Alabama fantasy sports bill fails in Senate ahead of vote
The daily fantasy sports (DFS) industry apparently will not be getting the green-light to operate in Alabama any time soon. Despite unanimously passing the Senate Tourism and Marketing Committee earlier this month, SB325 —which would establish the Fantasy Contests Act and provide for the registration of certain fantasy sports operators conducting fantasy sports contests within the state — was decisively shut down on the floor during Tuesday’s session before even given a chance to take a vote on the matter. History of Fantasy Sports in Alabama In April 2016, former state Attorney General Luther Strange sent cease-and-desist letters to two Daily Fantasy Sports companies — DraftKings and FanDuel — after determining that paid daily fantasy sports contests constitute illegal gambling. In DFS, participants pay to create a roster of players, then pit their roster against those of other participants. Whomever’s roster performs the best that day within a certain pool wins prize money through the site. According to Alabama code section 13A-20-12, a person participates in gambling if he or she “stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he or someone else will receive something of value in the event of a certain outcome.” Gambling in Alabama is illegal, with a few exceptions including buying securities and commodities, insurance, and some grandfathered activities. DFS sites often contend they are games of skill, not of chance, and thus aren’t covered under most states’ gambling laws, nevertheless the companies complied with Strange’s request. Sanford contends 400,000 Alabamans played fantasy sports before it was banned from the Yellowhammer State. Previous legislative attempts to legalize fantasy sports For three years now state lawmakers have endeavored to legalize fantasy sports. Last year the House passed its version of a bill doing just that, but the Senate adjourned for the session without ever taking it up. Since the bill’s sponsor, Huntsville-Republican state Sen. Paul Sanford, is retiring it is unknown whether or not the legislation will be introduced again in the future.
Daily fantasy sports websites comply with Alabama Attorney General’s order to leave
Daily Fantasy Sports (DFS) websites DraftKings and FanDuel have reached an agreement with Alabama Attorney General Luther Strange to cease operations in the state after the AG’s office declared the relatively new practice to constitute illegal gambling last month. In DFS, participants pay to create a roster of players, then pit their roster against those of other participants. Whomever’s roster performs the best that day within a particular pool wins prize money through the site. “I am pleased to report that fantasy sports operators DraftKings and FanDuel have complied with my order that they halt paid contests within the State of Alabama,” said Strange. “As Attorney General, it is my duty to uphold Alabama law, including the laws against illegal gambling. The daily fantasy sports operations violate state law because a player stakes something of value on a contest of chance in order to win a prize. While there is a measure of skill involved in creating a fantasy sports roster, in the end, contestants have no control over the performance of the players on their rosters. This activity is illegal under Alabama law.” In addition to ceasing operations in the state, DraftKings and FanDuel must process user requests from Alabama-based IP addresses to withdraw their account balances within seven business days of receiving such requests, according to the AG’s office. According to Alabama Code Section 13A-20-12, a person participates in gambling if he or she “stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he or someone else will receive something of value in the event of a certain outcome.” Gambling in Alabama is illegal, with a few exceptions including buying securities and commodities, insurance, and some grandfathered activities. DFS sites often contend they are games of skill, not of chance, and thus aren’t covered under most states’ gambling laws, but Strange argues this is not sufficient to keep them legal in Alabama. Two bills which would have undone the AG’s actions are stalled indefinitely in their houses of origin in the Alabama Legislature. With only two days left in the 2016 Regular Session, it is now virtually impossible for either of them to be considered during this session.
