A commentary by Allen Lund, Executive Director of Allied Charities of Minnesota 09/07/2016
There is a new entry into the field of Daily Fantasy Sports (DFS). Grand Fantasy Sports, owned by Grand Casino/Mille Lacs Band of Ojibwe is now offering their version of DFS. They join a crowded field that is currently dominated by two billion dollar companies, Draft Kings of Boston and Fan Duel of New York that together control 95% of the DFS business.
What is DFS? It is a daily contest where individuals, primarily young adult males, pick a roster of players for a single contest (most sports that you can think of are available) and the individual/s with the highest points wins. It is played on any device capable of accessing the Internet 24/7/365. The operators typically take 10% of every transaction as their source of income. Investors include the NFL, NBA, NHL as well as a number of professional sports teams and their owners.
DFS is not considered illegal Internet gambling under Federal Law if the contests meet certain standards spelled out in the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). In short, under UIGEA, the contests are considered games of skill and not gambling. It is widely thought that the UIGEA carve out was intended to protect season long fantasy participants (friends, family, co-workers) from their contests being considered illegal gambling. At the time DFS was not yet in existence.
It is betting? Several states have said that it is and have deemed it illegal. Other states have said that it is not illegal and have decided to license and regulate it to varying degrees. Most states have yet to make a decision, including Minnesota, allowing the contests to go on under interpretation of existing law. DFS companies argue that their players are using skill to select their teams and that they are no different than a stock market day trader. That analogy to me is false as even the most incompetent day trader will have equity at the end of the day where the losing DFS contestant may have nothing to show for his or her effort.
What are your chances of winning? A 2015 study shows that 91% of the money risked is won by 1.3% of the players. Professional participants use sophisticated computer programs (called scripting) to pick their teams.
What should we be doing in Minnesota with DFS? In the last legislative session there was a bill that would have allowed DFS, but also regulated it. Ray Bohn, ACM contract lobbyist, testified that no matter what you call it, DFS needs to be regulated and taxed in the same manner as charitable gaming nonprofit organizations are. The bill stayed in committee. ACM fully expects that DFS companies will be back in the 2017 legislative session with legislation to legalize the activity in Minnesota.
I personally would have no issue with the state saying that the groups conducting DFS need to be licensed, regulated and taxed. But, I have seen no evidence that the likes of Fan Duel and Draft Kings have been paying the state of Minnesota taxes on the money that they have been taking out of the state. Having them pay the equivalent of up to 7 times the current corporate tax rate (depending on their volume) as charitable gaming organizations currently do would be a decent start. Giving for profit companies a better deal than nonprofit charitable organizations is counterproductive to our state and communities.
Licensed nonprofit charitable gaming organizations in Minnesota carry out their missions by caring for the people in their communities. Our members are the veteran, fraternal, church, youth, civic and foundation groups that serve communities throughout Minnesota. We help the sick, elderly and people with disabilities. We educate, we feed the hungry and we keep kids off of the street. We protect, defend and serve the veteran. We make our neighborhoods a better place to live.