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Nevada, the one state open to legalized sports betting, is shutting down fantasy sports sites that insist they're anything but. State regulators have determined that daily fantasy sports operations constitute gambling and therefore must obtain official licensing to continue operations.
Without a license, fantasy sites like DraftKings and FanDuel will no longer be able to operate in the state.
Gaming the System
After a months-long legal investigation, the Nevada Gaming Control Board determined that daily fantasy sports constitute gambling. The Board's ruling says that daily fantasy sports involves "wagering on the collective performance of individuals participating in sporting events," and therefore daily fantasy sites are required to obtain licensing from the Nevada Gaming Commission. The Board further said "all unlicensed activities must cease and desist" operations within the state.
The ruling isn't entirely altruistic. Daily fantasy sites, which by and large can operate nationwide, are in direct competition with Nevada and Las Vegas for sports gambling dollars. The Gaming Commission will also presumably reap some regulatory reward from the fantasy sites that acquiesce to licensing.
FanDuel won't be one of those regulated sites. The daily fantasy provider already decided (along with eight other sites) to pull out of Nevada, saying it is "terribly disappointed that the Nevada Gaming Control Board has decided that only incumbent Nevada casinos may offer fantasy sports."
The Odds of Legality
Eleven other states have banned one of the major daily fantasy players in some form, and the FBI and DOJ have opened investigations into the legality of daily fantasy sites. The sites have been operating under an exception in the Unlawful Internet Gambling Enforcement Act (UIGEA) that allows wagering in online contests that have:
"an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance), and, in the case of a fantasy or simulation sports game, has an outcome that is determined predominantly by accumulated statistical results of sporting events."
Whether that loophole will survive the current federal investigations, or whether more states will join Nevada remains to be seen. One major complaint with daily fantasy sites (and one target of the investigations) is the lack of transparency and "insider trading" in which the employees of the sites engage. The irony is that by legalizing gambling and daily fantasy sites, the government could more thoroughly regulate the industry.