Report: Feds questioning legality of daily fantasy sports

Last Wednesday, during a very bad week for their industry, daily fantasy sports companies DraftKings and FanDuel received some good news: Massachusetts Attorney General Maura Healey said the games do not violate state or federal law. Healey, whose office is reviewing the games, still had concerns about the integrity of the games and consumer safeguards, but said their legality was not in question.

“We’re not looking to shut them down,’’ she said.

But a report from The Wall Street Journal Wednesday night shows the debate at the federal level isn’t quite so settled. According to the Journal, a federal probe is focused on determining whether daily fantasy games are, in fact, against U.S. anti-gambling law.

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At issue is a question that has dogged the industry since it began burgeoning a few years ago: How daily fantasy games fit within the framework of a 2006 federal law that effectively outlawed online gambling, but specifically exempted “any fantasy or simulation sports game.’’

“The Justice Department is trying to determine whether daily fantasy games are a form of gambling that falls outside the purview of the exemption,’’ the Journal report reads.

Daily games have faced the question for years, in part because the outcomes are based on one slate of real-life sporting games, allowing for a higher degree of variance than the full-season games that exclusively defined fantasy sports when the law was passed. The 2006 law requires that for fantasy games to pass muster, “[a]ll winning outcomes reflect the relative knowledge and skill of the participants.’’ Daily fantasy sports companies have often responded to the concern by saying theirs are games of skill, rather than chance.

That’s by design, as the industry has gone to lengths to shield itself from the gambling label—down to suggested talking points for its members. The Fantasy Sports Trade Association’s charter includes a section titled “Use of Gambling Terms and PR.’’ It says member companies “will not market their games as fantasy sports gambling or fantasy betting. Gambling terms include (but are not limited to): gamble, gambling, betting, bet, wager, rake, rakeback, parlay, juice, vigorish, vig, line, pot, and spread.’’ And it requires the companies to “maintain a clear divide between fantasy sports and sports betting’’ when speaking to journalists.

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A New York Times report also published Wednesday night said federal investigators focused primarily on Boston-based DraftKings, citing players who said they were contacted by the FBI. The Times report suggested that, aside from the gambling question, the probe could also focus on issues regarding the use of insider information, which were at the center of the controversy last week.

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