[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
DAILY FANTASY SPORTS: ISSUES AND PERSPECTIVES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COMMERCE, MANUFACTURING, AND TRADE
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
MAY 11, 2016
__________
Serial No. 114-144
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
21-212 WASHINGTON : 2017
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COMMITTEE ON ENERGY AND COMMERCE
FRED UPTON, Michigan
Chairman
JOE BARTON, Texas FRANK PALLONE, Jr., New Jersey
Chairman Emeritus Ranking Member
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois ANNA G. ESHOO, California
JOSEPH R. PITTS, Pennsylvania ELIOT L. ENGEL, New York
GREG WALDEN, Oregon GENE GREEN, Texas
TIM MURPHY, Pennsylvania DIANA DeGETTE, Colorado
MICHAEL C. BURGESS, Texas LOIS CAPPS, California
MARSHA BLACKBURN, Tennessee MICHAEL F. DOYLE, Pennsylvania
Vice Chairman JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio DORIS O. MATSUI, California
CATHY McMORRIS RODGERS, Washington KATHY CASTOR, Florida
GREGG HARPER, Mississippi JOHN P. SARBANES, Maryland
LEONARD LANCE, New Jersey JERRY McNERNEY, California
BRETT GUTHRIE, Kentucky PETER WELCH, Vermont
PETE OLSON, Texas BEN RAY LUJAN, New Mexico
DAVID B. McKINLEY, West Virginia PAUL TONKO, New York
MIKE POMPEO, Kansas JOHN A. YARMUTH, Kentucky
ADAM KINZINGER, Illinois YVETTE D. CLARKE, New York
H. MORGAN GRIFFITH, Virginia DAVID LOEBSACK, Iowa
GUS M. BILIRAKIS, Florida KURT SCHRADER, Oregon
BILL JOHNSON, Missouri JOSEPH P. KENNEDY, III,
BILLY LONG, Missouri Massachusetts
RENEE L. ELLMERS, North Carolina TONY CARDENAS, California
LARRY BUCSHON, Indiana
BILL FLORES, Texas
SUSAN W. BROOKS, Indiana
MARKWAYNE MULLIN, Oklahoma
RICHARD HUDSON, North Carolina
CHRIS COLLINS, New York
KEVIN CRAMER, North Dakota
Subcommittee on Commerce, Manufacturing, and Trade
MICHAEL C. BURGESS, Texas
Chairman
JANICE D. SCHAKOWSKY, Illinois
LEONARD LANCE, New Jersey Ranking Member
Vice Chairman YVETTE D. CLARKE, New York
MARSHA BLACKBURN, Tennessee JOSEPH P. KENNEDY, III,
GREGG HARPER, Mississippi Massachusetts
BRETT GUTHRIE, Kentucky TONY CARDENAS, California
PETE OLSON, Texas BOBBY L. RUSH, Illinois
MIKE POMPEO, Kansas G.K. BUTTERFIELD, North Carolina
ADAM KINZINGER, Illinois PETER WELCH, Vermont
GUS M. BILIRAKIS, Florida FRANK PALLONE, Jr., New Jersey (ex
SUSAN W. BROOKS, Indiana officio)
MARKWAYNE MULLIN, Oklahoma
FRED UPTON, Michigan (ex officio)
C O N T E N T S
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Page
Hon. Michael C. Burgess, a Representative in Congress from the
State of Texas, opening statement.............................. 1
Prepared statement........................................... 2
Hon. Janice D. Schakowsky, a Representative in Congress from the
State of Illinois, opening statement........................... 3
Hon. Fred Upton, a Representative in Congress from the State of
Michigan, opening statement.................................... 5
Prepared statement........................................... 5
Hon. Frank Pallone, Jr., a Representative in Congress from the
State of New Jersey, opening statement......................... 6
Witnesses
Peter Schoenke, President, Rotowire, On Behalf of Fantasy Sports
Trade Association.............................................. 8
Prepared statement........................................... 11
Answers to submitted questions............................... 110
John M. McManus, Executive Vice President, General Counsel, and
Secretary, MGM Resorts International........................... 15
Prepared statement........................................... 17
Steve Brubaker, Executive Director, Small Business of Fantasy
Sports Trade Association....................................... 19
Prepared statement........................................... 21
Answers to submitted questions............................... 121
Ryan Rodenberg, Assistant Professor, Florida State University,
Department of Sport Management................................. 30
Prepared statement........................................... 32
Answers to submitted questions............................... 124
Mark Locke, Chief Executive Officer, Genius Sports Group......... 45
Prepared statement........................................... 46
Lindsay Slader, Operations Manager, GeoComply.................... 47
Prepared statement........................................... 49
Jordan Gnat, SVP, Strategic Business Development, Scientific
Games.......................................................... 53
Prepared statement........................................... 55
Kurt Eggert, Professor of Law, Chapman University Fowler School
of Law......................................................... 60
Prepared statement \1\....................................... 61
Answers to submitted questions \2\
Submitted material
Statement of the American Gaming Association..................... 79
Statement of the Mellman Group................................... 83
Statement of the Stop Predatory Gambling group................... 86
Statement of the National Conference of State Legislators........ 94
Statement of the Attorney General from the State of Texas........ 101
----------
\1\ The prepared statement of Mr. Eggert can be found at: http://
docs.house.gov/meetings/if/if17/20160511/104902/hhrg-114-if17-
wstate-eggertk-20160511.pdf.
