Rich Kalm Was Appointed to the Gaming Control Board in 2007
Rich Kalm, the Executive Director of the Michigan Gaming Control Board, claims that daily fantasy sports are not legal in the state of Michigan. Rich Kalm’s opinion was published in a report by Gambling Compliance on Tuesday.
Chris Krafcik, GamblingCompliance’s research director, wrote the report. Krafcik wrote that the Gaming Control Board’s head said participating in fantasy sports for real money was “illegal under current Michigan law.”
Curtis Hertel’s Legislation
The opinion comes at a time when Michigan State Senator Curtis Hertel has introduced a bill which would add fantasy sports as a “game of skill”. Such a designation is important, because it makes it legal to play and place wagers on such an activity. It’s the difference in a game viewed by the law like darts or billiards would be, or whether it is viewed like blackjack, horse racing, or betting the lottery.
UIGEA and Daily Fantasy Sports
The Unlawful Internet Gambling Enforcement Act of 2006 made an exception for season-long wagers on fantasy sports. The UIGEA’s authors did not want to ban wagers on local fantasy football, fantasy baseball, and fantasy basketball leagues. Because the length of the wager requires months to settle, fantasy sports played in the traditional fashion was seen as harmless–virtually impossible for a problem gambler to abuse.
The UIGEA allowed individual states to ban fantasy sports betting. The states of Arizona, Iowa, Louisiana, Montana, and Washington have specific bans on fantasy sports, while the 45 other states consider it legal. Even then, the laws have not been used to prosecute gamblers on local fantasy football leagues.
Those who passed the UIGEA–and state legislatures–never considered that a new form of fantasy sports might arise: daily fantasy sports. DFS sites like FanDuel and Draftkings began to be lauchned from 2009 to 2011. After a few years of dwelling in obscurity, the DFS services have become billion dollar companies, while coming under greater scrutiny.
The Effect of Rich Kalm’s Opinion
It is unknown whether the Michigan Gaming Control Board director’s opinion will have an effect on the daily fantasy sports industry in Michigan. So far, Rich Kalm’s opinion is that of an individual citizen, without the stamp of the Gaming Control Board itself. Also, the Attorney General of Michigan would handle any prosecutions of fantasy sports bettors and it is uncertain whether Bill Schuette agrees with Rich Kalm’s opinion.
The opinion could be used in any litigation against sites like DraftKings and FanDuel, while it also might be used by opponents of Curtis Hertel’s fantasy sports “skill games” bill. So far, neither the DFS sites or their players are directly affected by Kalm’s opinion, though they could be indirectly and substantially affected in the future by Rich Kalm’s stance on their industry.
Victiv Leaves Michigan Market
Number three daily fantasy sports site, Victiv, which recently was purchased by Amaya Gaming, announced this week that it was leaving the Michigan gaming market. Amaya Gaming is the owner of PokerStars, the number one poker site on the Intenret. PokerStars has had trouble gaining licensing in the United States because of its status as a “bad actor”, stemming from the Black Friday Scandal.
Amaya Gaming hopes to relaunch the Victiv gaming platform as StarsDraft, which would compete with FanDuel and DraftKings. Presumably, Amaya Gaming wants to follow the law in each state, so StarsDraft/Victiv won’t face the same kind of troubles in any future regulated market. Such a decision might be difficult for a smaller operator like Victiv to make, but Amaya Gaming bought PokerStars for $4.9 billion, so any lost revenues from StarsDraft’s operations in Michigan would be negligable, at present.
Mark Edelman on Legality
Mark Edelman, a professor of law at Zicklin School Business at Baruch College the City University of New York, says that the risk to companies in Michigan likely depends on their format.
Edelman wrote, “Michigan is not among the highest risk states such as Arizona, Louisiana or Tennessee, but without a formal study showing the ratio of skill to chance in daily fantasy sports, it is really a tough legal issue. In reality, the legality probably varies by game format, with some formats on the right side of the line and others on the wrong side.”
Being on the wrong side of the law might mean setting up player-versus-house games, which is similar to the banked games (blackjack, roulette) in casinos. The player plays at a significant disadvantage called the house edge, which weights the game against the player. Player-versus-player games would pit two or more daily fantasy sports owners against one another, with the DFS site taking a rake. Such gaming would be similar to the poker format, where the skill and knowledge of the opponents have an effect on the outcome of the game. FanDuel, DraftKings, and Victiv only arrange contests which are player-versus-player, specifically because PvP contests are seen as skill-based and fairer, and thus legal.
Kansas and Nebraska on DFS
US states have resolved the issue in a variety of ways. In Kansas, the Racing and Gaming Commission declared fantasy sports an “illegal lottery”. Later, the Kansas legislature passed a bill legalizing fantasy sports. Governor Sam Brownback signed the bill into law.
In Nevada last month, the Gaming Control Board said it had commissioned a report on the legality of daily fantasy sports. Thus, the constant struggle over gaming laws continues.
