An article in Gaming Law Review and Economics tries to describe the future of the daily fantasy format as an "unsure bet." The title of the article also tries to portray daily fantasy games as exchange wagering. This article by and large is weak and a poor attempt to challenge the legality of the daily fantasy game format. The article is biased and references are "stretched and tortured" in order to fit the article's bias.
I'll discuss just a few of the errors. The first is that the UIGEA created or enabled the daily game format. The evidence used was that the UIGEA was passed, then the daily format appeared after. The daily game format could have easily been fielded before the UIGEA and the UIGEA doesn't impact the daily game format. If the length of time the multiple games that constitute the basis of a fantasy sports game could entail an entire season, post-season or in the daily game format, either a day's games or week's worth of games. In all of these cases, multiple games are used as a statistical foundation for the fantasy games and it can be argued that the UIGEA took its cues from the reality of how fantasy sports games were played to create their definition and contouring of the safe harbor.
Another error is the so called admission by a fantasy sports operator that by not offering their games in certain states that is an admission of the uncertain legality of the daily fantasy sports format. Baloney. There are certain states in the US where there really isn't enough of a distinction between skill games, sweepstakes and gambling such that even the season-long fantasy sports operators avoid offering games in those jurisdictions. If those states' laws are very strict as to what they define as gambling, no rational fantasy sports operator, daily or season-long, operates there. To use that as an admission of the uncertainty of the legality of the daily game format is more than a stretch, it is basically dishonest and again shows the bias of the authors.
The last issue I'll discuss is the authors' "fantasy" about the daily games using mark to market accounting. The daily games operate like the season-long games. You select some players that have a fictional "salary" constraint such that you craft the fantasy team of players where the total "salary" fits within the constraint. The actual games are played and the statistics generated by the players the fantasy sports contestant chose are converted to a single numerical metric or score, with the contestant whose team has the highest score wins. To call that mark to market accounting in order to try and make a case that daily fantasy games are radically different from season-long games in dimensions other than just the timeframe is just wrong.
There is a saying that everyone is entitled to their own opinion but not entitled to their own facts.
For those interested, the article can be found here.
Showing posts with label UIGEA. Show all posts
Showing posts with label UIGEA. Show all posts
Monday, September 30, 2013
Friday, January 25, 2013
Daily Fantasy Sports Websites Generating Questions
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.
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, December 7, 2012
New Jersey Sports Betting Lawsuit Update
In the last couple of weeks there have been a couple of events regarding the lawsuit challenging New Jersey's efforts to initiate sports betting. Several sports organizations (read leagues) filed suit invoking the federal Professional and Amateur Sports Protection Act (PASPA) to keep New Jersey out of the sports betting business. PASPA, passed in 1993, bans sports betting in all but 4 "grandfathered" states - Nevada, Oregon, Delaware and Montana.
The first event was the ruling by the judge to deny the motion by the leagues to push back the court timetable of the case by 30 days. The New Jersey interests opposed this motion and the judge sided with New Jersey. The article on that event can be found here.
The second event was the State of New Jersey filing a brief directly challenging the constitutionality of PASPA. This is the event that I think will eventually spell the doom of PASPA, and allow any state if it wishes to allow sports betting. The article on this story can be found here.
The key argument from the brief quoted in the article is very strong and I don't think the sports leagues or the US Government can refute:
The other argument here is that under the Constitution, the federal government does not have plenary police power like the states have. In other words, states have full ability to regulate health, welfare, safety and morality of its citizens - the federal government does not. The federal system is based on a central government of limited enumerated powers. The regulation of gambling within a state has always been the purview of the states. That is why some states allow lotteries or horse racing and some don't.
The next big event will the depositions of several sports league commissioners, initially scheduled for mid-December. The outcome of those depositions will be of great interest to how this case proceeds.
The first event was the ruling by the judge to deny the motion by the leagues to push back the court timetable of the case by 30 days. The New Jersey interests opposed this motion and the judge sided with New Jersey. The article on that event can be found here.
The second event was the State of New Jersey filing a brief directly challenging the constitutionality of PASPA. This is the event that I think will eventually spell the doom of PASPA, and allow any state if it wishes to allow sports betting. The article on this story can be found here.
The key argument from the brief quoted in the article is very strong and I don't think the sports leagues or the US Government can refute:
“PASPA does not seek to curtail sports wagering by directly prohibiting such activity in some or all states,” New Jersey’s lawyers wrote in the brief. “Instead, it mandates that certain states not ‘authorize by law or compact’ sports wagering and thereby requires those same states to maintain and enforce their pre-existing bans on sports wagering. The Tenth Amendment, under established precedent, does not permit the federal government to ‘commandeer’ state legislative and enforcement functions in such a manner.”Its one thing for the federal government to exercise its authority to regulate interstate commerce. What it can't do is mandate restrictions on the sovereign authority of a state with regard to its ability to craft state law.