\2\ Mr. Eggert did not respond to questions for the record.
DAILY FANTASY SPORTS: ISSUES AND PERSPECTIVES
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WEDNESDAY, MAY 11, 2016
House of Representatives,
Subcommittee on Commerce, Manufacturing, and Trade,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:16 a.m., in
room 2123, Rayburn House Office Building, Hon. Michael C.
Burgess, M.D., (chairman of the subcommittee) presiding.
Present: Representatives Burgess, Lance, Harper, Guthrie,
Bilirakis, Brooks, Mullin, Upton (ex officio), Schakowsky,
Clarke, Kennedy, Cardenas, Butterfield, Welch, and Pallone (ex
officio).
Staff Present: Mike Bloomquist, Deputy Staff Director;
Leighton Brown, Deputy Press Secretary; Rebecca Card, Assistant
Press Secretary; Paige Decker, Executive Assistant; Graham
Dufault, Counsel, Commerce, Manufacturing and Trade; Melissa
Froelich Counsel, Commerce, Manufacturing and Trade; Giulia
Giannangeli, Legislative Clerk, Commerce, Manufacturing and
Trade; Jay Gulshen, Staff Assistant; Paul Nagle, Chief Counsel,
Commerce, Manufacturing and Trade; Tim Pataki, Professional
Staff Member; Mark Ratner, Policy Advisor to the Chairman; Dan
Schneider, Press Secretary; Olivia Trusty, Professional Staff
Member, Commerce, Manufacturing and Trade; Dylan Vorbach,
Deputy Press Secretary; Michelle Ash, Minority Chief Counsel,
Commerce, Manufacturing and Trade; Jeff Carroll, Minority Staff
Director; Lisa Goldman, Minority Counsel, Commerce,
Manufacturing and Trade; Tiffany Guarascio, Minority Deputy
Staff Director and Chief Health Advisor; Rick Kessler, Minority
Senior Advisor and Staff Director, Energy and Environment; Dan
Miller, Minority Staff Assistant; Caroline Paris-Behr, Minority
Policy Analyst; Tim Robinson, Minority Chief Counsel; Andrew
Souvall, Minority Director of Communications, Outreach and
Member Services; and Matt Schumacher, Minority Press Assistant.
OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF TEXAS
Mr. Burgess. I want to thank all of our witnesses for being
here today. I ask everyone to take their seats. The
subcommittee on Commerce, Manufacturing and Trade will now come
to order. The chair recognizes himself 5 minutes for the
purpose of an opening statement.
Once again, I would say to you good morning and welcome to
our hearing on daily fantasy sports. At the outset, I would
like to thank the ranking member of the full committee,
Representative Pallone, for his letter last fall requesting the
hearing. The panel of witnesses here today will discuss the
issues facing daily fantasy sports, the industry, as well as
consumer protection features that are available in the
marketplace.
There have been headlines, there have been advertisements,
and over the last year we have all seen the introduction of
these contests to fans. Some of these contests can be played
for pennies while others are for substantial amounts of money.
Just as the proliferation of the Internet and mobile devices
have given consumers access to personalized entertainment on
the go, like Netflix, Words With Friends, and Candy Crush, they
have also supported the growth of the fantasy sports contests.
Between 1994 and 2003, the number of fantasy sports players
increased from around 2 million players to 15 million players.
In 2015, almost 60 million people played fantasy sports.
As fun and easy as the games are advertised to be, the
issues involved are actually complicated, more complicated than
they might first appear. This hearing is an opportunity for the
stakeholders to discuss the many aspects of this complicated
issue. Consumer protection is a critical component of this
conversation, and indeed it is a critical component of the work
that this subcommittee does day in and day out. Not only should
consumers have a clear understanding of the rules and the risks
for a particular contest, but the integrity of the game depends
upon consumers getting what they are paying for.
