GAMBLINGCOMPLIANCE: Nevada’s USFantasy Could Become A DFS Model

8TH AUG 2016 | WRITTEN BY: CHRIS SIEROTY

USFantasy Sports will begin providing daily fantasy sports (DFS) contests to approximately 60 locations throughout Nevada later this month, but the company’s founder expects his business to quickly expand beyond the state’s borders.

The launch of the Las Vegas-based DFS company, whose games are based on a pari-mutuel wagering system, comes as the fantasy sports industry in the U.S. is rapidly shifting from unregulated to regulated.

For perspective, 28 states have this year considered legislation to regulate fantasy sports.

Of those, eight, with New York being the latest, have passed or enacted new regulations, according to a GamblingCompliance Research Services report.

Nevada is unique in that it has regulated fantasy sports without passing new legislation, instead requiring fantasy sports firms to receive a full gaming license before they are allowed to do business in the state.

“We will be in the race and sports books [in Nevada] as another product on their existing systems,” Vic Salerno, founder of USFantasy, told GamblingCompliance.

Salerno said he has had contact with gaming regulators and lawmakers in Pennsylvania, Virginia, Mississippi, Indiana, Iowa, Massachusetts and New Jersey, among about a half dozen other states.

The company has also talked with California racetracks about adding the betting menu to their regular list of pari-mutuel options. USFantasy is waiting for California Attorney General Kamala Harris to decide whether DFS is gambling or a game of skill.

“The states have different laws or are drafting them now,” Salerno said.

USFantasy was the first and only fantasy sports company to be licensed in Nevada after the Nevada Gaming Control Board (NGCB) in October banned unlicensed DFS operators.

The control board released a formal memo stating that DFS constituted gambling under state law and banning companies, such as DraftKings and FanDuel, from doing business in Nevada unless they were licensed.

But will USFantasy’s launch on a wide scale in Nevada change the minds of the two largest DFS companies when it comes to licensing?

Analysts have said they do not expect DraftKings, FanDuel or any other fantasy sports companies to apply for a gaming license in Nevada anytime soon.

“I don’t believe that USFantasy’s success will have a material effect on how DraftKings or FanDuel approach Nevada,” said Chris Grove, a partner with Narus Advisors.

Grove said that DraftKings and FanDuel objections revolved around the “licensing process and the classification of DFS as gambling, and USFantasy — regardless of how big of a success it is — won’t speak to either of those concerns.”

Peter Schoenke, president of Rotowire.com and chairman of the Fantasy Sports Trade Association, agreed, adding that the high costs and long wait times for licensing in Nevada will keep companies away.

“It’s a different animal in Nevada,” Schoenke said.

The doors to opportunity for USFantasy are expected to open quickly in other states such as Indiana, Minnesota and Pennsylvania where legislation and rulemaking to allow fantasy action are being put in place.

DFS companies are also now preparing to do business once again in New York.

New York Democrat Governor Andrew Cuomo on Wednesday signed a bill passed back in June that legalizes and regulates paid fantasy sports.

Cuomo explained his decision to sign the bill, saying: “Daily fantasy sports has proven to be popular in New York, but until now have operated with no supervision and no protections for players.”

The governor added that companies will be regulated by the state’s gaming commission. Cuomo also expected DFS to generate $4m in revenue to fund state education.

As New York legalizes DFS and football season approaches, Salerno believes Nevada will keep him busy enough for the time being.

USFantasy is offering its product to casino members of the Nevada Pari-Mutuel Association.

“The casinos will subscribe to the USFantasy platform through a licensed disseminator, which will distribute the contests to area and sportsbooks within Nevada casinos,” a company statement said.

USFantasy is different from DraftKings or FanDuel, where a player pays an entry fee and picks a roster of players usually under a salary cap format.

Salerno’s USFantasy offers pari-mutuel-style fantasy games, where contests are based on a single position. Players can choose from a pool of players, betting on them to “win,” “place,” or “show.”

For fantasy football, a $1m progressive jackpot Pick 7 contest is planned for correctly selecting the winners of seven different categories.

All wagers are placed in a pari-mutuel pool and distributed after all player performances are completed and tabulated. USFantasy will open for business with DFS baseball, followed by football.

Wagering is also done on a pari-mutuel basis, so wagers that are bet heavily on one player, say Ben Roethlisberger of the Pittsburgh Steelers, will not pay as well as bets placed on less popular players with higher odds.

Salerno said he will consider USFantasy a success if “a Nevada pool expands to most … states to rival lotteries.”

According to USFantasy, regulated pari-mutuel systems currently operate in 43 states.

Schoenke said there was a lot of curiously within the industry about USFantasy.

“We want to see if it looks and feels like a fantasy product,” Schoenke said, adding that it is hard to speculate about whether USFantasy will be successful.

Just the pool of potential American fantasy sports customers has grown since 2009 as participation in season-long leagues or DFS has doubled from 27m to an estimated 57.4m this year.

Compared with the overall number of fantasy sports players, DFS is still a relatively small industry with about 4.5m players last year. The Fantasy Sports Trade Association reports overall the average annual spend is $556 per fantasy sports player.

“I think the primary impact of USFantasy in Nevada will be to increase the presence of fantasy sports-style wagers in the sportsbook environment,” Grove said.

Grove cautioned that he was not sure that pari-mutuel style fantasy would ever rise to the level of accounting for a significant part of sportsbook activity in Nevada.

“But, it’s worth noting that proposition bets, which are quite similar in nature to the fantasy-style wager, have been cited as one of the drivers of growth for sports betting in Nevada,” Grove said.

The state receives a percentage of the handle, but with USFantasy currently licensed only in Nevada, the wagering pools are limited. Handle and win figures will be included in the control board’s monthly revenue report under the category of “sports pari-mutuel.”

“It is its own category,” said Michael Lawton, senior research analyst with the control board. “Currently, no one reports anything, so as a result it falls off the report.”

If USFantasy launches as scheduled later this month, the first week or so of revenues would be released in late September.

As Salerno puts the finishing touches on USFantasy, analysts believe the next few months are crucial for DFS.

“Uncertainty is the watchword,” Grove said.

Schoenke did not deny that issues remain, but said the fantasy sports industry had turned the momentum around from last fall “when our industry was under attack from all sides.”

He cited being able to pass new laws in eight states as an achievement; however, legislative battles are expected as legislators gather in Texas and Nevada next year.

Grove said the issues facing the industry range from how does it perform in new regulated markets like Missouri and Indiana, and what do player volumes look like in the absence of the massive market blitz on television last year?

In addition, will the cultural pushback against DFS have a material impact on consumer demand? Has the industry seen the last of forced exits from key states? Are the reported federal investigations, led by prosecutors in Florida and Manhattan, winding down or ramping up?

Grove said those are just a few of the critical questions that remain open “as we move into what has traditionally been far and away the most active quarter for the year for daily fantasy sports.”

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