Daily Fantasy Sports Seems Destined For Approach Similar To Online Gambling, Poker In Pennsylvania

Recent comments from a key Pennsylvania legislator indicate that the daily fantasy sports industry is likely to be treated along the lines of gambling in the state.

Committee chair: DFS likely to be in gaming bill

House Gaming Oversight Committee Chairman John Payne recently stated that the current plan was to include DFS is in a gaming expansion package that will be revisited in 2016. From OPR, on the legislature’s plans for DFS:

“They’ll come back with their recommendations and how we can regulate it and make it part of our gaming oversight,” Payne said. “We’re really trying to push that and have it as part of the gaming package” in the spring.

The fact that lawmakers in PA favor a casino-like approach for DFS operators is not a new development. Representative George Dunbar introduced legislation back in May that would allow casinos to offer DFS contests.

Once the daily fantasy sports industry came under increased scrutiny from public officials and in the media, Dunbar said he planned to amend his bill to make DFS operators wishing to accept users in PA to “partner with existing casinos already licensed by the Pennsylvania Gaming Control Board,” according to a report at the York Daily Record.

The new plan, according to Payne, will be to lump DFS into a much larger gaming bill, one that currently includes the legalization and regulation of online casino games and poker, among a number of other provisions that affect land-based gaming. That bill — HB 649 — had gotten some momentum as a possible source of revenue in the ongoing budget impasse, but that plan has reportedly been scrapped for now.

The prospects for DFS regulation in PA

The final form of how Pennsylvania will handle DFS is far from a settled matter. So far, however, the state’s lawmakers do not seem content to simply regulate the industry without licensing fees and taxes being applied — an idea that is being floated in both Massachusetts and Illinois.

Other states — like California and New Jersey — look to be on that same path as Pennsylvania: Putting the DFS industry under the watchful eye of the state’s gaming commissions.

However, despite the initial traction gained for certain approaches in different states, what states will do generally — and Pennsylvania specifically — is entirely up in the air. The PA House gaming committee held a hearing in November, but it was informational only in nature, and a formal regulatory bill has not yet been introduced. The legislators in that hearing gave few indications of what they were thinking.

How might PA approach DFS?

There are several different possible outcomes for DFS as it pertains to legislation:

• It’s at least feasible that DFS is simply thrown into the online gambling language of HB 649, and treated exactly like online poker. That would be akin to a ban on DFS in the state however. The current licensing fee for a “significant vendor” — i.e. DraftKings or FanDuel — for online gaming is $2 million. It seems unlikely that either site, and certainly not a smaller operator, would cough up that kind of money to stay in PA.
• It’s also possible that DFS is given the same treatment as online gaming, generally, but licensing fees and taxes are lowered for DFS operators. If licensing fees and taxes for DFS come in lower than they would be for online gambling, that would make it far more palatable for operators to serve PA residents.
• DFS could get its own section in the legislation, with entirely different regulations, licensing fees and tax rates.

Would Pennsylvania be ring-fenced?

This is the biggest question that generally faces the DFS industry as states consider regulation. Will PA license DFS sites, but let them continue to operate on an interstate basis — rather than intrastate only?

The online gambling and poker approach for legislation is, by necessity, intrastate in nature. Pennsylvania could, in the future, join an interstate compact to offer online poker across state lines (currently Nevada and Delaware belong to such a compact).

The DFS industry, much like online poker, requires liquidity for generating meaningful revenue. The sites will not be very happy if PA tries to force them to operate on an island, keeping PA users cut off from the rest of the world. The state may not given them a choice, however.