Pick'em-Style Fantasy Sports Games Come Under Regulatory Spotlight

August 15, 2023
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Pick'em-style fantasy sports games, which critics say cross the line into sports betting, are attracting increasing scrutiny from regulators and are set to be prohibited by regulations in at least two major markets, but contest operators say they welcome the opportunity to make their case to policymakers.

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Pick'em-style fantasy sports games, which critics say cross the line into sports betting, are attracting increasing scrutiny from regulators and are set to be prohibited by regulations in at least two major markets, but contest operators say they welcome the opportunity to make their case to policymakers.

Nicholas Green, general counsel with Underdog Sports Inc, said the company believes the recent interest shown by state gaming regulators concerning pick’em games gives Underdog an opportunity to discuss its business and products.

“From my perspective and in my experience, it’s expected and important for regulators in any industry to want to learn more about the issues being talked about in the community,” Green told VIXIO GamblingCompliance on Monday (August 14).

The rising prominence of this category of fantasy games has already caused several state regulators to clarify whether pick’em style fantasy contests are legal or considered sports betting under their gaming regulations.

Underdog does not currently offer pick'em games in seven states, including New Jersey and Pennsylvania, where it offers other forms of fantasy sports, while rival PrizePicks operates in only 31 states but not in others.

Whether player pick'em fantasy contests are permitted in a given state hinges in part on how state laws and regulations define sports wagering and fantasy contests, which are expressly authorized by laws in more than 20 states.

Gaming regulations in both Ohio and Maryland confirmed to VIXIO that their regulations do not allow pick’em-style contests to be offered by daily fantasy sport (DFS) companies.

“Maryland’s sports wagering law has a fairly broad definition of wagering types that are defined as sports wagering as opposed to DFS,” said Seth Elkin, a spokesman with the Maryland Lottery and Gaming Control Agency, in an email.

The sports wagering definition in the statute includes “single-game bets; teaser bets; parlays; over-under; moneylines; pools; exchange wagering; in-game wagering; in-play bets; proposition bets; and straight bets.”

House Bill 940, which was passed during the 2021 Maryland legislative session, also included provisions related to daily fantasy sports, most notably that the state must begin collecting a 15 percent tax from DFS operators, effective May 18, 2021.

“As our Gaming Division staff began working with DFS operators to get them registered and have them file the required tax forms, we also began looking closely at their offerings and reviewing their rules,” Elkin said. “As part of that process, we informed DFS operators that they would not be permitted to offer competitions that are defined in our law as sports wagers.”

Jessica Franks, a spokeswoman with the Ohio Casino Control Commission, said state law defines fantasy contests in a way that prohibits “winning outcomes based on randomized or historical events, or on the score, point spread, or any performance of any single actual team or combination of teams or solely on any single performance of an individual athlete or player in any single actual event.”

“Further, the commission adopted rules that also prohibit fantasy contest operators from offering proposition selection or any contests mimicking proposition selection,” Franks said.

Both Underdog Fantasy and PrizePicks offer contests based on an athlete’s statistics and not the end result of the game. Each contest requires a minimum of two selections and must involve players from more than one sporting event.

For example, National Football League player props or pick’em contests can include such picks as will Kansas City Chiefs quarterback Patrick Mahomes throw for more than 268.5 yards, or will Jalen Hurts, quarterback for the Philadelphia Eagles, rush for more than 78.5 yards in a game.

In Michigan, gaming regulators are also proposing to ban proposition or pick’em style contests in new regulations that are expected to be approved by the end of the year.

Fantasy sports were authorized under a state law passed in 2019 but fantasy companies in existence prior to May 2019 were allowed to continue operating so long as they applied for a state license by July 1, 2022.

The Michigan Gaming Control Board (MGCB) is currently in the rulemaking process to establish specific state regulations governing fantasy contests.

According to the agency's proposed rules, fantasy sports operators will be prohibited from offering a “proposition selection,” which was defined as a fantasy contest player “choosing whether an identified instance or statistical achievement will occur, will be achieved, or will be surpassed.”

Operators are also prohibited from offering “any fantasy contests that involve, result in, or have the effect of mimicking betting on sports.”

The MGCB's draft Administrative Rules for fantasy sports were submitted to the legislature’s Joint Committee on Administrative Rules (JCAR) on June 27.

“We anticipate JCAR will take them up for consideration this fall,” the agency said in a statement.

Underdog Fantasy pulled out of Michigan in 2022 because it was founded in 2020 and did not qualify for grandfathered registration. But revenue statistics compiled by the MGCB show that PrizePicks has been the highest-grossing fantasy sports operator in the state so far this year, reporting twice as much revenue as FanDuel and DraftKings combined.

Similarly, New York regulators are in the process of adopting specific rules governing fantasy sports contests in line with a 2016 law that allowed companies in existence at the time to remain in the market until formal rules are in place.

The New York State Gaming Commission's regulations proposed earlier this year to specify that fantasy contests "shall not be based on proposition betting or contests that have the effect of mimicking proposition betting," while also prohibiting any "contests in which a contestant must choose, directly or indirectly, whether an individual athlete or a single team will surpass an identified statistical achievement, such as points scored."

Meanwhile, gambling regulators in Wyoming and Maine have recently sent notice of complaints to both Underdog Fantasy and PrizePicks objecting to their pick'em contests.

“What we've experienced is that when policymakers learn more about our contests and how the law applies to them, they tend to agree with us,” Underdog's Green told VIXIO. “I'm confident the same will happen now, and I look forward to working collaboratively with our regulators.”

The Maine Gambling Control Unit's two-page notice informed Underdog Fantasy that its pick’em contests appear not to meet Maine’s definition of a fantasy contest. The company has until September 11 to submit a written response to the complaint.

In Massachusetts, regulators have committed to evaluating DFS offerings in the state.

Todd Grossman, Massachusetts Gaming Commission interim executive director, informed the commission on August 8 that there has been a lot of activity surrounding the boundaries of sports wagering relative to DFS and whether there is some overlap between the two.

“That is to say, whether there are certain activities that are offered by DFS operators that may be considered sports wagering activity,” Grossman said. “That’s been addressed in a number of jurisdictions now and has been discussed publicly.”

In response to the public scrutiny, Underdog Fantasy CEO Jeremy Levine published a letter on August 9 blaming FanDuel and DraftKings for the “attack” on the company's games.

Levine said Underdog's fantasy games are legal under the definition of fantasy contests in federal law because the contests are based on skill, use predictions on two or more athletes from different teams, and have the outcomes based upon those athletes’ accumulated statistics in real-world events.

“Every one of our contests meets that simple definition,” he wrote.

Levine added that Arizona, Colorado and Indiana, where the same regulators oversee both fantasy and sports betting, have determined that Underdog's products are fantasy contests, not sports betting.

“Fantasy sports is not limited to only FanDuel and DraftKings' salary cap contests. The laws they wrote say fantasy sports is far broader than just salary cap,” Levine said.

“Equally important, in nearly every state where a sports betting law has been passed, the law makes crystal clear that fantasy sports are not sports betting. Explicitly, these laws state that if a contest is fantasy sports, it is therefore not sports betting.”

Additional reporting by James Kilsby.

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