There has been a significant amount of state activity in
this area in the last few months. I am interested in hearing
from the witnesses how state regulatory responses have impacted
their industry and their marketplace. From the states that have
required the daily fantasy sports sites to meet online gambling
requirements, to the states that have passed legislation
explicitly legalizing fantasy games, it is critical to
understand the role of the states and what impact their actions
have on interstate commerce.
Consistently during this term of the subcommittee, I have
focused on the struggles that small businesses face in the
regulatory environment. I believe that small businesses are
vital to our economy, and understanding how they fit into this
industry, that is reportedly dominated by a few large actors,
is a critical piece of this puzzle.
Once again, thank you to our witnesses for participating
this morning.
And I would yield back my time and recognize the ranking
member of the subcommittee, Ms. Schakowsky, 5 minutes for an
opening statement, please.
[The prepared statement of Mr. Burgess follows:]
Prepared statement of Hon. Michael C. Burgess
Good morning. Welcome to our hearing on daily fantasy
sports. At the outset, I would like to thank the Ranking Member
of the full committee, Representative Pallone, for his fall
letter requesting this hearing.
The panel of witnesses here today will discuss the issues
facing the daily fantasy sports industry as well as the
consumer protection features available in the marketplace.
There have been many headlines, and advertisements, over
the last year introducing many fans to these new contests--some
of which can be played for pennies while others are for
substantial sums of money. Just as the proliferation of the
Internet and mobile devices have given consumers access to
personalized entertainment on the go like Netflix, Words with
Friends, and Candy Crush, they have also supported the growth
of fantasy sports contests.
Between 1994 and 2003, the number of fantasy sports players
jumped from around 2 million players to 15 million players. In
2015, almost 60 million people played fantasy sports.
As fun and easy as the games are advertised to be, the
issues involved are actually more complicated then they might
appear at first glance. This hearing is a prime opportunity for
stakeholders to discuss the many aspects of this complicated
issue.
Consumer protection is a critical component of this
conversation. Not only should consumers have a clear
understanding of the rules and risks for a particular contest,
but the integrity of the game depends on consumers getting what
they paid for.
There has been a significant amount of state activity in
this area in the last few months. I am interested in hearing
from the witnesses how the state regulatory responses have
impacted the marketplace. Also, I have a letter from the
Attorney General of my home state of Texas to include in the
record.
From the states that have required the daily fantasy sites
to meet online gambling requirements, to the states that have
passed legislation explicitly legalizing fantasy games--it is
critical to understand the role of the states and what impact
their actions have on interstate commerce.
Consistently during my term as subcommittee Chairman, I
have focused on the struggles small businesses face in the
regulatory environment. I believe that small businesses are
vital to our economy and understanding how they fit into this
industry that is reportedly dominated by a few large actors is
a critical piece of the puzzle.
Thank you again to our witnesses for joining us this
morning.
OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A
REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS
Ms. Schakowsky. Thank you, Chairman Burgess, for holding
today's hearing on daily fantasy sports. I want to welcome all
of our witnesses today.
Today's hearing really comes down to one question: what
should be the future of this multi-billion-dollar gaming
industry? Fantasy sports games competing for cash against
others by picking fantasy teams of real sports players have
taken off in recent years, and according to Fantasy Sports
Trade Association, 56.8 million people in the United States and
Canada participated in some form of fantasy sports in 2015.
While this includes traditional fantasy that spans the entire
football season or baseball season, a rapidly expanding share
of spending goes to daily fantasy sports.
Between 2012 and 2015, daily fantasy grew from less than 10
percent of all fantasy sports spending to now more than half,
and there is big money in this industry. Daily fantasy
companies generate $3.7 billion in entry fees alone.
When we talk about the daily fantasy industry, we are
mainly talking about two companies. DraftKings and FanDuel
represent 95 percent of the daily fantasy market. I would note,
however, that neither of those companies is testifying today,
neither are the sports leagues and teams that have partnered
with these sites.
Daily fantasy has gotten big fast, but how should we think
of daily fantasy? Companies that operate these Web sites call
daily fantasy a game of skill. I will admit it takes some
skill. You have to pick players to be part of your fantasy
team. I doubt I would be very good at that. I know I wouldn't.
But even if some skill is required, daily fantasy at its core
involves betting on sports. As hall of fame quarterback Joe
Namath put it when asked by CNBC, ``Do you have anything''--
this is what Joe said. He said, ``Do you have to pay anything
to play, and do they win something? It is gambling.''
Several states have come to the same conclusion. Last year
in my home State of Illinois, Attorney General Lisa Madigan
declared daily fantasy to be illegal gambling under State law.
The Illinois State legislature is considering legislation to
make daily fantasy a regulated and taxed form of gaming under
the oversight of the Illinois Gaming Board.
On the Federal level, it almost seems like an accident that
daily fantasy sites are allowed to exist in the first place.
