We are only 3 weeks into the 2015-2016 NFL season, but there are already strong signs that Congress is turning its regulatory eye toward Fantasy Football. New Jersey Congressman Frank Pallone Jr. made headlines recently when he called for a congressional hearing to consider passing laws regulating Fantasy Football. Many dismissed the Representative’s request as misguided, suggesting that Congress should focus on more important things . . . like the economy or ISIS. This isn’t the first time Congress has been criticized for unnecessary meddling in professional sports (think Arlen Specter’s suggestion that Congress investigate the New England Patriots for cheating in the Super Bowl). But whether you agree with Congressman Pallone or not, he has a good point. The Fantasy Football industry has transformed from small groups of friends getting together for some friendly, low-stakes fun (i.e. old school “fantasy football leagues” with low buy-ins), into a multibillion dollar nationwide industry that boasts of million dollar pay-outs. With this sort of money on the table (and potential opportunities for fraud and corruption), it is not a question of if Congress closes the regulatory loop on Fantasy Football, but when and how?
Gambling is a highly regulated industry. This dates back to the early days of commercial gambling, when organized crime groups (i.e. mobsters) were running casinos. Historically, gambling has tended to attract crime and corruption. In fact, for decades in the 1970s and 1980s, federal prosecutors focused their attention on identifying and dismantling organized crime syndicates operating in the casino/gambling industry. Incidentally a lot of great movies were based on these prosecutions. From the government’s perspective though, strict laws regulating gambling are necessary to keep organized crime out.
Nevada is the only state in the United States where betting on sports is legal. But as internet use became more widespread in the 1990s and 2000s, gamblers across the country began placing bets online, effectively sidestepping the law prohibiting it. Partly in response to this problem, Congress passed the Internet Gambling Enforcement Act of 2006. The Internet Gambling Enforcement Act put in place stricter laws regulating online gambling. But it also contained one small, but crucial provision that allowed Fantasy Football to explode into the national, multibillion dollar market it is today.
The Internet Gambling Enforcement Act carved out an important exception for Fantasy Football. Congress decided that Fantasy Football was not gambling and therefore not subject to the law, allegedly because it considered Fantasy Football a game of skill, not of chance. The distinction between skill and chance is a dubious one, as any honest Fantasy Football player who has lost their first round pick to injury (or drafted LaDainian Tomlinson or Shaun Alexander after their respective record breaking seasons) will concede. Seemingly small, the carve out given to Fantasy Football effectively allowed these leagues to operate with impunity, free from the strictures of otherwise applicable gambling laws. It also sowed the seed for the explosive growth of large scale, for-profit, commercial Fantasy Football businesses.
Today, Fantasy Football is a huge industry dominated by a few large players. As Congressman Pallone noticed, larger organizations such as Fan Duel and Draft Kings are advertising their business heavily and promising pay-outs of up to one million dollars. Although Fan Duel and Draft Kings may attract more participants and increase their short-term revenues with such advertisements, they are also drawing unwanted attention and priming the pump for new laws and regulations.
When The Internet Gambling Enforcement Act was passed in 2006, Fantasy Football wasn’t a big industry. It wasn’t really an industry at all. It was a social pass-time that groups of friends engaged in for friendly competition and bragging rights. Sure, there was usually a monetary prize that went to the winner, but it normally wasn’t enough to cover dinner at a fancy restaurant.
Today, participants in for-profit Fantasy Football leagues are receiving pay-outs of up to a million dollars. That’s serious money for both the player and for Uncle Sam. There is no way Congress could have foreseen Fantasy Football becoming such large commercial enterprise when it passed the Internet Gambling Enforcement Act in 2006. But now that it has become such a big business, Fantasy Football is starting to get the government’s attention.
It is probably a fair guess that the large Fantasy Football businesses have lawyers and lobbyist on staff to try to keep Congress at bay. That is their right and a smart business move. And it may work in the short term. But the more these companies advertise their services and the huge payouts to winners, the more tenuous their regulatory loophole will become. And make no mistake, it is tenuous. It will take just one scandal, one headline, one accounting irregularity for the regulatory hammer to come down. One whiff of corruption, one suggestion that organized crime is operating in the industry and Congress will surely act swiftly with heavy handed regulations. This isn’t a criticism of the Fantasy Football industry, it is just a reality.
With an industry this big and growing, it really isn’t “if” but “when” Congress gets involved.