The explosion in popularity of daily fantasy sports (“DFS”) has recently led to this industry being heavily scrutinised, especially in the US where legal action has been taken against major operators. Behind these popular websites are complex legal frameworks and competing interests. The question now is how will legislatures on both sides of the Atlantic address the growing consumer protection concerns without unduly constraining a business that is clearly addressing a significant market demand?
What is DFS?
DFS can take a variety of forms but essentially involves participants selecting a roster of real players who are assigned a score based on their individual real-life performances in any given period. Participants can then enter leagues and compete against each other either for free or a prize pool.
Fantasy sports leagues traditionally compete over the course of a season and are informal arrangements between friends or colleagues. The problem with this traditional approach is that many participants lose interest due to the long duration of a season (e.g. the Premier League) or the high number of games (e.g. baseball). DFS leagues address this problem by offering shorter competition periods – usually daily or weekly competitions.
The DFS industry has experienced massive growth mainly in the US due to the statistical emphasis of the major sports played there, including American football, baseball and basketball. Companies such as DraftKings and FanDuel have become market leaders in providing the services needed to conduct these leagues. However, they have recently found themselves at the centre of legal controversy.
Legal challenges facing DFS
Ireland and the US have different legal approaches to sports betting. In Ireland the activity is regulated whereas in the US it is effectively prohibited by the Professional and Amateur Sports Protection Act 1992 (“PASPA”). In November 2015 this prohibition became widely debated when the Attorney General of New York, Eric Schneiderman, took legal action against DraftKings and FanDuel.
The Attorney General is arguing that DFS constitute illegal gambling and are therefore prohibited under New York law and PASPA. The DFS providers, on the other hand, claim that an exemption for fantasy sports exists under the Unlawful Internet Gambling Enforcement Act 2006 (“UIGEA”). The legal complexity of these arguments is not alleviated by the competing systems of State versus Federal law that exist in the US.
The New York Supreme Court granted an injunction restraining DFS in New York but a stay was granted by the Appellate Division of the New York Supreme Court until the hearing of the appeal later this year.
On 21 March 2016 DraftKings and FanDuel signed settlement agreements under which they will cease paid-contest operations in New York while they lobby the New York State legislators for legislative clarification in their favour. However, this would not mark the end of their legal wrangles as further concerns persist relating to the protection of consumers from potentially misleading advertising and allegations of insider trading by employees of large DFS operators.
Opportunities in Ireland for DFS
In contrast to the strict prohibition in the US, Ireland has a regulatory regime that facilitates the type of services offered by DFS providers. The recently enacted Betting (Amendment) Act 2015 modernises certain aspects of Irish law regulating the industry.
A clear regulatory regime, strong consumer protection laws and a relatively untapped marketplace mean that Ireland presents plenty of opportunity for the development of DFS on this side of the Atlantic, both in the Irish market itself and as a spring-board into Europe. Bearing in mind the New York experience, it will be interesting to see how legislatures, businesses and consumers in Ireland engage with this emerging sector.
Contributed by Stephen Tallon