Sports betting is illegal in all but four grandfathered States
under the Professional and Amateur Sports Protection Act, and
the Unlawful Internet Gambling Enforcement Act generally
prohibited online gambling. UIGEA contained an exception for
fantasy supports. Keep in mind that in 2006 when UIGEA passed,
fantasy sports was almost all season-long fantasy, not the
daily fantasy sports that we are focusing on today.
Even if daily fantasy companies claim to be legal under the
letter of the law, that doesn't seem like the lawmakers'
intent. Former Congressman Jim Leach, who introduced UIGEA,
said last year that he had no idea that the fantasy exception
would, quote, morph in today's cauldron of daily betting,
unquote. He continued, quote, it is sheer chutzpa for the
fantasy sports companies to cite the law as a legal basis for
existing, unquote.
As long as the Federal law on daily fantasy seems
ambiguous, the legality of daily fantasy will be determined
largely at the State level. Daily fantasy companies have
responsibility to comply with these State regulations, blocking
use in States where daily fantasy has been determined to be
illegal gambling.
If these sites are going to operate, daily fantasy
companies need to take robust steps to prevent use by minors or
those struggling with gambling addiction. Ensuring they take
these steps will require appropriate regulation.
So what should be the future of daily fantasy? Should it be
allowed? Several States have already decided the answer is no.
And if betting through daily fantasy is going to take place,
what regulations need to be in place to protect consumers?
I am disappointed that the companies most central to this
discussion are not here today to answer these questions.
That said, I welcome our witnesses and look forward to
hearing your perspectives on this industry.
And I yield back.
Mr. Burgess. The gentlelady yields back. The chair thanks
the gentlelady, recognizes the chairman of the full committee,
Mr. Upton of Michigan, 5 minutes for an opening statement.
OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Upton. Thank you, Mr. Chairman.
So today we are going to hear from stakeholders about the
daily fantasy sports industry that indeed has attracted so much
attention and excitement in the last couple of years. Most
folks' exposure to fantasy sports consist of a group of friends
and coworkers getting together for a season-long pool. The
games are a fun way to bring communities together, even
Republicans and Democrats for sure, around some of our very
favorite national pastimes, but what we have seen in the last
couple years is the explosive growth of a new segment of the
fantasy world, daily fantasy sports. About 60 million folks are
playing fantasy sports and a reported 14 million are playing
daily fantasy sports with sometimes millions of dollars at
stake.
So as we explore the current landscape of daily fantasy
sports and the new innovations that they offer for fans,
consumer protections have to be in place for players on the Web
sites. It is clear that adult players deserve a fair game and
clear rules.
I look forward to hearing from the witnesses about what
internal controls are in place to ensure game integrity on
fantasy sports Web sites, particularly if different operators
use different controls. I am also interested to learn about the
self-regulatory activities industry has put in place and the
technological tools available in the market to implement
consumers protections, including age limits and geofencing.
States all across the country are looking at these issues,
which is going to help inform whether a Federal role is
warranted or not. So my State, Michigan, there is a bill
pending in the legislature to expressly legalize daily fantasy
sports, but we must keep in mind that a patchwork of differing
and contradictory state laws has the potential to negatively
impact consumers and harm further growth and innovation in the
process.
Thank you all for being here today. I look forward to your
testimony.
And I yield back.
[The prepared statement of Mr. Upton follows:]
Prepared statement of Hon. Fred Upton
Good morning. Today we will hear from stakeholders about
the daily fantasy sports industry that has attracted so much
attention and excitement in the last year or two.
Most people are familiar the fantasy sports that consist of
a group of friends and coworkers getting together for a season
long pool. These games are a fun way to bring together
communities--even republicans and democrats--around some of our
favorite national pastimes.
What we've seen in the last few years is the growth of a
new segment of the fantasy world: daily fantasy sports. Around
60 million people are playing fantasy sports and a reported 14
million are playing daily fantasy sports, with millions of
dollars at stake.
As we explore the current landscape of daily fantasy sports
and the new innovations they offer for fans, I will be focusing
on the consumer protections in place for players on DFS Web
sites. It is clear that adult players deserve a fair game and
clear rules. I am interested in hearing from the witnesses
about what internal controls are in place to ensure game
integrity on daily fantasy sports Web sites-particularly if
different operators use different controls.
I am also interested to learn about the self-regulatory
activities industry has put in place and the technological
tools available in the market to implement consumer protections
include age limits and geofencing.
States all across the country are looking at these issues,
which will help inform whether a Federal role is warranted. In
Michigan, for instance, there is a bill pending in the
legislature to expressly legalize daily fantasy sports. \1\
I would like to thank the witnesses for taking time to come
help us understand this growing industry and I look forward to
hearing your testimony.
