Last year when a New York court heard the case against DraftKings and FanDuel after New York Attorney General Eric Schneiderman issued cease and desist orders against the companies for illegal gambling, I suggested that the outcome of that case would determine the future of daily fantasy sports (DFS) in most of the United States. While some states seemed determined to legalize DFS and some states wanted it outlawed the vast majority were on the sideline. And make no mistake, those states wanted to see what would happen in the Big Apple.

Schneiderman charged the two fantasy sports sites arguing that daily fantasy sports was just a form of online gambling outlawed under New York Law and he suggested the advertising the DFS sites were doing was misleading, since the advertising suggested everyone had an equal chance of winning, when in reality the better players had a sizeable advantage. FanDuel and DraftKings lawyers, on the other hand, argued that their product was legal per the regulations outlined in the Unlawful Internet Gambling Enforcement Act (UIGEA). The case was heard in a New York district court which originally upheld the cease and desist order, but later an appellate court overruled that decision allowing the sites to continue operating pending the decision. Both sites voluntarily withdrew from New York pending that decision which was expected to be rendered shortly after the appellate court ruling, but almost 8 months later a ruling never came. It seemed a bit odd but insiders knew that the New York government was up to something. New York DFS players were demanding that the state reconsider banning the product and it seemed that the governor's office was also in agreement. 

A few bills were introduced in New York state in late 2015 and early 2016 aimed at legalizing daily fantasy sports, but the one bill that took hold was a bill drafted by Assemblyman Gary Pretlow in May. Unlike other bills introduced prior, which just wanted to legalize the product, this bill also provided a fair amount of revenue for the state and several consumer protection rules. Highlights of the bill included the following:

• • Oversight of the industry is to fall under the guidance of the New York State Gaming Commission,which issues licenses and ensures regulations are followed.
• • A tiered licensing system that dings larger companies like DraftKings, FanDuel and Yahoo $100,000 as a result of their large revenue stream, but also provided a far smaller licensing fee (as little as $5,000) for any DFS operators that do not meet the same revenue. The idea there obviously is to ensure no anti-monopoly laws are broken.
• • A15% tax on gross revenue generated by DFS players in New York State
• • A surety bond of $1 million
• • A minimum age of 18 years to play DFS and rules to ensure compliance
• • Self-exclusion options and game monitoring

The bill also limits DFS to strictly professional events, clearly an effort to appease the NCAA which will never agree to any type of wagering on their sports.

But the law also requires some rules which are meant to ensure a level playing field. The bill requires that the skill level of players in contests are displayed and that highly skilled players are identified; the true chance of winning is displayed in all advertising and in the registration of contests; that employees can't play in contests; and that the sites must segregate operational and deposited funds. No doubt identifying skill levels of players and posting the true cost of winning was to appease Schneiderman, but the Attorney General indicated that he still plans still on pursuing charges against the companies for deceptive advertising despite these new regulations.

Governor Cuomo signed the law in early August and made the following announcement at the time:

"Daily fantasy sports have proven to be popular in New York, but until now have operated with no supervision and no protections for players. This legislation strikes the right balance that allows this activity to continue with oversight from state regulators, new consumer protections, and more funding for education."

Almost immediately after there was an indication that Cuomo was going to sign the DFS bill in New York, a fantasy sports bill was passed by the Massachusetts legislature and sent to governor Charlie Baker's desk, who signed the bill into law. That bill is different from New York's in that the minimum age for play is 21, but all other issues, like ensuring that employees aren't playing on their contests, that highly skilled players are identified, that advertising is truthful and indicates the true chance of winning, that accounts are segregated, that amateur sports are disallowed and that self-exclusion is present are part of the bill. The bill also sets deposit limits. Unlike the New York bill there is no licensing fee or tax on gross revenue, but the bill introduced by Massachusetts Attorney General Maura Healey did not preclude that and everyone in the industry agrees that those revenue tools for the state will be forthcoming. In fact, most industry analysts I spoke to believe that Massachusetts just wanted to see what kind of tax and fee structure New York came up with before telling the sites what their fees will be.

But make no mistake, that is just the beginning.

Maine has recently indicated they will be introducing legislation to allow DFS even though nothing was on the table prior to New York's bill and industry insiders have told me that Pennsylvania, New Jersey, California and Connecticut will pass legislation to legalize DFS "any time now." And of course Colorado, Indiana, Kansas, Maryland, Mississippi, Missouri, Tennessee and Virginia have already legalized the product. Rhode Island and West Virginia haven't actually legalized the product, but an opinion was passed by each state's Attorney Generals that it was not illegal thereby allowing the product. It seems just a matter of time before those states pass legislation that actually legalizes and taxes DFS. Some states have licensing fees but it seems inevitable that all of them will get in line with New York and impose a licensing fee and a gross revenue tax if they haven't already done so.

And numerous other states have looked at legislation to allow DFS including Florida, Kentucky, Michigan, Minnesota, Nebraska, New Mexico, South Carolina and Wisconsin. Even states that were banned from the outset are having second thoughts. Arizona, Iowa, Louisiana and Washington all have some sort of bills to legalize DFS on the table. Only Montana has no bill on the table or desire to look at fantasy sports legalization.

The only states that passed laws or opinions to disallow the product are Alabama, Delaware, Georgia, Hawaii, Idaho, Illinois, Nevada, Texas and Vermont. South Dakota's Attorney General indicated that he doesn't believe DFS is legal but left the door open to legalization should the legislature there try to pass laws allowing it. And while Delaware has passed a law banning DFS it seems inevitable that they will back down and permit the product if every single state around them offers the games. Perhaps they'll incorporate it into the sports betting parlay cards they run at the racetracks currently but it would be hard to pass up on that revenue when New York, Pennsylvania, Virginia, West Virginia etc. are profiting from the product while they are not. No doubt residents will demand it too.

I spoke with an analyst I've contacted on numerous occasions about fantasy sports to ask him if he was surprised by the new laws and he said he wasn't.

"It had to happen. The states just have too much to gain and both the players and the leagues want daily fantasy sports legalized. The vast majority of states were just waiting for New York to sign the law to justify their reasoning for legalization and also to ascertain how much they should be charging sites to operate in their state."

Asked what he believes will happen by the end of 2017 he was quite comfortable with his opinion:

"Utah and Alaska will always ban it. Montana, Texas and Wyoming will likely keep it illegal but every other state will be looking at possibly legalizing daily fantasy sports and the majority will. This year's election will also play a key role but I have no doubt that it won't be long before Illinois, Nevada and Vermont make a 360 and pass legislation to allow it. The other states will probably take longer but once they see just how much can be made and once there is an outcry from their citizens as to why they are the only states not allowed to play they will back down. It has to happen."

So with New York now on board the floodgates have opened. It's starting with a trickle but if the Wall Street Journal and the analysts I spoke to are correct then states will start pouring in with legislation legalizing daily fantasy sports. Amateur sports are absolutely off the table in every state so those who enjoyed betting on March Madness and the college bowl season with DFS are now out of luck, but it seems a small price to pay in order to bet on NFL, MLB, NHL and professional soccer games. And in the case of DraftKings, NASCAR. E-Sports and PGA tournaments as well.

It's about time. Let's just hope when states realize how much is made on DFS they'll look at sports gambling as well.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!