Virginia made history today by becoming the first state to officially legalize Daily Fantasy Sports with the signing of the Fantasy Contests Act. The enactment of the bill has garnered a lot of positive attention for making the statement that DFS is a game of skill rather than gambling.
The opposite assertion has been the order of the day throughout the nation until this decision, with a number of state legislatures seeking to impose bans on participation in the games for their residents. While the Act is a massive victory for the industry's two major players, DraftKings and FanDuel, there are some stipulations in the bill that could set a dangerous precedent for other potential players in the Daily Fantasy space.
The Act states that DFS operators must ensure that all contest entrants are at least 18 years of age and ban its employees from participating in any of its contests (both necessary regulations), but also that each business must pay an annual fee of $50,000 to operate in Virginia.
To the likes of DraftKings and FanDuel that's chump change, but for startups trying to get off the ground in a space with plenty of potential for unique approaches, the barrier could very well stop them before they get started. Keep in mind that the $50,000 fee is the prerequisite just for the state of Virginia. If other states follow suit with a similar fee structure, all but the giants will be priced out, and in a hurry.
The Act also fails to differentiate daily fantasy sports from season-long contests that offer monetary prizes, which could also put an end to contests of that nature being offered in Virginia if the fee is viewed as prohibitive for "small" providers. The days of competing against friends in a season-long fantasy league, at least on a website that offers its own prizes, could soon be a relic of the past. Virginia is just the start.
Unsurprisingly, representatives from DraftKings and FanDuel were both quick to congratulate Governor Terry McAuliffe and the state of Virginia for their "leadership" and encourage other states to follow suit. They stand to gain an even larger stake in their already near-duopoly in the DFS environment.
The Fantasy Contests Act does well to address some of the major issues facing the fantasy-contests-for-cash industry, but it's far from perfect. DraftKings and FanDuel will continue to publicly champion the bill as "thoughtful and appropriate" but viewed through all but the rosiest of lenses, this spells disaster if other legislatures buy in. If the DFS industry is going to have a chance at becoming the next big thing, other adopting states will need to be much more lenient in their fee structure.