---------------------------------------------------------------------------
\1\ Id.
Mr. Burgess. The chair thanks the gentleman. The gentleman
yields back. The chair recognizes the gentleman from New
Jersey, Mr. Pallone. 5 minutes for opening statement, please.
OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Pallone. Thank you, Mr. Chairman.
Daily fantasy sports have become an integral part of the
game for millions of fans around the country. What started as
small informal betting pools among friends over the course of a
season is now a sophisticated online platform where millions of
dollars are exchanged across state lines every day. Entry fees
for daily fantasy sports range from a few cents to several
thousand dollars, and the major daily fantasy sports operators
have posted revenues of more than $1 billion in recent years.
Casual fans and diehards alike have embraced daily fantasy
sports as a way to interact with the games and players they
enjoy, and the leagues have taken notice. Within the past 2
years, Major League Baseball, the NBA, the NHL, and Major
League Soccer have each purchased ownership stakes or invested
in daily fantasy sports operators. Individual teams across
professional sports have also formed lucrative partnerships
with DFS operators, including nearly all NFL and MLB teams and
about half of the NBA teams. These teams and their leagues know
that daily fantasy sports participants watch more games than
the average fan and will even watch a one-sided contest until
the end if a player's performance could improve their stats and
earn them money. For the leagues, this presents a massive
ratings and advertising opportunity.
And despite its growing popularity, however, daily fantasy
sports are currently operating in a murky legal framework by an
industry is that mostly unregulated. It is crucial that
consumers know what they are purchasing when they sign up for
daily fantasy sports and that they understand the risk of
losing money in the process. For example, there are reports
that 90 percent of payouts were won but just 1 percent of
winners. With the allegations of insider trading at two major
daily fantasy sports operators, the potential harm to consumers
is real. And today we will explore not how to stop people from
playing, but how to bring fairness and transparency to the
industry.
And I must also mention the hypocrisy of those arguing that
daily fantasy sports is readily distinguishable from
traditional sports betting. While quietly applying for and
receiving gambling licenses in the United Kingdom, daily
fantasy sports operators continue to argue to interested states
in the United States that unlike sports betting, daily fantasy
sports is not gambling. Their reliance on this arbitrary
distinction of skill and chance is unconvincing, especially
since both the Department of Justice and the NFL have asserted
that sports betting also is a game of skill.
And speaking of the professional sports leagues, they have
reaped huge profits from their partnerships with daily fantasy
sports operators, at the same time most remain stubbornly
opposed to sports betting on the grounds that their players
could become involved in gambling and organized crime if it
were legalized, yet an estimated $400 billion is spent annually
in the United States on sports betting, and 99 percent is
illegal and functions almost exclusively through organized
crime.
In New Jersey, voters approved a two-to-one referendum in
2011 to allow sports betting at casinos and race tracks. In
response, every major professional sports league joined
together and sued the state to stop the plan's implementation
and stifle the will of the voters. How can the professional
sports leagues oppose sports betting at casinos and race tracks
but support and prosper from the betting that is taking place
every day in daily fantasy sports?
To date, the leagues and others have not sufficiently
explained the difference between fantasy sports, sports
betting, and other forms of gambling, and I look forward to
hearing from the witnesses on this topic.
I just want to conclude by thanking Chairman Upton and
Burgess for holding this hearing at my request. While I am
disappointed that some of the relevant actors in this place,
like FanDuel and DraftKings, refused to participate today, I
still believe that this hearing will be a good beginning to our
efforts to level the playing field between daily fantasy
sports, traditional sports betting, and gaming.
And I yield back the balance of my time. Thank you, Mr.
Chairman.
Mr. Burgess. The chair thanks the gentleman. The gentleman
yields back.
This concludes member opening statements. The chair would
like to remind members that pursuant to committee rules, all
members' opening statements will be made part of the record.
The chair also wants to acknowledge the presence of our
colleague from Nevada, Ms. Titus, on the dais, who is not a
member of the committee, but is monitoring our activities this
morning to ensure that we behave ourselves.
So we do want to thank our witnesses for being here this
morning and taking their time to testify before the
subcommittee. Today's witnesses will have the opportunity to
summarize their opening statements, followed by a round of
questions from members.
Our witness panel for today's hearing includes Mr. Peter
Schoenke from RotoWire; Mr. John McManus, the Executive Vice-
President and General Counsel and Secretary at MGM Resorts
International; Mr. Steve Brubaker, Executive Director at Small
Business of Fantasy Sports Association; Dr. Ryan Rodenberg,
Assistant Professor at Florida State University within their
Department of Sports Management; Mr. Mark Locke, Chief
Executive Officer at Genius Sports Group; Ms. Lindsay Slader,
Operations Manager at GeoComply. Where did we get to--Mr.
