A bill that would allow New Jersey to regulate and tax daily fantasy sports operations cleared its first legislative hurdle Monday — over opposition from the industry's two most famous companies and its trade organization.

The state Senate's wagering and tourism committee voted 5-0 to approve the measure. It's one of many similar bills introduced in states across the country after the multi-billion-dollar daily fantasy sports industry faced allegations of insider trading.

But A.J. Sabath, a representative of DraftKings, FanDuel, and the Fantasy Sports Association, told the panel that the companies and organization are against the legislation because it does not specify whether daily fantasy sports are games of skill or chance.

Sabath implored the committee to declare them games of skill and not chance — the latter of which would classify them as gambling and would thus make them illegal in many states.

How N.J. can regulate and tax fantasy sports
How N.J. can regulate and tax fantasy sports
A Democratic state lawmaker formally introduced legislation not only to regulate but tax daily fantasy sports in New Jersey.

The skill vs. chance question has been a source of debate among industry leaders and government officials across the country as states begin to consider whether — and how — to regulate daily fantasy sports. The issue was the subject of a state Assembly committee hearing in New Jersey in November.

State Sen. Jim Whelan (D-Atlantic), the main sponsor of the bill, argued Monday that he's "not smart enough to know if it's gambling or skill."

"I've heard from customers who say, 'Oh, I study up and pay tons of attention to this and do my research and I do pretty well,'" Whelan said. Other states say it's gambling. There is some element of skill and luck involved, but the goal of this bill is not to settle that issue."

Still, Sabath said the way the measure is written would "create a significant level of uncertainty about the future of our industry in New Jersey." He noted that without a specific definition, the industry cannot invest in setting up operations in the state.

The bill — if approved by the state Legislature and signed by Gov. Chris Christie — would have the state Department of Law and Public Safety oversee the games in New Jersey, issuing permits to casino operators and other business ventures that want to conduct daily fantasy sports in the state.

The measure would also impose a 9.25 percent tax rate on the gross revenue made by daily fantasy sports companies — the same rate Atlantic City casinos pay on their revenue.

New Jersey is one of about 30 states that have introduced bills to regulate the industry. At least two other states, California and New York, have proposals to tax the games.

Last week, Virginia became the first state to institute law regulating the industry. The specifies that daily fantasy sports are a game of skill.

Daily fantasy sports are competitions in which players deposit money and create mock teams in specific sports to compete against other people. People win money based on the statistics of the players on their roster in either one-day or one-week competitions offered by companies like DraftKings and FanDuel, who have gained even popularity over the last year thanks to ubiquitous television commercials.

They are separate from season-long fantasy sports leagues that people often form with friends or co-workers. Whelan's bill would regulate only daily fantasy sports, not season-long competitions.

The measure now heads to the Senate Budget and Appropriations Committee for consideration.

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