US Commerce Committee Plans to Hearing Testimony on Sports Betting, Online Gambling, and DFS on May 11

The United States Congress plans a public hearing on the topics of sports betting, online gambling, and daily fantasy sports, according to ESPN’s David Purdum. The hearing, which is set for Wednesday, May 11, is planned for the House of Representatives Subcommittee on Commerce, Manufacturing, and Trade.

The day’s hearing will be an opportunity to discuss the possible legalization of several forms of banned or unregulated gaming. If spokes people for the various forms of gaming make a good impression, it could set the table for a federal legalization process for one or more of the activities.

At the same time, the hearings could be a chance for a public relations blunder which could harm one or more of these gaming industries.

Frank Pallone’s Role in the Hearing

New Jersey Rep. Frank Pallone Jr., who is the longest-serving Democrat on the Commerce, Manufacturing and Trade Subcommittee (ex officio), asked for the hearing. New Jersey is American’s number one purveyor of legalized online gambling, as it is the only state which has licensed both online casinos and online poker. New Jersey also champions the cause of regulated and legal sports betting, which currently is restricted.

New Jersey is not at the moment a leader on daily fantasy sports, though it has indicated a willingness to legalize DFS along similar lines to what is being done in Massachusetts at the moment. A bill passed in one of the state legislature’s subcommittees in March by a 5-0 margin, though DraftKings and FanDuel oppose the bill. While the New Jersey DFS proposal would legalized online DFS like online casinos, it refers to the activaty as “gambling”, which is anathema to the daily fantasy sports sites.

Why These Three Forms of Gaming?

The three issues are taken as separate activities, but have a common component: they are banned in most US states. Also, if one is legalized, it reinforces the need to create coherent laws for the other activities.

Role of the UIGEA

For instance, online gambling was affected by the UIGEA of 2006. Though the UIGEA did not ban online casinos, poker sites, and sportsbooks outright, the law made it illegal for someone to process payments to websites which engaged in activities which were banned under the 1961 Wire Act.

From 2006 to 2011, the U.S. Justice Department viewed sports betting, casino betting, and poker as activities banned under the Wire Act. Therefore, the UIGEA covered the online version of all three activities. In 2011, the attorney generals of New York State and Illinois asked the Justice Department to clarify that opinion, since there were never any prosecutions of casino gaming under the Wire Act.

The Justice Department returned a surprising answer — online sports betting was illegal under the UIGEA, but online poker and online casino gambling (blackjack, roulette, slots) was not illegal. This allow New Jersey, Delaware, and Nevada to legalize online gambling at the state level. Other states are considering doing the same.

New Jersey v. American Sports Leagues

Meanwhile, New Jersey has been fighting to have the 1992 PASPA law struck down. Gov. Chris Christie has faced numerous legal setbacks in his attempt to challenge the PASPA, but could be on the verge of striking down the sports betting law if an appellate court in Philadelphia rules in his favor later this year. If so, then land-based sports betting would be legal under federal law; that is, states could license and regulate such activities.

If that law were struck down, then the UIGEA’s provisions about online sports betting would need to be reassessed. Thus, the legality of each activity touches on each other.

Daily Fantasy Sports

Fantasy sports was given an exemption under the UIGEA. Bets between small groups of friends who meet once a year to draft fantasy teams was deemed harmless and popular. After a couple of years, businessmen realized they could turn fantasy sports into a one-day event. Websites began to allow people to pay a fee to draft teams from all the baseball games played on a day, then pay out 90% of the pot to the winners (keeping the rest for themselves).

This became hugely popular on daily fantasy sites like FanDuel and DraftKings. When ads for those DFS sites became mainstream, officials began to consider why fantasy sports for real money was legal, while sports betting wasn’t. If both activities were legal, then there would be no question. But sports bets were considered illegal, while daily fantasy sports for real money was legal. Many people do not see the difference. They believe either sports betting should be legalized or DFS should be banned.

Thirty US states right now are considering how to handle the legality of daily fantasy sports: ban it, regulate it, or leave it legal and unregulated. Of those 30 states, two divergent attitudes have prevailed. One set of officials see one-day fantasy sports through the lens of gambling. They either want to ban the activity as unhealthy.

Consumer Protection Issue?

Others want to legalize, regulate, and tax the activity. One key factor is whether the laws they right to legalize DFS classifies the activity as gambling or not. Here is where lawmakers get into nuances, because lawmakers do not have to view DFS through the lens of gambling.

This second set of officials do not see daily fantasy sports as a gambling issue, but a consumer protection issue. They see the DFS site owner as a business owner, not a gaming operator. They want to assure the business does not take advantage of consumers, but bend over backward to avoid any reference to gambling. They understand that making FanDuel and DraftKings admit they are a form of betting makes it difficult for them in states which want to ban most (or all) forms of betting.

Thus, the inclusion of fantasy sports in next month’s May 11 hearing is not likely to please FanDuel and DraftKings, because it automatically lumps the activity with two acknowledged forms of gambling. From that assumption, the DFS companies must imagine a lot of damage can be done. If a spokesman for their industry is called to testify, then he or she is going to have to deny their activity is gambling without seeming arrogant, condescending, or “in denial”. That will be a high-wire act in a room full of politicians.