Fantasy sports industry frets amid Cuomo’s inaction on bill

Artwork by Gui Federighi

Fantasy sports industry frets amid Cuomo’s inaction on bill

Fantasy sports industry frets amid Cuomo’s inaction on bill
July 22, 2016

While daily fantasy sports (DFS) have been approved by the Legislature, other legislation has passed over the DFS bill en route to the governor’s desk. Though there is nothing inherently odd about the governor prioritizing his own legislation, and speculation around why he has not called for the high-profile DFS bill may amount to much ado about nothing, there are signs that concern is starting to rise in the fantasy sports world.

“The governor has been playing this really close to the vest, and we don’t have any indication one way or the other,” an industry source familiar with the process told City & State July 18. “The only thing that we do know is his assistant was out on vacation last week, a big group of bills was just delivered to him, and our bill was not one of them. So the bill is not on his desk yet.”

The NFL, which will kick off its 2016 season in September, accounts for approximately half of DFS revenues, and New York ranks as the second-largest market in the country. According to Eilers & Krejcik, an industry research firm, the state generated an estimated $267 million in entry fees last year. The inability of the two major operators, FanDuel and DraftKings, to offer their most popular product “would weaken both companies at a critical point, and leave both more vulnerable to whatever challenges come next,” said Chris Grove, a partner at Narus Advisors, a consultancy that specializes in DFS and iGaming.

Eilers & Krejcik estimated that the two companies, both of which have received billion-dollar valuations, lost more than $400 million combined last year, leading some experts to question whether DFS will ever generate significant revenue for the state, assuming the governor does sign the bill.

“They lost money when they didn’t have to pay anybody,” said Alan Woinski, president of Gaming USA Corp. “Now they’re going to have to pay taxes and regulation fees, so the money they’re going to be losing anyway will be magnified.”

Moreover, those additional costs of doing business “sit aside the not-insignificant ongoing legal and lobbying costs major DFS operators are shouldering to advance and influence additional legislation in other states,” Grove said.

The industry attributes its financial results to high advertising costs and other expenditures associated with “hyper growth.” Last year, DraftKings and FanDuel spent $100 million on ads in just the first week of football season.

And their New York legal problems may not be over: Despite agreeing to defer to the Legislature on the question of whether DFS constituted a “game of skill,” Attorney General Eric Schneiderman has vowed to pursue false advertising claims against both operators.

The industry source confirmed reports that the governor’s office conducted a technical review and offered some input before the DFS bill passed the state Senate and Assembly by votes of 45-17 and 91-22, respectively. Those margins, if maintained, would be enough to override a veto. But the governor is not required to even call the bill before the end of the year.

One of the bill sponsors, Assembly member Gary Pretlow, who is chairman of the Assembly Committee on Racing and Wagering, told City & State on July 14 that the bill was “a priority on our list for the governor to call for, but as of today he has not called for it.”

Once he calls for a bill, the governor has 10 days to sign or veto it, after which it automatically becomes law.

“We have no reason to be alarmed, but we also have no reason to feel that it’s particularly in the bag,” the industry source said. “We’re just not really getting that much information at all.”

A governor’s office representative said that it had “no update” on when the bill would be called for.

DFS operators could return to market within a day of the bill passing into law, but would prefer lead time to prepare for the upcoming NFL season.

Gabe Ponce de León
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