DraftKings & FanDuel Are Exempt From Online Gambling Laws Because Pro Sports Wanted It That Way

Daily fantasy sports sites DraftKings and FanDuel are basically everywhere lately. Not only are the ads for both companies a constant during every sports broadcast of any kind, but also there’s constantly news about FBI investigations, states trying to shut them down, or even John Oliver roasts.

The sites exist due to a loophole in the 2006 law that prohibits online gambling. That law, the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006, was written and passed in order to knock out online poker and other forms of gambling in the United States.

The UIGEA specifically has a set of exemptions in it for “fantasy or simulation sports,” which is how FanDuel and DraftKings justify their existence. However, the original text of the bill, introduced to the House of Representatives almost exactly ten years ago by Iowa Rep. Jim Leach, did not contain that language. The text was changed along the way, in committee, to include the exemption at the core of so much trouble today.

But the law was passed in 2006, and those sites first launched in 2009 and 2012 respectively. That means they weren’t lobbying for that outcome, because they didn’t exist yet. So… who was? Where did it come from?

The answer is perhaps somewhat predictable: from entrenched sports leagues, who were starting to see that fantasy sports could be lucrative.

As the New York Times and Los Angeles Times reported back when the law passed in 2006, professional sports organizations — particularly the NFL and MLB — were working hard a decade ago to protect their interests in Washington.

The LA Times wrote at the time that almost 13 million people regularly played fantasy football, and a specialist told the paper that “it’s fairly clear from the correspondence related to the bill that an NFL lobbyist was, in fact, very active in the effort to get this bill passed.” The NFL at the time denied launching an explicit effort to get the exemption added, but a spokesman for the league did say that fantasy football had never been considered gambling, to that point, and signs indicated that the league preferred to keep it that way.

Major League Baseball also put their oar in, as the NYT reported. Baseball’s popularity was way down from its heyday, by the early years of this century, and it turned out that online fantasy baseball was a great way to keep interest in America’s pastime floating.

Rep. Leach, the bill’s author, told ThinkProgress earlier this year that when he wrote and introduced the UIGEA, he never foresaw or intended the enormous industry that has resulted.

Instead, the bill was packaged and promoted as part of an “American Values Agenda” that the Republican party was, at the time, trying to move through Congress — and also an attempt to recover face from an earlier attempt to pass a similar bill that ended in drama and scandal.

“My intent in initiating the law was to constrain a growing gambling ethos in America that could bring the casino to the home, the work station, college dorm, even the treadmill. My concern was that a savings and investing country could too easily become a country where too many would bet wantonly on unrealistic hopes of obtaining a big payoff,” Leach told ThinkProgress.

But Congress is a game of compromise; it takes more than one vote to pass a bill. “A number of Members indicated they couldn’t support it if it didn’t make a minor exception for fantasy sports,” Leach told ThinkProgress, saying that was why he agreed to add the exemption.

He added that the major sports leagues supported the bill because it would somehow protect the integrity of their games and avoid incentivizing players, referees, or other related persons from “attempting to make money by improperly influencing the outcome of games.”

“The assumption was that while unconstrained Internet gambling could change the nature of America’s savings and investment patterns, fantasy sports would be a ‘de minimus’ footnote. No one ever conceived of it becoming a large scale activity or that it could transition into one-day contests,” Leach concluded.

Clearly, it was an oversight a huge number of other people made, too.

Meanwhile, the fight continues. On Friday, DraftKings and FanDuel asked the state supreme court to make New York Attorney General Eric Schneiderman stop making them stop operating in the state. Today, DraftKings filed a motion asking for a restraining order against the AG’s office, to prevent the cease & desist order from the state from being carried out.

A spokesman for the company said in a statement, “We believe this [restraining order] is necessary and warranted to protect DraftKings’ business while we pursue our legal action to prevent the New York Attorney General from denying New Yorkers the right to continue playing the daily fantasy sports games they love.”