DraftKings, FanDuel lobby Congress amid legal challenges

As the daily fantasy sports industry fights to keep operating in the United States, it's also funneling cash toward lawmakers.

The fantasy sports website DraftKings
Scott Olson | Getty Images

Daily fantasy operator DraftKings reported $80,000 in lobbying spending for the fourth quarter, up from $10,000 in the third quarter, according to a congressional disclosure released Wednesday. Competitor FanDuel, meanwhile, posted $20,000 in lobbying expenses, unchanged from the previous quarter.

Neither young company reported lobbying activity before the third quarter. But their rapid growth, and increasing questions about the legality of their paid fantasy sports contests, has prompted them to make more attempts to influence government policies.

The lobbying efforts will probably be directed to those states where the threshold for gambling is the lowest.
Daniel Wallach
attorney, Becker & Poliakoff

New York-based FanDuel and Boston-based DraftKings burst into the national consciousness last year with a barrage of advertising, plastering their names on television sets and sports venues across the country. Both companies have raised more than $350 million, backed by venture capital firms and media giants, according to CrunchBase. (Comcast and NBC are investors in FanDuel.)

Attorneys general in New York, Illinois and most recently Texas have argued that paid daily fantasy contests are illegal gambling under state law. Disclosures show the industry lobbied last year not only in those states but also others that could become legal battlegrounds.

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DraftKings, a fantasy sports website
Illinois: Daily fantasy sports is illegal gambling

In the largely unregulated industry, players pay fees to enter short-term contests where they choose real athletes and can win money based on their performance. While daily fantasy companies don't face restrictions on the federal level, they have been scrutinized at the state level.

A FanDuel spokeswoman said the company was "working with lawmakers across the country" to craft regulations that would "protect consumers." A DraftKings spokesman added that it has "actively engaged" with lawmakers to ensure fans can "play the games they love."

The argument over daily fantasy's legality hinges upon whether it's considered a game of skill or a game of chance. Generally speaking, games that involve chance are usually considered gambling. But states hold different standards for how much chance is needed for a game to be illegal gambling.

While the industry started lobbying the federal government this year, it can exert more policy influence at the state level, said Marc Edelman, an associate professor of law at Baruch College, who consults in fantasy sports law. If federal lawmakers explicitly decriminalized daily fantasy, state governments could still impose stricter rules, he said.

TX AG: Fantasy sports constitute illegal gambling
TX AG: Fantasy sports constitute illegal gambling

FanDuel, DraftKings and the Fantasy Sports Trade Association were active last year in New York, where they are currently appealing an injunction sought by Attorney General Eric Schneiderman. They lobbied on multiple state bills, including one that that would give New York's gaming commission jurisdiction over daily fantasy and another that would legalize "fantasy sports betting on professional sports."

The Fantasy Sports Trade Association lobbied in Texas last year, while FanDuel and DraftKings reported activity in Illinois. But they have also ramped up their policy efforts in states that have not called daily fantasy gambling but could eventually do so.

Both companies spent heavily in Florida, each reporting $10,000 to $30,000 in spending in the third quarter. (Organizations can report spending ranges rather than specific figures.)

A court or attorney general would "more likely than not" find daily fantasy to be gambling in the state, said Daniel Wallach, a sports and gaming attorney at Becker & Poliakoff.

"The lobbying efforts will probably be directed to those states where the threshold for gambling is the lowest," he said.

Wallach and Edelman highlighted other states in which the companies could be legally vulnerable, including Tennessee, Arkansas, New Jersey and Missouri. CNBC was not immediately able to locate any lobbying reports from DraftKings or FanDuel filed in those states last year.

Ultimately, the industry may prefer more regulation that gives them a clear license to operate, Edelman said. He noted that FanDuel and DraftKings could want rules that require a hefty licensing fee to operate, thereby ruling out smaller competitors who could not afford the barrier to entry.