Legislature Could Spell Disaster for Smaller DFS Companies

After much deliberation, the state of Virginia made history by legalising daily fantasy sports; Virginia is the first state to finally take this step by signing the Fantasy Contests Act. While passage of this bill has gained much positive attention it might spell trouble for smaller DFS operators.

Despite the nation leaning towards labelling fantasy sports as gambling and most legislatures are looking to ban DFS in their state, Virginia surprised everyone with their decision. This change in legislature is certainly a victory for fantasy sports giants DraftKings and FanDuel; they have both stated that the decision is both “thoughtful and appropriate”.

The new Act obligates DFS operators to ensure that age restrictions are imposed on participants, all players much be at least 18 years or older, they also have to make sure that their employees are not allowed to take part in these contests. The businesses can also only operate after they pay an annual registration fee of $50,000 to the state.

Killing the startups

While this is good news for the larger operators, the hefty registration fee may prove detrimental to smaller start-ups trying to break into the market; smaller businesses could provide innovative angles on DFS and offer customers variety in the field.

Many states are in the process of deciding legalisation of fantasy sports in their states and all of them are looking to impose similar terms such as those in Virginia. This could be good news for DraftKings and FanDuel, who might be the only corporations that can afford the high fees but if more states follow in the footsteps of Virginia, smaller companies will find themselves out of business before they even get a chance to start.

Unfair regulation

The Fantasy Contests Act does not differentiate between daily fantasy sports and season-long contests that offer financial winnings. The registration fees may become applicable to these season-long gaming contests and become prohibitive for smaller businesses of this nature; ending the long standing tradition of competing against friends via websites that offers its own prizes.

Representatives from DraftKings and FanDuel were pleased; they sent their congratulations to Governor Terry McAuliffe and the state of Virginia for their “leadership” and encouraged other states to follow suit and legalise DFS contests in their jurisdictions. If more states do establish similar laws, DraftKings and FanDuel will only further strengthen their position in the fantasy sports world, pushing out all smaller operators.

Passage of the bill does address much of the ambiguity that DFS companies have been facing; it rectifies certain issues and offers consumer protection for the players in Virginia but if other states wish to legalise fantasy contests and wish for them to thrive in their states, they need to revise the rules and associated fees and make them more affordable for the smaller ventures.

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