Message from Nevada to Daily Fantasy Sports — B*tch Better Have My Money

Just yesterday I posted about what it is like operating a startup in the currently unregulated industry of daily fantasy sports[1], and in that post I said that we had “ ..the fear that it could all be shut off faster than a light switch — and that was the feeling we had last week.” Turns out it was too soon to let go of that fear.

And just like that, the lights on daily fantasy sports went out in the state of Nevada.

Yesterday, the Nevada Gaming Control Board ruled that daily fantasy sports is gambling and that all daily fantasy sports websites must cease operating within the state. Basically, the ruling is a legal version of the song “Bitch Better Have My Money” directed at the daily fantasy sports industry from the Nevada casino industry. While people in Iowa, Wisconsin, Arizona, Louisiana and Montana already can’t play daily fantasy sports due to state law, the Nevada ruling is getting a lot of headlines and causing a reasonable level of concern on both the industry and state side because Nevada is the epicenter of gambling in the United States.[2]

With the ruling, Nevada is requiring daily fantasy sports companies to acquire a gaming license — the issue there is that daily fantasy sports doesn’t consider itself gambling — as laid out in the Unlawful Internet Gaming Enforcement Act — it is considered a game of skill. So if the companies want to keep operating in Nevada, they have to agree daily fantasy sports is gambling, but if they do that, they become illegal in the rest of the U.S. and contradict the carve out that makes them legal.

So daily fantasy sports is in a catch 22, damned if they don’t, really damned if they do. And this ruling has put more pressure on other states to act — because the only thing Nevada can identify better than gambling is strippers — and states don’t want to be caught with their proverbial pants down.

In the mean time, the federal government has the FBI and Justice Department looking into whether daily fantasy sports is legal under the carve out — the issue here is that the federal government works at a glacial pace, so it could be 6 months to a year before they rule on the matter. In addition to the executive looking at the legality, the hill has now turned more attention to daily fantasy with Senator Robert Menendez (D-NJ) and Rep. Frank Pallone (D-NJ) wanting a hearing. This is no surprise, given that Rep. Pallone has wanted to get daily fantasy sports in front of the House Energy and Commerce Committee for a while now.

The question now is, how does the daily fantasy sports industry stop the lights going out in the remaining states? The answer is something that is obvious and what DraftKings and FanDuel should have focused before they decided to spend over $100 million on advertising since the beginning of August — lobby the hell out of state governments.

State governments are the key to keeping this going.

In one of my previous positions, I was appointed by Governor Bill Richardson (D-NM) as the legislative liaison for the New Mexico Human Services Department — I was basically a lobbyist for the New Mexico Human Services Department on behalf of the governor. In my three years there, I worked the NM state legislature on all human services related issues, including working to successfully pass a piece of health reform legislation before the Affordable Care Act had passed in 2010.

Based on my experience, I can tell you state representatives and senators are impressionable if given the right information and motivation. Right now the information they have is the information that is in the news; the information of cheating allegations, data breaches, and Nevada ruling daily fantasy sports is gambling. Given that information, daily fantasy sports is in political hell.

What needs to happen is easy, and DraftKings and FanDuel should understand this better than anyone, information + money = best chances for success. This is how I play daily fantasy sports, and this is how they need to frame their legislative framework.[3]

One of the fundamental rules of startups is to gain traction and do it as fast as possible, so I understand where DraftKings and FanDuel are coming from, but instead of pumping hundreds of millions of dollars into advertising — which has worked, last week daily fantasy sports saw it’s best week ever — they should actually save themselves some money on ads[4] and put it towards their government relations.

And that’s the thing; government isn’t an issue until it is one. What makes this ridiculous is that this type of situation was inevitable given the lack of action by DraftKings and FanDuel who operate an already murky legal space. The inaction has put the industry in a vulnerable position, and the only thing in politics that is more influential than power — which FanDuel and DraftKings are lacking right now — is money, which is something they have a lot of and is something they should use.

In addition to money, DraftKings and FanDuel should leverage the power and relationships of their investors. If an NBA team like the Bucks can convince the Wisconsin state government to approve $250 million in public funding for a new arena, I think the NBA can use that type of influence to help out FanDuel or the Kraft Group can influence the Massachusetts State Assembly to help out DraftKings.

And I say this, the tipping point on banning daily fantasy sports hasn’t happened yet, but to stave off that point, DraftKings and FanDuel need to ramp up their government relations at the state level ASAP and agree to reasonable regulations — including some type of tax because that’s what the state ultimately wants — just ask Nevada.

And the Feds? Don’t worry about them. If they see the states taking action, it will buy them time to then look at the issue and talk about it in hindsight and might even lead to fast tracking legalized sports betting nationwide — something that many people would like to see.

So lets hope the lights don’t go completely out, and DraftKings and FanDuel figure out what the tech, guns, alcohol, health care, agriculture and every other large market industry has figured out — government relations matter.

[1] I’m a cofounder of huddlehive, a daily fantasy sports information management platform. Check it out here: http://huddlehive.io

[2] Sorry Mississippi riverboats.

[3] And I get it, money in politics — the thing that makes the system broken. But until we have campaign finance reform where every candidate takes public financing, this is the system we operate in.

[4] People are very sick of them and they have actually contributed to the negative feelings towards daily fantasy sports, and people will continue to play because they like to, not because of annoying infomercials and commercials.

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Originally published at entrepeneurialjourney.wordpress.com on October 17, 2015.