Government doesn’t regulate business exclusively to protect consumers. Government also regulates business to protect companies from competition.
Last week, the Gaming Control Board provided a textbook example of state-sponsored protectionism by banning Internet-based daily fantasy sports companies, including industry leaders DraftKings and FanDuel, from operating in Nevada. The order, filed Thursday, did not declare daily fantasy sports contests illegal under Nevada law. Rather, the order stipulated that daily fantasy sports contests can be offered only by businesses that have a Nevada gaming license.
So DraftKings, FanDuel and other such companies can pursue a gaming license if they want to reconnect with their Nevada customers, or licensed Nevada sportsbooks can fill that void by developing their own daily fantasy sports contests. Considering Nevada’s population of less than 3 million people, not including visitors, it would be surprising if any daily fantasy sports company decided to go through the costly licensing process for access to such a small market.
The financial and bureaucratic burdens of licensure create a barrier to entry and a big advantage for existing license holders. License holders know this and embrace regulation, despite its costs. It’s true for casinos, teachers, cosmetologists and any highly regulated, credentialed industry.
Daily fantasy sites allow players to enter contests in which they assign professional and college athletes to a “team” that competes against rosters compiled by other participants for cash prizes. Unlike the season-long fantasy games enjoyed by tens of millions of Americans, the contests cover play from just a single day or week. And unlike the fantasy websites that manage season-long leagues for a fee, daily fantasy sports sites distribute those fees to winners. The industry is evolving to meet the demands of its customers.
As reported by The Wall Street Journal, the U.S. Justice Department is examining whether the daily sites run afoul of a 2006 Internet wagering ban that exempted fantasy sports because of the game’s skill component. Daily fantasy sites have proved wildly popular and lucrative, so much so that sports leagues and media giants are among the investors who’ve jumped into the business. The government inquiry is a testament to the political power of the gaming industry, which just a couple of decades ago had a less-than-savory national reputation.
Nevada’s casino industry drives the state’s economy. It employs more workers and pays more taxes than any other industry. And the industry’s health depends on the integrity that directly results from Nevada’s best-in-the-world regulatory system. Its concerns should always be heard.
But a prohibition on a mainstream website that’s still lawfully marketed to and accessed by millions of Americans elsewhere seems as heavy handed as last year’s state-led crackdown on ride-sharing service Uber.
Nevada should be competing to lead any technology-driven changes at the intersection of sports and entertainment, not projecting a message that it doesn’t welcome new models created by outsiders.
This editorial first appeared on the Las Vegas Review-Journal website on Monday.