Jordan Gnat, Senior Vice-President of Strategic Business
Development at Scientific Games; Mr. Kurt Eggert, Professor of
Law at Chapman University's Fowler School of Law.
We do appreciate all of you being here this morning, and we
will begin our panel with Mr. Schoenke. And you are now
recognized for 5 minutes for your opening statement. Thank you.
STATEMENTS OF PETER SCHOENKE, PRESIDENT, ROTOWIRE, ON BEHALF OF
FANTASY SPORTS TRADE ASSOCIATION; JOHN M. MCMANUS, EXECUTIVE
VICE PRESIDENT, GENERAL COUNSEL, AND SECRETARY, MGM RESORTS
INTERNATIONAL; STEVE BRUBAKER, EXECUTIVE DIRECTOR, SMALL
BUSINESS OF FANTASY SPORTS TRADE ASSOCIATION; DR. RYAN
RODENBERG, ASSISTANT PROFESSOR, FLORIDA STATE UNIVERSITY,
DEPARTMENT OF SPORT MANAGEMENT; MARK LOCKE, CHIEF EXECUTIVE
OFFICER, GENIUS SPORTS GROUP; LINDSAY SLADER, OPERATIONS
MANAGER, GEOCOMPLY; JORDAN GNAT, SVP, STRATEGIC BUSINESS
DEVELOPMENT, SCIENTIFIC GAMES; AND KURT EGGERT, PROFESSOR OF
LAW, CHAPMAN UNIVERSITY FOWLER SCHOOL OF LAW
STATEMENT OF PETER SCHOENKE
Mr. Schoenke. Chairman Burgess, Ranking Member Schakowsky,
and members of the subcommittee, thank you for the opportunity
to testify today.
Mr. Burgess. Our technology here is arcane to ancient. You
would think that while we are the premier technology committee
in the United States, we would have only the best, but that is
not true. So please continue.
Mr. Schoenke. I will try to work through it.
Chairman Burgess, Ranking Member Schakowsky, and members of
the subcommittee, thank you for the opportunity to testify
before you today. My name is Peter Schoenke and I am testifying
as chairman of the Fantasy Sports Trade Association.
The FSTA has over 300 members, including major media
companies, such as ESPN, CBS, Yahoo, NBC, and Fox Sports;
content and data providers like USA Today, RotoGrinders, and
STATS, Inc.; and contest and league management operators, such
as RealTime Fantasy Sports, MyFantasyLeague, FanDuel, and
DraftKings.
Fantasy sports have become a new national pastime, with
over 50 million Americans participating in some form of fantasy
sports last year. Americans enjoy fantasy sports as a hobby and
as a form of entertainment that gives them an enhanced
experience and a deeper appreciation for the sports they love.
I am also the founder and president of RotoWire.com, a
leading information Web site for fans who enjoy playing fantasy
sports. I founded the Web site almost 20 years ago, when
fantasy sports were just beginning to be played on the
Internet. I am a small business owner based in Madison,
Wisconsin, and I chose a career in this industry because I am
passionate about playing fantasy sports and helping millions of
others enjoy the hobby.
First I would like to give a short introduction to fantasy
sports. Although it may seem to some as if fantasy sports
started last fall, with the barrage of ads during football
season, the truth is that fantasy sports have been played for
over 35 years. While there have been some innovations, like
head-to-head contests, live scoring, and most recently the
daily or weekly format, the basic concept has remained the
same. The objective is for a player to select a team of real
world athletes and compete against opponents based upon a
scoring system that uses statistical measures of individual
athlete's performances.
Take fantasy football as an example. Players draft a team
of eight real world football players from different teams to
play positions like quarterback, running back, wide receiver,
and so forth. The goal is to assemble a fantasy team that will
earn the most points, not to pick the winner of any particular
game. A running back, for example, earns 1 point for every 10
rushing yards and 6 points for a touchdown. This format is
typical for both season-long fantasy contests as well as daily.
Some may have the impression that the daily format is
dramatically different than season-long fantasy sports, but it
is virtually identical in the way it assigns points for
players' performance. All of the same basic principles apply.
An owner still assembles a team of real word players from
different teams for multiple positions, and those players earn
points through the same scoring system as in the season-long
leagues. The only difference is the duration of the contest.
Rather than taking place over a 17-week football season before
crowning a champion, for instance, these contests take place
over a single day or weekend. In essence, every week is akin to
the playoff rounds in a season-long league; think speed chess
versus regular chess.
Many sports observers recognize that fantasy sports are
having a transformative effect on how fans enjoy sports.
Ultimately this innovation can enhance fans' overall
experience, to the benefit of all.
