Nevada Says DraftKings & FanDuel Are Unlicensed Gambling, Bars Them From Operating In State

draftkingsThe same day that news broke of an ongoing FBI investigation into the legality of online daily fantasy sports sites like DraftKings and FanDuel, Nevada gaming regulators declared that these sites are unlicensed gambling businesses and barred them from operating in the state.

In a notice [PDF] released Thursday afternoon by the Nevada Gaming Control Board, the regulator revealed that it has been probing the legality of daily fantasy sports [DFS] sites for “several months” and concluded that the sites’ pay-to-play tournaments constitute gambling under state law, which requires sports betting pool operators to obtain a license from the state’s Gaming Commission.

“Therefore, since offering DFS in Nevada is illegal without the appropriate license, all unlicensed activities must cease” until either the state changes its laws or the DFS sites obtain licenses, according to the notice.

There appears to be one way for these sites to continue operating in Nevada. The notice allows for existing sports book licensees to offer DFS gambling to their customers. But the Control Board cautions they should “exercise discretion in participating in business associations with DFS operators that have not obtained gaming approvals.”

Sports books who want to partner with DFS sites are being advised they “should also conduct thorough and objective reviews” of their new partners’ business activities “under the laws of other states and any applicable federal laws.”

In 2006, the U.S. Congress passed a law intended to curb online gambling by barring financial institutions from transferring money to these sites. However, that statute included an exemption for fantasy sports because it was deemed a game of skill.

Critics of DFS say it’s as much of a game of skill — and just as dependent on factors outside of the contestant’s control — as traditional sports gambling.

While Nevada officials have made up their mind regarding the legality of DFS, federal and state-level investigations in New York and Massachusetts have not yet reached any conclusion.

In addition to the general legality of DFS, the growing industry — which recently received hundreds of millions of dollars in investments and partnerships — has come under scrutiny for allowing its employees to continue betting on DFS competitions through competing sites.

Employees at both DraftKings and FanDuel have made hundreds of thousands of dollars in the last year playing in each other’s tournaments, raising questions about whether or not these staffers were using sensitive and private data to improve their own odds of winning.

Both sites have denied any wrongdoing by their staffers and have recently moved to bar their employees from entering DFS contests, even though this may make it difficult for them to hang on to these workers.

“We have some people who make significantly more money off of our competitors’ sites than they do working for DraftKings,” explained a DraftKings co-founder in June.