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Gambling Regulators Block Daily Fantasy Sites in Nevada

Andrew Harrer | Bloomberg | Getty Images

Nevada regulators on Thursday ruled that playing daily fantasy sports should be considered gambling, not a game of skill, and ordered websites like DraftKings and FanDuel to stop operating immediately in that state until the companies and their employees receive state gaming licenses.

The decision by the Nevada Gaming Commission was the latest blow to a booming yet unregulated industry that has faced intense scrutiny in recent days, including federal and state inquiries into the business practices of the two major companies.

Daily fantasy sports outfits have operated under an exemption to the Unlawful Internet Gambling Enforcement Act of 2006, which outlawed online poker and sports betting. Five states have prohibited them from operating, but none is as powerful and influential as Nevada, which has long been the bastion of legal gambling and operates under some of the nation's strictest regulation. Nevada also seemingly has most to lose; its casinos have lacked the ability to stretch across state lines on the Internet, as daily fantasy sites have.

The Nevada commission said operators of the state's sports books may offer daily fantasy games if they wanted, but warned about its associations.

"Although Nevada gaming licensees who have received approval to operate a sports pool may expose DFS for play themselves in Nevada (in compliance with all applicable statutes and regulations), such licensees should exercise discretion in participating in business associations with DFS operators that have not obtained Nevada gaming approvals" the group said in a statement.

"While this Industry Notice is intended to provide clear guidance as to Nevada law, Nevada licensees wishing to conduct business with DFS companies should also conduct thorough and objective reviews of DFS activities under the laws of other states and any applicable federal laws."

Agents for the Federal Bureau of Investigation have made inquiries into the practices of daily fantasy sports websites after players of the games and lawmakers made allegations of predatory tactics and questioned the use of insider information, according to fantasy players who said they had been contacted by investigators.

The F.B.I. began contacting several prominent competitors in the contests, the players said, shortly after an employee of DraftKings, one of the two most prominent daily fantasy companies, admitted to inadvertently releasing data before lineups for the start of the third week of N.F.L. games were locked in. The employee, a midlevel content manager, then won $350,000 at a rival site, although DraftKings said he did not have an advantage.

The players said that they were interviewed by agents from the bureau's Boston office, who seemed to focus primarily on DraftKings, a Boston-based company. They also said that agents were examining whether the site encouraged and accepted deposits and bets from states where the contests were prohibited.

It was unclear how far the investigation had proceeded. The F.B.I. declined to comment.

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The daily fantasy sites, worth billions of dollars on paper because of a surge of investors, have exploded in popularity and this season have blanketed football game broadcasts with ubiquitous advertisements to lure more participants. Players pay an entry fee, build virtual rosters of players from actual teams and win prizes, from $22 to $2 million, based on the performance of the chosen players in real games. Major League Baseball and the National Basketball Association, along with networks such as NBC, Comcast and Fox and the team owners Robert K. Kraft of the New England Patriots and Jerry Jones of the Dallas Cowboys, are among the investors in the sites.

Last week, the New York attorney general opened an inquiry into the prospect that employees of DraftKings and FanDuel won lucrative payouts based on information not available to the public. In addition, three class-action lawsuits have been filed alleging fraud — the most recent in Louisiana, where the operation of daily fantasy sports sites is prohibited. The plaintiff, Artem Genchanok, a New Orleans resident, said he had paid entry into DraftKings and FanDuel contests and deposited money on their websites despite the prohibition.

Lawmakers have been intensifying calls for federal regulation and inquiries into the industry.

In Washington, Representative Hakeem Jeffries, Democrat of New York and a member of the House Judiciary Committee, this week called on the panel to examine "whether permitting a multibillion-dollar industry to police itself serves the best interests of the American people."

Read MoreFrom fantasy to nightmare? Fan sports sparks regulationconcerns

Senator Robert Menendez and Representative Frank Pallone Jr., Democrats of New Jersey, held a news conference Tuesday outside MetLife Stadium, the home of the Giants and the Jets, to reiterate their calls on the Federal Trade Commission to implement safeguards and ensure a fair playing field.

And Senator Richard Blumenthal, Democrat of Connecticut, on Monday formally called for a federal investigation into any deceptive or fraudulent practices at daily fantasy sports leagues.

Disclosure: Comcast and NBC are investors in FanDuel.