My second point today is that the states are actively
regulating our industry. We support commonsense state
regulation to ensure transparency and fairness and to maintain
consumer confidence. I want to emphasis that we are committed
to consumer protection, not just because it is the right thing
to do, but because it is vital to the health of our industry.
States have traditionally taken the leading role in regulating
these issues, and states have taken varying approaches in the
context of fantasy sports. In the majority of states, paid
fantasy sports operate under the existing legal framework
without separate legislation or regulation, but bound by state
laws on fair commercial practices.
Some states, including Virginia, Indiana, and Tennessee,
have enacted legislation to clarify the legality of paid
fantasy sports contests and to ensure consumer protections.
Other states are currently crafting legislation tailored to
their own state's needs and interests.
We stand ready to work with any state interested in
developing a commonsense regulatory framework that would allow
residents to play fantasy sports while ensuring appropriate
consumer protections and without dampening innovation or
denying consumer choice.
Finally, at the Federal level, Congress has empowered the
FTC to protect American consumers from unfair or deceptive acts
or practices, and we as an industry appreciate that our
businesses must comply with these standards just as all other
Internet businesses do. We stand ready to work with the FTC and
with this subcommittee in moving forward to ensure the fairness
and transparency of paid daily fantasy sports as well as
season-long fantasy sports, and to ensure that we maintain the
trust and confidence of fans that choose to play fantasy
sports.
We also hope that in doing so, we preserve the ability of
states to regulate this activity, and that they do so without
killing the innovative spirit and new and exciting choices for
millions of fans who enjoy fantasy sports.
Thank you again for the opportunity to testify today. I
look forward to answering any questions you may have.
[The prepared statement of Mr. Schoenke follows:]
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Mr. Burgess. The chair thanks the gentleman. The chair
recognizes Mr. McManus for 5 minutes for your opening
statement, please.
STATEMENT OF JOHN M. MCMANUS
Mr. McManus. Thank you, Chairman Burgess, members of the
subcommittee. I appreciate the opportunity to be here to
testify today.
I am the executive vice-president and general counsel for
MGM Resorts. We operate land-based casinos throughout the
United States. I note that many of the members of the
subcommittee are from the states where we either operate a
casino or may be developing one, so I will try to be on my best
behavior today.
I have submitted written testimony. I am going to just
summarize it, as we have many more knowledgeable panelists on
the subject today and I would like to allow additional time for
your questions.
And I don't speak for the land-based casino industry
generally. There are different points of view with respect to
daily fantasy sports. My company has its point of view, and I
will speak really on behalf of my company, but I think where
there are differences, I can address that through questions if
you would like.
Really, like most other people, I first became aware of
daily fantasy sports through the barrage of television
advertisements. And sort of the first impression I had is, what
is this? And it sort of feels like gambling to me, was my
initial reaction. And over the last year and a half or so, I
have tried to study it, learn more about it.
We are a gambling company, a gaming company, and we are a
bookmaker in Nevada, the one state that has really full scale
sports betting permitted under PASPA, so it is of great
interest to us. And our first reaction was, well, maybe this is
something we want to get involved with. We looked into it and
concluded that as a regulated company, there was a lot of risk,
because there wasn't clarity on whether it was legal, exactly
what it was, and, frankly, we didn't know how to make money
doing it as well.
So through our study of the subject, we concluded that what
we really need is to know whether or not it is legal, because
whether we choose to engage in it directly, have marketing
partnerships with the companies that do engage in it, or any
other association, as a licensed gaming company, we need to
associate ourselves with businesses that are legal, and avoid
falling into situations where we are associated with an illegal
operation.
So we really want clarity, and that is one point I think
the industry is unified on, that having legal clarity on the
subject of daily fantasy is critical. And gaming and gambling
issues have historically and, I think, appropriately been
regulated at a state level and legislated at a state level.
There are many states represented on this subcommittee where
there is no legal casino gaming and there are others where it
is an important industry and part of the economy in those
states. We think that is where these decisions ought to lie, on
gaming anyway, that that ought to be an issue to be decided by
the states to preserve the differences of the citizens of the
states and let them decide what type of activity will be
permissible.
However, to the extent that daily fantasy is or is not
gambling, it ought to be run fairly with appropriate consumer
protections and appropriate level of regulation, whether it is
gaming regulation or otherwise. So we fully support consumers
being able to engage in this activity, in a lawful and safe
manner, and with appropriate protections. And we hope, whether
it is at a Federal level or a state level, appropriate actions
are taken to make sure that this is a safe playing field for
those who enjoy it.
We think it is a really interesting innovation. It is
something that has activated fan bases for a variety of sports,
and increased engagement. I know that the leagues, with the
exception of the NCAA have embraced it. And it is something
that we would like to see done in a safe and responsible
manner.
