With March Madness among us, it is fitting that Governor Terry McAuliffe signed legislation earlier this week imposing new regulations on the multibillion-dollar fantasy sports industry.
The bill prohibits employees of daily fantasy sports companies from participating in contests on rival sites as well as the sharing of propriety contest information before the information goes public. Participants are now required to be at least 18 years of age, and fantasy sports companies must comply with financial requirements, including biannual independent audits and segregation of operation and award funds.
The new regulations, gathered into a package called Fantasy Contest Act, was largely a response to an insider trading scandal involving FanDuel and DraftKings, the two biggest fantasy sports companies in the industry. Another criticism of the package is that, even though it is aimed at addressing the problems that led to that scandal, it isn’t clear how effective it will be in achieving that goal.
The Virginia law also requires season-longer operators to pay licensing fees that ordinarily only bind daily fantasy sports operators in other jurisdictions. The licensing requirement has been a cause of concern with the package, since it will add significant costs for season-long operators and decrease competition. Different states have different approaches to the licensing issue, with some opting to charge fees for licensing in order to increase revenue. The potential drawback is that companies may choose to avoid those costs by not entering those markets, particularly if the state is not a major market anyway, which Virginia apparently isn’t.
In our next post, we’ll continue looking at fantasy sports licensing issues.