Fantasy sports sites draw scrutiny from Washington

Professional sports leagues and the booming fantasy sports industry are facing new questions from Washington following a weekend when the websites DraftKings and FanDuel saturated airwaves during football games with ads touting big cash prizes for online winners.

At the heart of the debate is whether the sites, and particularly newer services that allow players to gamble daily, are venues for gambling or just — as the companies contend — games of skill.

{mosads}Rep. Frank Pallone Jr. (D-N.J.), the ranking member on the House Energy and Commerce Committee, has called for congressional hearings into the topic, accusing the pro leagues and teams of hypocrisy for partnering with fantasy sites while opposing the legalization of traditional sports betting.

“All of a sudden, the leagues or the teams own all or a significant interest in all these fantasy leagues which at one time were just … free things that people played and got a little prize — not even money. … Now it’s a billion-dollar industry with multimillion-dollar jackpots and huge advertising that goes on all day long to get people to participate,” Pallone said in a Tuesday interview.

“So, this is gambling, outright, and yet they continue to spend millions of dollars, in a hypocritical sense, to try and stop sports betting through their lawsuits because they claim it’s immoral or it’s going to get the players … involved in organized crime.”

In a letter to Energy and Commerce Chairman Fred Upton (R-Mich.) on Monday, Pallone said that committee should investigate “the relationship between professional sports and fantasy sports to review the legal status of fantasy sports and sports betting.” 

In doing so, he is taking on a growing industry that has become omnipresent for sports fans on television and elsewhere.

DraftKings and FanDuel, both less than 10 years old, are the main players in the field of “daily fantasy” sites. Unlike the standard fantasy leagues common in offices and among friends who compete over the course of a season, these sites allow players to pick teams for a day — and offer them big prizes if they win.

On Tuesday, for example, users on DraftKings could enter contests linked to events in football, baseball, soccer, NASCAR, college football and mixed martial arts.

Investors have launched a gold rush on the sites. Both are valued at more than $1 billion; investors include some of the leagues as well as broadcasters like Fox Sports, NBC Sports, a division of Comcast, and Turner Sports.

The site’s growth is fueled, in part, by massive ad buys that have made the sites ubiquitous for fans tuning in to watch games and matches, including Sunday football. They have also inked partnerships directly with leagues and teams. Pallone said the ad blitz triggered his letter, and that any hearing on the matter should include reps from the teams and leagues.

Fantasy sports is governed by overlapping laws that some say make it difficult to determine where the sites stand. The Unlawful Internet Gambling Enforcement Act, which regulates online gaming and passed in 2006, includes an exemption for fantasy sports that was supported at the time by professional sports leagues. Pallone questioned, however, whether the daily fantasy sites fell within the grounds of the exemption.

“I also think that they’re skirting the law, because the carve-out from online gambling that said you could have fantasy sports was not envisioned to be a multibillion-dollar gambling operation,” he said. 

Pallone has been a supporter of sports betting in New Jersey and indicated that his interest in fantasy sports was motivated, in part, by concern over the way that leagues were backing the websites while suing to block betting in his home state.

“Well, the reality is the only reason they’re trying to stop sports betting is because they don’t own it,” he said.

A gaming industry trade group has welcomed the possibility of congressional scrutiny of fantasy sports.

“Many of our members would like to leverage their brands and years of gaming expertise to provide this product to their customers,” said Geoff Freeman, the president of the American Gaming Association, in a statement. “But the current lack of legal clarity is an obstacle.”

The sites argue they fit clearly into the exemption allowed under the law.

“These are skill-based games that match sports fans against each other in a contest of sports knowledge and strategy,” said Peter Schoenke, the chairman of the Fantasy Sports Trade Association, in a statement.

“We look forward to having a constructive dialogue with Congressman Pallone.”