Capitol Alert

DraftKings, FanDuel ask California to regulate daily fantasy sports

An ad for daily fantasy sports operator DraftKings is displayed in a subway station in Philadelphia.
An ad for daily fantasy sports operator DraftKings is displayed in a subway station in Philadelphia. The Associated Press

Seeking to avoid a legal battle that has sidetracked the industry in New York, leading daily fantasy sports companies on Wednesday pledged their cooperation to the California Legislature to pass regulations that will keep the booming online game operating in the nation’s largest state.

At a largely friendly Capitol hearing, representatives from the Boston-based DraftKings and New York-based FanDuel, daily fantasy sports’ two giants, urged lawmakers to craft “common-sense legislation” that would legitimize their business, which is facing imminent political threats across the country.

“We want to work with you to ensure that fantasy contests are legal, safe for consumers and continue to provide the same great entertainment value that has driven our growth over the past few years,” Cory Fox, FanDuel’s counsel for policy and government affairs, said during testimony.

Like seasons-long fantasy leagues, daily fantasy sports allows players to select teams of athletes and earn points for their on-field performance, but with a more immediate payout based on as little as the results of a single day’s worth of games. It has skyrocketed in popularity over the last few years, amid a multimillion dollar marketing blitz, prompting a growing debate over whether the contest constitutes illegal gambling.

The controversy has centered in New York, where Attorney General Eric Schneiderman shocked DraftKings and FanDuel last month by ordering them to stop accepting bets there. The companies contend that they offer a game of skill, which rewards participants for strategic choices based on their knowledge of the sport, but Schneiderman argues that daily fantasy sports is a game of chance, making it gambling and thus illegal under New York state law.

The case is quickly winding its way through the legal system. Writing that “the protection of the general public outweighs any potential loss of business,” a New York state Supreme Court justice granted Schneiderman’s temporary injunction last Friday. He asked both sides to submit more evidence before deciding on the merits of the case, adding that he believes the attorney general’s office would win.

That decision was promptly blocked by an appellate judge, allowing DraftKings and FanDuel to continue operating in New York through at least Jan. 4, when a panel of judges will decide whether the injunction stays in place. A recent poll found that two-thirds of New Yorkers agree with Schneiderman that the game is illegal.

California has been slower to act. A week before Schneiderman’s cease-and-desist, Assemblyman Marc Levine, D-San Rafael, sent a letter to Attorney General Kamala Harris asking her to take a similar action “until California law is made clear and consumers are protected.”

Harris, a candidate for U.S. Senate, hasn’t weighed in publicly yet. Her office has repeatedly said she “can’t comment on a potential or ongoing investigation in order to protect the integrity of any investigation.”

But that possibility, and the turmoil in New York, was a clear undercurrent to the companies’ position at the hearing Wednesday.

“This is a matter of public policy that belongs before the Legislature, not the courts, which lack the benefit of input from constituents and the sort of public dialogue we are seeing here today,” testified Griffin Finan, DraftKings’ counsel for lobbying and government affairs.

Witnesses provided no specific proposals but suggested that lawmakers might focus on areas such as taxation, restricting access for underage players and providing resources for problem gambling.

“We’re not saying don’t do something. We’re just saying take it in a reasonable, careful way to make sure you understand the business,” said Martha Coakley, the former Massachusetts attorney general who is now working as legal counsel for DraftKings. “What are the things you’re concerned about? And that’s where you should regulate.”

Legislators at the hearing largely sidestepped the question of legality, with the exception of Levine, who said he sees daily fantasy sports as gambling. He asked whether the industry would be willing to mount a ballot measure to change the state constitution if the contests were determined to be illegal. DraftKings and FanDuel said it was too early to consider that possibility.

Assemblyman Adam Gray, D-Merced, an ally of California gambling interests who introduced a bill in September to license and regulate daily fantasy sports, offered up several opportunities for defense.

“There seems to be a large percentage of the contests won by a small percentage of the players. Is that true?” he asked at one point.

“That’s the disparity in any skill-based game,” Fantasy Sports Trade Association Chairman Peter Schoenke replied. “Eventually the good players are going to do better than the not-good players. But you can get better in a skill game. You can learn, you can improve.”

Alexei Koseff: 916-321-5236, @akoseff