from Nevada, forevermore.” But it confirmed what Wallach and other observers familiar with the gambling industry have long contended.
“Fantasy is a form of gambling that should be licensed just like sports betting, just like any other form of gambling,” he said.
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