The Las Vegas Review Journal exposed a sensitive question in their story that coincided with the Fantasy Sports Trade Association winter conference. They took a look at the fantasy sports websites that focus on short-term or "daily" pay-to-play fantasy games and questioned whether the marketing tactics used by these sites blurred the perception line between legal skill gaming and online sports betting, currently not allowed in the US per the UIGEA and Wire Act.
If you look at the typical daily fantasy sports website, you would have a difficult time differentiating them from online gambling sites. This is bad news since fantasy sports is a game of skill and is NOT considered gambling.
In addition, some of the customer acquisition and retention aspects of these sites seem awfully similar to what online gambling sites offer. Terms like signup bonuses, rakeback and rebate are common. Some sites have also set up affiliate programs similar to online gambling sites as well as provide referral bonuses where individuals receive either a flat payment or a recurring revenue stream from their referrals' play.
Again, fantasy sports games are legal, but if regulators get the impression that these kind of sites are really no different from online sports betting, there could be bad news for the offending sites. The better answer is to ensure your look, feel and operation is well within the legal safe harbors. It doesn't mean that sites can't incorporate some marketing tactics common to other sites where it makes obvious sense, but in moderation.
The question that didn't get mentioned in the article, but could be an even bigger issue for the daily fantasy sports sites is the issue of income reporting for tax purposes. Lots of money is risked and won every day. For this kind of activity, just earning a net win of $600 for the year could trigger IRS reporting requirements. Some of the customers on these sites might win that much per day. Fantasy sports sites that play for money need to make sure their regulatory compliance processes are sufficient to not allow large amounts of contest winnings to go unreported.
Friday, January 25, 2013
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