DraftKings and FanDuel say they don’t count as online gambling sites because skill is involved when you play daily fantasy sports. Nevada regulators aren’t buying it.
The Nevada Gaming Control Board, after conducting an analysis of daily fantasy sports with the state’s attorney general, has ruled that playing on DraftKings and FanDuel is the same as gambling. And because you need a license to be a gambling operator in Nevada (which DraftKings and FanDuel don’t have), the services are illegal there.
It has been a rough couple of weeks for the two companies. On Oct. 5, a big New York Times story revealed an insider trading-type scandal in which DraftKings and FanDuel employees with access to proprietary information were making serious money from playing daily fantasy games. The next day, the New York attorney general’s office said it was opening an inquiry into daily fantasy. Both companies denied any wrongdoing, and FanDuel hired former Bush administration attorney general Michael Mukasey to conduct an internal review. The FBI is also investigating daily fantasy, although the agency is reportedly focusing on DraftKings.
Banning daily fantasy games in Nevada is interesting for a number of reasons. Companies like DraftKings and FanDuel have been allowed to operate in most states because they’re viewed as games of skill, not chance, which is the legal distinction between fantasy and traditional sports gambling. But sports gambling is legal in Nevada, which means authorities must be concerned that the industry isn’t regulated, which is raising some flags.
What’s also interesting is that both DraftKings and FanDuel host some of their biggest daily fantasy events in Las Vegas. It’s unclear how those events might be impacted in the future, but it’s likely that they’ll need to find a new destination.
Both companies raised massive amounts of money this year. In mid-July, FanDuel raised $275 million at a valuation of over $1 billion. Two weeks later, DraftKings announced that it hauled in $300 million at a $1.2 billion valuation, along with agreements to spend a lot of its ad money with Fox Sports and ESPN. And about that ad money: Analyst Anthony DiClemente says FanDuel and DraftKings combined to spend $150 million on Web and TV advertising between June and September, helping to offset declining media industry revenues.
A few hours after publication, DraftKings emailed Re/code the following statement:
“We understand that the gaming industry is important to Nevada and, for that reason, they are taking this exclusionary approach against the increasingly popular fantasy sports industry. We strongly disagree with this decision and will work diligently to ensure Nevadans have the right to participate in what we strongly believe is legal entertainment that millions of Americans enjoy. Unfortunately, we now have to temporarily disable our product for our thousands of customers in Nevada in order to be compliant in all jurisdictions.”
FanDuel initially declined to comment for this story, and later sent us this statement:
“On behalf of our users in Nevada, FanDuel is terribly disappointed that the Nevada Gaming Control Board has decided that only incumbent Nevada casinos may offer fantasy sports. This decision stymies innovation and ignores the fact that fantasy sports is a skill-based entertainment product loved and played by millions of sports fans. This decision deprives these fans of a product that has been embraced broadly by the sports community including professional sports teams, leagues and media partners. We are examining all options and will exhaust all efforts to bring the fun, challenge and excitement of fantasy sports back to our Nevada fans. In the interim, because we are committed to ensuring we are compliant in all jurisdictions, regrettably, we are forced to cease operations in Nevada.”
Here’s the full announcement from the Nevada Gaming Control Board.
This article originally appeared on Recode.net.