Alabama Attorney General: Daily fantasy sports leagues are illegal gambling
Televisions, smartphones, and computers were flooded during the 2015-2016 football season with advertisements for a relatively new form of fantasy sports. Between FanDuel and DraftKings, sports fans across the country were inundated with commercials promising a fast-paced game with the potential for high payouts. But on Tuesday, Alabama Attorney General Luther Strange sent cease-and-desist letters to two Daily Fantasy Sports companies, after determining that paid daily fantasy sports contests constitute illegal gambling. In daily fantasy sports (DFS), participants pay to create a roster of players, then pit their roster against those of other participants. Whomever’s roster performs the best that day within a certain pool wins prize money through the site. “As Attorney General, it is my duty to uphold Alabama law, including the laws against illegal gambling,” said Strange in a news release Tuesday afternoon. “Daily fantasy sports operators claim that they operate legally under Alabama law. However, paid daily fantasy sports contests are in fact illegal gambling under Alabama law.” According to Alabama code section 13A-20-12, a person participates in gambling if he or she “stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he or someone else will receive something of value in the event of a certain outcome.” Gambling in Alabama is illegal, with a few exceptions including buying securities and commodities, insurance, and some grandfathered activities. DFS sites often contend they are games of skill, not of chance, and thus aren’t covered under most states’ gambling laws, but Strange contends this is not sufficient to keep them legal in Alabama. “There is, of course, a measure of skill involved in creating a fantasy roster,” wrote the AG’s office. “But in the end, contestants have no control over the performance of the players on their rosters. For example, a player could fall ill before a game, be injured in pre-game warm-ups, or miss a large portion of the game due to injury or equipment failure. All of these factors, and many more, are outside the control of a fantasy sports player. Thus, the results of paid daily fantasy sports contests depend to a large degree on chance.” Two bills currently stalled in committee, SB114 by Sen. Paul Sanford (R-Huntsville) and HB56 by Rep. Connie Rowe (R-Jasper) would each establish regulatory rules regarding fantasy sports games in the state. The bills would require contest operators to institute procedures for consumer protection, require audits of operators and provide penalties for those operating outside of the established regulations. Were they to be passed, the bills would undo Strange’s decision, making the industry immune from being considered a gambling operation in the state. AG Strange says Alabama is the twelfth state to declare DFS to be illegal.
Daniel Sutter: An economics lesson from daily fantasy sports
New York Attorney General Eric Schneiderman announced last week that daily fantasy sports (DFS) sites Fan Duel and Draft Kings will stop paid contests in the state, because DFS amounts to illegal sports betting. Accusations last fall of “insider trading” against the sites, which seem to have precipitated legal action, offer a lesson on the discovery function of economies. First some background. Fantasy sports players choose pro players for their team, with game stats counting for the fantasy team. People generally play in season-long leagues with friends; fantasy football originated in the 1960s and Rotisserie league baseball in the 1980s. DFS involves one day (or week in the NFL) games, which particularly appeals to fans not interested in managing a fantasy team for an entire season. Large DFS tournaments draw thousands of entries and offer prizes over $1 million. Whether DFS constitutes gambling depends on the details of state law and is not my concern here. Massachusetts’ Attorney General just last week decided DFS sites could continue to operate, subject to regulation. States laws clearly differ on this question. The insider trading allegations involved employees playing on other DFS websites, which could provide an unfair advantage. A contrarian lineup offers the best hope of winning a large prize in a contest with thousands of entrants. A team with the best, most popular players might be more likely to win, but lots of players will split the prize. Really big wins require teams of less frequently selected players who have great games. Employees could use selection patterns in tournaments on their site to craft contrarian teams to field on other sites. Such information offers an advantage, but not the guaranteed profit of true insider trading. Discovery in economies was first highlighted by economist Friedrich Hayek and refers to the knowledge we gain through the operation of the economy. Most of our economic knowledge emerged from economic action. We know now that the corporation is an efficient business organization and that oil has hundreds of economic uses. But we did not know these things before economic activity. Oil deposits became a valuable resource only when people learned how to drill for and refine oil. Competition in sports offers a parallel. We discover the best college football teams each year through the season’s contests. Unexpected Heisman Trophy candidates and national championship contending teams can emerge. These surprises personify discovery, and demonstrate that we must play the games to learn the best teams and players. Economic discovery means that we constantly learn new things and must always be ready to adjust our plans accordingly. Any business which gets too wedded to the old ways of doing things runs the risk of obsolescence. We cannot know what we will learn during the operation of the economy. Consider now the evaluation of the DFS insider trading charges. Draft Kings and Fan Duel already did not let their employees play on their own sites – they recognized the potential conflict of interest. But neither recognized the potential use of selection patterns by employees on other sites for unfair advantage. Both Fan Duel and Draft Kings banned their employees from playing for money on other DFS sites after the recognizing the problem, and for good reason. Customers will play less if they thought that DFS contests were unfair. In a world with discovery, this is part of the learning process. Someone who does not recognize the role of discovery is more likely to see nefarious activity. If DFS knew everything when they began operations, the choice to let their employees play on other sites looks calculated. Hindsight is usually 20/20, and if we ignore discovery, we might also believe that foresight is 20/20. Unfortunately too many policymakers and even economists ignore the role of discovery. This may not be an accident. For policymakers seeking to run the economy, discovery is a subversive concept. Would-be government planners want us to believe that they know how to solve all of our problems. Economic discovery explains why would-be planners cannot know everything needed to run society. • • • Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision.