The other argument here is that under the Constitution, the federal government does not have plenary police power like the states have. In other words, states have full ability to regulate health, welfare, safety and morality of its citizens - the federal government does not. The federal system is based on a central government of limited enumerated powers. The regulation of gambling within a state has always been the purview of the states. That is why some states allow lotteries or horse racing and some don't.
The next big event will the depositions of several sports league commissioners, initially scheduled for mid-December. The outcome of those depositions will be of great interest to how this case proceeds.
Saturday, December 5, 2009
UIGEA Hearing Held
The House Financial Services Committee held an informational hearing on HR 2267, a bill that would partially repeal the Unlawful Internet Gambling and Enforcement Act (UIGEA), and would license and regulate some forms of internet gambling. The report from Information Week on the hearing discussed testimony that stated both pro an con positions. What is important to note is the difference in the stature and quality of the opposing testimony. I'll give two examples of each.
On the pro side, there was the executive chairman of Youbet.com, a leading online gambling company based here in the US. Yes, you read correctly, there are companies engaged in online gambling right here, right now, in the US. Youbet.com handles online betting on horse racing, which is LEGAL in the US. This executive, Michael Broadsky, explained that technology that can properly regulate online wagering in the US exists today. That is obvious because how could this company process hundreds of millions of dollars per year in online wagers if the technology was insufficient?
The other cited example of pro testimony was the presentation of Professor Malcolm Sparrow of Harvard. He states, "combining a thoughtful regulatory scheme with education, technology tools, and support appears to be the most effective means of handling the realities and risks of online gambling," and "consumers in the United States would be better protected than they are now."
As opposed to the fact-based information provided by the pro-regulated internet gambling witnesses, the information provided by the anti-internet gambling witnesses was non-evidence based opinion and hyperbole.
The first example of this was provided by the head of the Morongo Band of Mission Indians, Robert Martin. Martin testified, "the legislation will do nothing but legalize off-shore gaming.” He further testified that this legalization would be at the expense of the "thousands of people" employed by tribal casinos. That sounds fine, at first, but his statement is false. You see, although offshore gambling firms may want to be licensed, the proposed legislation would mandate US-based facilities. US-based facilities imply US-based jobs, so Martin's opinion is only important if you care only about tribes, and not America as a whole.
There is more to the Morongo's position that you should know about. His tribe recently tried themselves to get ONLINE POKER LEGALIZED IN CALIFORNIA. So, within a few months, this tribe tries to get online poker legalized and then turns around and claims that online gambling should not be legalized and regulated. How does that make sense? It does if you are focused only on protecting your monopoly and not wanting competition.
At the Global Gaming Expo, some panel discussions regarding the online poker legislation in California implied that the proponents may have had a bill not well thought out...or was crafted too much to benefit a particular tribe or tribes. If that is the case, then the testimony is self-serving, not providing good data to provide informed decisions. I don't think tribes have a problem wanting legislative advantages at the expense of non-tribal casinos... Overall, this testimony isn't very helpful or credible. The story describing this in more detail is here.
The other anti-online gambling testimony of note was from the FBI. It is of note because of its stupidity. Quoting from the Bloomberg story:
"'There are several ways to cheat at online poker, none of which are legal,' Shawn Henry, assistant director for the FBI’s cyber division, wrote in a letter to Representative Spencer Bachus of Alabama."
"'Technology exists to manipulate online poker games in that it would only take two or three players working in unison to defeat the other players who are not part of the team,' Henry wrote. 'The online poker vendors could detect this activity and put in place safeguards to discourage cheating, although it is unclear what the incentive would be for the vendor.'"
Think about the genius that said this. There are ways to cheat at online poker and none of these ways are legal. As if there were LEGAL ways to cheat at online poker? You would think the word "cheat" would be a tipoff to the FBI? With mental giants like this fighting crime, I know I can sleep well at night. The FBI stated right after this that there were technology solutions that could detect and defeat cheating, so what's their point? However, they then claimed that they didn't know what the incentive for operators to implement these safeguards. They REALLY can't be this stupid, can they? Obviously, they are.
Let me help state the incentive since the FBI isn't bright enough to figure it out. Gambling operators can't survive if customers don't think the games are fair. Gamblers may win or lose, but they require fairly-run games. An online poker operator that is viewed as having unfair and manipulated games won't have customers and will be out of business. For the FBI to make this kind of statement is so vacant of logic that it is hard to believe that they have fallen this far with regard to talent.
