Flag On The Play: Daily Fantasy Sports Site StarsDraft Benched In Wake Of Michigan Developments
September 10, 2015 | By Caroline R. Fabacher
Last week, daily fantasy sports site StarsDraft (formerly Victiv) benched its Michigan participants indefinitely, making it the first major online fantasy sports provider to withdraw operations from the state. According to a new report from GamblingCompliance, the Michigan Gaming Control Board believes that daily fantasy sports are not legal under state law.
Although the report could be used to support an argument in a legal action, neither it nor the Michigan Gaming Control Board can directly regulate fantasy sports service providers, and thus far, the Michigan attorney general’s office has not targeted a single fantasy sports site. Additionally, new legislation seeks to formally classify fantasy sports as a game of skill and thereby exclude these contests from state gambling law restrictions. Under Senate Bill 459 (track here), introduced last week, if a contest falls within the Unlawful Internet Gambling Enforcement Act’s definition and federal carveout for fantasy sports, then that contest would also be legal under Michigan law.
On one hand, the first departure of a major daily fantasy sports service provider should not be ignored; all fantasy sites continuing to permit participation in Michigan must remain ever vigilant of the shifting legal landscape. On the other hand, StarsDraft’s exit from Michigan shouldn’t cause other fantasy sites (or their participants) to panic just yet; the exit, galvanized by the GamblingCompliance report, was likely due to characteristics unique to its new parent company’s market position and strategy. Unlike most online fantasy sports companies, StarsDraft’s parent company, Amaya, is a licensed gambling participant in several states. Because of this, and because of current efforts to secure the position of another subsidiary, PokerStars, in regulated online gambling markets like New Jersey (and possibly California), Amaya is especially sensitive to public perception and legal compliance.
The leading online fantasy sports legal compliance strategy has long fallen along the lines of the old adage, “It’s better to ask for forgiveness than permission.” And, without a single state challenging the legality of fantasy sports to date and legislative developments like the Unlawful Internet Gambling Enforcement Act and state law changes creating specific carveouts for fantasy sports, fantasy sports companies have not yet had to ask for forgiveness and may never have to. But with gambling licenses and the future of legal online gambling for PokerStars at stake, Amaya cannot gamble with StarsDraft’s legal compliance.
Time will tell whether other companies follow StarsDraft’s exit. However, considering the new bill on the table to legalize fantasy sports in Michigan, the unique position of StarsDraft’s parent company, and the current compliance strategy of leading fantasy sports sites, it is unlikely that many will do so.
Posted in Fantasy Sports
Caroline is an associate at Vela Wood. She focuses her practice in the areas of entity formation, capital raises, corporate governance, and daily fantasy sports regulations. You can see Caroline’s attorney profile HERE.