Fantasy sports face big test before Congress

The daily fantasy sports industry is under fire from regulators across the country and now faces another crucial test before Congress.

Lawmakers on Capitol Hill will hold their first hearing in May to look into the growing but controversial industry.

{mosads}A spokesperson for the House Energy and Commerce Subcommittee on Commerce, Manufacturing and Trade said the hearing would focus on the legal status of the daily fantasy games, as well as other types of online and sports betting.

Lawmakers will also weigh the need for consumer protections and the role, if any, for federal regulation.

It could be a critical moment for daily fantasy sports websites, which are already the focus of intense scrutiny from state-level policymakers.

Unlike traditional season-long fantasy sports, daily fantasy games, let you draft virtual “teams” of real-life players on a daily or weekly basis. The games are offered by major websites like FanDuel and DraftKings as well as smaller operators.

Supporters call them games of skill, but critics say they are simply illegal sports gambling and want tougher regulation.

Congress is weighing in primarily due to the efforts of Rep. Frank Pallone (D-N.J.), the ranking member of the full Energy and Commerce committee.

“I’m pleased that we are moving forward with a hearing in May to take a closer look at daily fantasy sports. With millions of Americans playing daily fantasy sports, we need to examine the current landscape to guarantee a level playing field,” Pallone told The Hill Friday in a statement.

Pallone wanted to learn more about the links between daily fantasy websites and professional sports leagues, first requesting a hearing last fall.

He was particularly rankled after leagues sued to block Las Vegas-style sports betting in his home state of New Jersey while supporting daily fantasy games.

“So, this is gambling, outright, and yet [the leagues] continue to spend millions of dollars, in a hypocritical sense, to try and stop sports betting through their lawsuits because they claim it’s immoral or it’s going to get the players … involved in organized crime,” Pallone said in a September interview with The Hill.

House Energy and Commerce Chairman Fred Upton (R-Mich.) said a day after Pallone’s remarks in September that the committee would likely look at the issue.

The long wait ended on Thursday when the committee announced its plans for the hearing.

Since last fall, the debate over the daily fantasy industry has been raging at the state level. The industry has taken a beating in several states around the country — and scored victories in others.

Officials in ten states have said daily fantasy sports constitute gambling, according to data from Legal Sports Report, a website that tracks sports betting news.

That includes Nevada, an important state on gambling issues, where the gaming control board said it was not legal to offer daily fantasy games without a license.

Just this month, Alabama and Tennessee both said the games were illegal. In the latter case, the state’s ruling applied to all fantasy sports — including the season-long games.

The most high-profile case though has been in New York. State Attorney General Eric Schneiderman asked for an injunction against DraftKings and FanDuel last year, alleging that the companies were violating the state’s gambling laws. The websites fought back, hiring prominent law firms to mount a defense.

In March, the companies gave Schneiderman a victory. They agreed to shut down their games in New York state in exchange for a settlement that says that they won’t face penalties if found to have been operating in violation of the law.

Instead, they’re hoping that in New York — and elsewhere — they might be the beneficiaries of legislation legalizing their games, even if they are subject to regulation or brought under existing gambling laws.

Three states, Indiana, Kansas and Virginia, have legalized the games in some form. And in twenty states legislation to legalize is still active, while in 9 states those efforts have failed, according to Legal Sports Report.

In Indiana, where the games were legalized and regulated in March, DraftKings said that the state had “put in place a thoughtful and appropriate regulatory framework to protect the rights of fantasy players” and said it hoped other states would follow its lead.

The companies have been more cautious amid the heightened scrutiny. They announced last month, just as March Madness grabbed the nation’s attention, that they would suspend games related to college sports at the behest of the National Collegiate Athletics Association.

All of that could be fair game under the congressional microscope next month.

It’s unclear whom lawmakers will call to testify.

Upton has promised a “comprehensive” witness list, but added he was not sure who would be present.

Both sides in the debate, though, will be watching closely as Congress steps up.