- Associated Press - Sunday, November 15, 2015

GREAT FALLS, Mont. (AP) - On Nov. 10 the New York Attorney General’s Office issued a cease and desist order directing fantasy sports companies DraftKings and FanDuel to stop accepting bets from New York residents, and categorizing these companies activities as illegal gambling under New York law.

“Our review concludes that FanDuel’s operations constitute illegal gambling,” the New York order to FanDuel states. “FanDuel’s customers are clearly placing bets on events outside of their control or influence, specifically on the real-game performance of professional athletes.”

The order brings to a screeching halt the participation of an estimated half-million New Yorkers who play on daily fantasy sports leagues, over the clear objections of the fantasy sports gaming industry.

“This is a politician telling hundreds of thousands of New Yorkers they are not allowed to play a game they love and share with friends, family, coworkers and players across the country,” FanDuel stated in a public response to New York’s cease and desist order. “We have operated openly and lawfully in New York for several years. The only thing that changed today is the attorney general’s mind.”

Montana is one of five states that have already prohibited this form of Internet gambling. The others are Arizona, Iowa, Louisiana and Washington. New York will likely be joining that list soon.

In October, Nevada’s Gaming Control Board ruled that both DraftKings and FanDual are gambling operators. Nevada did not ban the companies from operating there, they are just required to obtain a state issued gambling operator’s license to continue doing so.

Montana’s prohibition on Internet fantasy sports betting is not directly related to the rise of these two companies. Instead, it came about as part of an evolution in the state’s gambling laws extending back more than a century.

Prior to statehood, all forms of gambling in Montana was unregulated. Montana’s first state constitution, passed in 1889, made gambling of any type illegal, but the laws were largely ignored. In 1949, the state Legislature declared “a law enforcement emergency” and allocated $40,000 to the Attorney General’s Office to enforce state gambling laws. The following year voters defeated an initiative to legalize gambling in Montana by a 4 to 1 margin.

That was the status quo until 1972 when the state rewrote its constitution.

“Gambling was a side issue to the passage of the 1972 constitution,” said Rick Ask, administrator of the Montana Gambling Control Division. “Interestingly, more Montana voters voted at that time to allow the legislature to authorize legal forms of gambling than voted for passage of the constitution.”

“What the Montana Constitution specifically says is that all gambling activities are illegal except for those games that are specifically authorized by the Legislature or by an initiative of the people,” Ask added.

Over the next two decades, the Montana Legislature gradually authorized a greater number of gambling activities. Video poker machines were legalized in 1985, and voters approved the Montana Lottery in 1987.

During the 1989 legislative session, Montana’s legislators worked to consolidate the state’s gambling laws and more clearly differentiate the forms of gambling that would be allowed from those that would not. Ironically, fantasy sports leagues were expressly allowed for. What is prohibited in Montana is Internet gambling and credit gambling - using a credit card to place a wager. Both of these are central components of the games FanDuel and DraftKings offer.

Players who attempt to create an account on either company’s website are asked to include their ZIP code. The insertion of a Montana ZIP code will disallow the user from placing a bet or receiving a cash prize.

Just a decade ago, online fantasy sports betting was nearly nonexistent and of questionable legality. To clarify the situation, in 2006 Congress passed The Unlawful Internet Gambling and Enforcement Act, which specifically carved out a niche for fantasy sports games by declaring legal any simulation sports game that: “has an outcome that reflects the relative knowledge of the participants, . and . has an outcome that is determined predominantly by accumulated statistical results of sporting events .”

The legislation threw open the doors to Internet fantasy sports betting.

So long as the game in question does not include betting on specific teams using point spreads, or has prize values determined by the number of players betting or the amount of money already paid in - as is the case with sportsbook betting in Nevada and New Jersey - fantasy sports gaming is classified federally as a game of skill and not gambling.

FanDuel was first to take advantage of the change. According to the New York Business Journal, FanDuel was established in Scotland in 2009, but has since moved its center of operations to New York City. The company now has an estimated value of nearly $1 billion and claims it will pay out twice that much to its customers this year alone.

DraftKings came relatively late to the game. Established in Boston in 2012, DraftKings rose quickly to claim the No. 2 fantasy sports position by buying out its competitors. DraftKings now controls roughly 40 percent of the United States Internet fantasy sports market; FanDuel around 55 percent.

They are good positions to be in.

The financial research company Eilers Research projects Internet fantasy sports leagues will generate around $2.6 billion in entry fees this year, a figure that could grow to $31 billion by 2020.

But while numerous states are now grappling to answer the question whether to allow these companies to operate within their borders, the matter is already a long-established issue in Montana.

“DraftKings and FanDuel are out there arguing that fantasy leagues are not gambling - it’s a skill game,” Ask said. “I can tell you that from our perspective that is not accurate. All your skill does in either a fantasy league or a poker game is improve your odds, but it’s still chance, and that’s gambling.”

Various forms of gambling have been authorized in Montana for more than 40 years, but the online betting FanDuel or DraftKings offer is clearly prohibited. More precisely, it’s illegal for FanDuel of DraftKings to pay out cash prizes to its Montana customers for Internet game play. Montanans are welcome to open and maintain accounts on either site, they just can’t place bets or win prizes doing it.

The established gambling laws of each state were essentially frozen into place in 1993 when the U.S. Congress passed the Professional and Amateur Sports Protection Act.

“It was a move by the NFL and major league baseball, the NHL and NCAA to obtain federal protection from the expansion of sports wagering and Congress basically agreed with them,” Ask said. “So Congress said to the states, you can’t expand sports wagering anymore. What’s legal in your jurisdiction is still legal, but you can’t expand it.”

Today’s betting landscape seems in contradiction to the original intent of the Professional and Amateur Sports Protection Act. According to a recent New York Times report, nearly every NFL team now has a sponsorship deal with DraftKings or FanDuel, and both Major League Baseball, the National Basketball Association and companies like Comcast, NBC and Google are investors in them. Both Dallas Cowboys owner, Jerry Jones, and Robert Kraft, owner of the New England Patriots, have equity shares in the companies.

According to the Wall Street Journal, FanDuel and DraftKings are expected to spend a combined total of $206 million on advertising this year.

However, none of that is likely to bring Internet fantasy sports gaming to Montana in the immediate future.


Information from: Great Falls Tribune, https://www.greatfallstribune.com

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