Government, Law, and Sports Business

Fantasy sports sites may have to pay up

Attorney general has yet to rule whether fantasy sports is gambling.

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Michigan could join 16 states in regulating fantasy sports that offer cash prizes.

Bills that have been approved in committee seek to clarify fantasy sports as a dominantly skill-based game exempt from gambling laws. Right now, they are unregulated in Michigan — anyone can sponsor a league and anyone can play.

The bills would bar anyone under 18 from playing the games and bar contests from being based on youth sports, high school sports or college sports. They also would require operators of the games, including FanDuel and DraftKings, to apply for a license to operate in the state.

A license would cost $5,000 and have an annual $1,000 renewal fee.

The attorney general has not labeled fantasy sports gambling.

The bills, put forward by Sens. Curtis Hertel Jr., D-East Lansing, and Wayne Schmidt, R-Traverse City, label fantasy sports as a game of skill, not gambling. They passed the Senate Regulatory Reform Committee 7-0 and were recommended to the Senate floor without amendment.

Hertel testified before the committee in October, saying he felt the games needed regulation to avoid a ruling by the attorney general and to avoid potentially having more than a million residents breaking the law. If the attorney general decides the games are gambling, they would be regulated by the gambling laws.

Players select fake teams of real-life athletes and compete against each other. Points are awarded based on the real-life athletes’ statistics collected in the game that day or week. Winners of the leagues often receive monetary prizes.

Skill games are based on strategy and knowledge of the game. Fantasy sports could be considered skill-based because players have to research the athletes, the team they play for and allocate money properly to craft the right team.

Supporters of daily fantasy sports say the games are skill-based, as it takes a certain level of knowledge to consistently craft winning teams.

“It is a difficult skill to allocate assets and choose which players have the best chance of success, similar to how a pro sports team general manager does the same thing,” said Marc LaVorgna, a press representative for DraftKings and FanDuel, the two main daily for-profit fantasy sports websites.

LaVorgna also provided real-world sports as an example of skill-based decisions, as real sports executives must make decisions on which players will be beneficial to team goals.

“It’s about making decisions on a consistent basis that give you the best chance at success,” he said.

Gambling-based games have to meet the criteria of prize, consideration and uncertain outcome in Michigan, said David Murley, deputy director of the Michigan Gaming Control Board. The prize is the reward given out to winners. Consideration is buying into the game, such as putting a dollar into a slot machine or buying a lottery ticket.

“What if something is a game of skill? Well, if there’s an uncertain outcome and it meets the other two things, then at least it would seem to fall in the broad definition of gambling,” Murley said.

Supporters of fantasy games argue that it’s a skill because it’s based on their knowledge of the sport, its players and the strategy of creating teams capable of scoring a lot of points.

The popularity of fantasy games has grown into daily fantasy sports in which players pay into the league that day. They construct teams under a salary cap where each real athlete costs a certain amount of money to be placed on a team. Cash prizes are awarded to the winner based on the fees paid by the players that day. 

The Gaming Control Board hasn’t taken a position on whether fantasy sports are gambling or skill based. But it’s not clear-cut, as elements of both skill and chance are at play.

“Sometimes, it’s not easy to draw the line between where the skill ends and the chance begins,” Murley said.

According to Hertel’s testimony, approximately 1.6 million Michigan residents partake in some form of fantasy sports for cash. These bills would mean exemption from gambling laws, clarification over just where the games fall and regulation of the fantasy sports sites.

The bills call for the Department of Licensing and Regulatory Affairs to conduct licensing.

The Gaming Control Board argues that it is the best fit to manage the operation, however.

“This is our business,” Murley said. “We’re in this world. We know things about consumer protection, we know things about gaming payouts, we know about licensing these people and some of the issues we’re likely to see. We know about entities that are part of a larger enterprise.”

Murley said the gaming board is familiar with larger companies that own gaming divisions, such as Dan Gilbert’s Greektown Casino in Detroit and the Ilitch family’s MotorCity Casino. With this knowledge, it argues it can better serve consumers.

“If we’re going to have this, then really this should go to the Gaming Control Board,” Murley said.

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