California Braces for Possible DFS Crackdown

The largest daily fantasy sports (DFS) market in the US could be in jeopardy as it joins other states that are debating the legality of these sites. California betting apps may soon take a hit as Attorney General Rob Bonta has been tasked with reviewing whether or not state gaming laws permit DRS contests offered by providers such as FanDuel, DraftKings and Ownersbox.

Of the approximately $200 million in annual entry fees collected by these providers, the state has collected nothing in the unregulated industry.

The investigation was requested by Republican State Senator Scott Wilk, who wrote a letter to the Attorney General’s office in October. 

DFS Legality in CA

A similar request was made in 2015 by Assemblyman Marc Levine (D) to Attorney General Kamala Harris, whose office failed to give an opinion on DFS in California. DFS providers in California have been operating in a legal gray area. Without regulation, these sites have thrived in California for years. State regulators have also identified de facto sports betting in recent offers made to state residents by Underdog, PrizePicks and other sites.

Officials in New York and Michigan have recently banned DFS “pick’em” games, requiring that providers obtain a sports betting license to continue operating there. No timeline has been set for when the California investigation will be completed. Recent opinions from the Attorney General have taken nine months to a year to complete the investigation process.    

DFS Crackdown in CA Explained

The investigation focuses on whether DFS are games of chance or skill. “Although the participant may utilize their knowledge of a particular sport in choosing their ‘team’ of players, how well those players perform during a game is completely out of the participant’s control. As such, daily fantasy sports appears to be a game of chance not otherwise permitted by the laws of California,” wrote Wilk in the letter.

California Penal Code Section 337(a) is explicit about “pool selling,” which is illegal because it offers players a parimutuel pool. It was included in the state’s gambling statute to distinguish it from bookmaking, which is taking action on the bet. Some lawmakers feel that DFS games fall directly under this statute. Other lawmakers are likely aware of the law, but they don’t seem very concerned right now. 

DFS providers have been working to persuade legislators throughout the country that their games are different from sports betting, as they believe it’s based on skill rather than luck. They have successfully argued this point in states with and without legal sports betting. If the Attorney General decides DFS games are illegal in California, residents will have even fewer options, which could push more bettors to illegal offshore sportsbooks.

The Future of Betting in California

California voters recently rejected two measures to legalize sports betting by a wide margin. Proposition 26 would have allowed retail sports betting at tribal casinos and four private horse racing tracks, while Proposition 27 would have permitted online sports betting. 

Gaming companies invested tens of millions of dollars into the Prop. 27 initiative. If they decide to push again for online sports betting, it’s unlikely that many former investors would be willing to do it again after the last measure was defeated by 83% of voters. Gaming companies aren’t likely to abandon California and could try again to legalize online sports betting. However, any push for the 2024 general election won’t start anytime soon.