Overall, the trend is that online gambling will be legalized and regulated in the next few years, with the exception of sports betting. My opinion is that all gambling should be legalized, but that will not happen. Poker will likely be legalized first, then other casino games. Sports betting will be legalized last. With the estimates of illegal sports betting being as high as $380 billion per year, it makes no sense to benefit offshore sportsbooks and illegal bookies by keeping this illegal. Now if the Morongo tribe wanted to make a cogent point, they could claim that keeping sports betting illegal benefits offshore operators. That would make sense.
For those interested in the topic, another article on the fallacy of prohibition can be found here.
On the pro side, there was the executive chairman of Youbet.com, a leading online gambling company based here in the US. Yes, you read correctly, there are companies engaged in online gambling right here, right now, in the US. Youbet.com handles online betting on horse racing, which is LEGAL in the US. This executive, Michael Broadsky, explained that technology that can properly regulate online wagering in the US exists today. That is obvious because how could this company process hundreds of millions of dollars per year in online wagers if the technology was insufficient?
The other cited example of pro testimony was the presentation of Professor Malcolm Sparrow of Harvard. He states, "combining a thoughtful regulatory scheme with education, technology tools, and support appears to be the most effective means of handling the realities and risks of online gambling," and "consumers in the United States would be better protected than they are now."
As opposed to the fact-based information provided by the pro-regulated internet gambling witnesses, the information provided by the anti-internet gambling witnesses was non-evidence based opinion and hyperbole.
The first example of this was provided by the head of the Morongo Band of Mission Indians, Robert Martin. Martin testified, "the legislation will do nothing but legalize off-shore gaming.” He further testified that this legalization would be at the expense of the "thousands of people" employed by tribal casinos. That sounds fine, at first, but his statement is false. You see, although offshore gambling firms may want to be licensed, the proposed legislation would mandate US-based facilities. US-based facilities imply US-based jobs, so Martin's opinion is only important if you care only about tribes, and not America as a whole.
There is more to the Morongo's position that you should know about. His tribe recently tried themselves to get ONLINE POKER LEGALIZED IN CALIFORNIA. So, within a few months, this tribe tries to get online poker legalized and then turns around and claims that online gambling should not be legalized and regulated. How does that make sense? It does if you are focused only on protecting your monopoly and not wanting competition.
At the Global Gaming Expo, some panel discussions regarding the online poker legislation in California implied that the proponents may have had a bill not well thought out...or was crafted too much to benefit a particular tribe or tribes. If that is the case, then the testimony is self-serving, not providing good data to provide informed decisions. I don't think tribes have a problem wanting legislative advantages at the expense of non-tribal casinos... Overall, this testimony isn't very helpful or credible. The story describing this in more detail is here.
The other anti-online gambling testimony of note was from the FBI. It is of note because of its stupidity. Quoting from the Bloomberg story:
"'There are several ways to cheat at online poker, none of which are legal,' Shawn Henry, assistant director for the FBI’s cyber division, wrote in a letter to Representative Spencer Bachus of Alabama."
"'Technology exists to manipulate online poker games in that it would only take two or three players working in unison to defeat the other players who are not part of the team,' Henry wrote. 'The online poker vendors could detect this activity and put in place safeguards to discourage cheating, although it is unclear what the incentive would be for the vendor.'"
Think about the genius that said this. There are ways to cheat at online poker and none of these ways are legal. As if there were LEGAL ways to cheat at online poker? You would think the word "cheat" would be a tipoff to the FBI? With mental giants like this fighting crime, I know I can sleep well at night. The FBI stated right after this that there were technology solutions that could detect and defeat cheating, so what's their point? However, they then claimed that they didn't know what the incentive for operators to implement these safeguards. They REALLY can't be this stupid, can they? Obviously, they are.
Let me help state the incentive since the FBI isn't bright enough to figure it out. Gambling operators can't survive if customers don't think the games are fair. Gamblers may win or lose, but they require fairly-run games. An online poker operator that is viewed as having unfair and manipulated games won't have customers and will be out of business. For the FBI to make this kind of statement is so vacant of logic that it is hard to believe that they have fallen this far with regard to talent.
Overall, the trend is that online gambling will be legalized and regulated in the next few years, with the exception of sports betting. My opinion is that all gambling should be legalized, but that will not happen. Poker will likely be legalized first, then other casino games. Sports betting will be legalized last. With the estimates of illegal sports betting being as high as $380 billion per year, it makes no sense to benefit offshore sportsbooks and illegal bookies by keeping this illegal. Now if the Morongo tribe wanted to make a cogent point, they could claim that keeping sports betting illegal benefits offshore operators. That would make sense.
For those interested in the topic, another article on the fallacy of prohibition can be found here.
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