And with that, I will be happy to answer any questions.
[The prepared statement of Mr. McManus follows:]
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Mr. Burgess. The chair thanks the gentleman. The gentleman
yields back. Mr. Brubaker, you are recognized for 5 minutes for
your opening statement, please.
STATEMENT OF STEVE BRUBAKER
Mr. Brubaker. Good morning, Chairman Burgess, Ranking
Members Schakowsky and Pallone. My name is Steve Brubaker. And
I am here representing the small businesses of fantasy sports.
I think, like many of you, I didn't know there were small
businesses of fantasy sports until about 6 weeks ago. I was
contacted by a mutual friend that had some fantasy football,
season-long fantasy football clients that were disappointed in
some legislative activity that happened in Virginia and
Indiana. I got in touch with these folks. We decided that we
needed to educate legislators, now we have an opportunity to
educate Members of Congress, about the needs of small
businesses in this industry and how they differ from the large
companies.
And we are concerned that, I think you mentioned, Chairman
Burgess, this patchwork of laws across the country. We are
concerned about this patchwork. It is hard work for a small
group of companies to band together and try to work on
legislation in 50 states at the same time. We are trying, we
are making that effort, and we are going to continue on as long
as we can do that.
On the two states that we had problems with early on,
Virginia and Indiana, the issues for the small companies are
really financial and regulatory. So we had a $50,000 annual fee
in both those states. None of the small companies make $50,000
in those states. So if you are not making $50,000 and the fee
is $50,000, you are barred from entry into that state, so
financially we can't operate there.
Mr. Schoenke mentioned Tennessee. Tennessee has a 6 percent
tax on net revenues. It is not a horrible, large tax, it is
higher than we want to see it in that state, but the undefined
portion of that is the regulatory fees. We don't know what they
are going to be. We have to go negotiate those.
We are looking for clarity in laws. We would like to have
low fees everywhere we go, low taxes if there is going to be
taxes, but it is the regulatory burden that is really
troublesome. So what I mean by that is many of the state laws
that we have seen on the books, or are introduced so far, talk
about annual audits by a third party within the state. If we
had an annual audit for our companies, one audit for the
company that would be reciprocally accepted across all 50
states, that would be certainly acceptable, that makes sense.
You want to see our financials, here is our audited financials,
here they go, all 50 states go out in the mail, but if we have
to have audits in every single state, 50 states times that
$4,000 or $5,000, $6,000, $10,000 fee, that is a prohibitive
thing for us on the regulatory side.
On scale, we talk about DraftKings and FanDuel, huge, huge,
huge companies. Some of these companies that are in the small
businesses of fantasy sports group may only have 4,000, 5,000
players all across the country, so it is a different thing. It
is like McDonald's compared to the local java hut you go to to
get your morning coffee, or a Starbucks or something like that.
But I think critically what we want to try to get across is
we want to work with you. If you are interested in doing some
more research on this, we will come here and talk to you at
length about the needs of small businesses. Certainly we are
going to keep plugging away in the states. We are working in
Illinois really hard on that bill, Congresswoman Schakowsky. It
is coming along. We will see how it progresses. New York has a
tough bill. They have a $500,000 fee, a registration fee, in
that state. I don't even know if DraftKings could have afforded
that fee, although I think they supported that bill.
So there is a lot of work that we have to do to educate
people about the number of businesses, the types of businesses.
A lot of our members are season-long. There is a drastic
difference between season-long and daily. And most of that
difference comes down to the active management that you have to
have when you are a season-long fantasy sports player. You have
to readjust your lineup every week for 16 weeks of a football
season, thousands of transactions where you go back and forth
improving your team so you can beat your buddy who is also in
that same league with you.
You don't have that in DFS. You pick your lineup, you
select it, you might enter it in one or 100 different games for
that day, and then you are done. Season-long, you are
constantly working on that team, because, as I said, you want
to beat your friends that are playing those games with you.
I am running out of time here. I want to thank you for the
opportunity of being here today.
[The prepared statement of Mr. Brubaker follows:]
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Mr. Burgess. The chair thanks the gentleman. The gentleman
yields back. The chair recognizes Dr. Rodenberg. 5 minutes for
your opening statement, please.
STATEMENT OF RYAN M. RODENBERG
Mr. Rodenberg. Good morning, Dr. Chairman Burgess and other
honorable members of the Subcommittee on Commerce,
Manufacturing, and Trade. My name is Ryan Rodenberg. I work as
a professor----
Mr. Burgess. Sir, is your microphone on?
Mr. Pallone. Closer.
Mr. Rodenberg. Good morning, Dr. Chairman Burgess and other
honorable members of the subcommittee on Commerce,
Manufacturing, and Trade. My name is Ryan Rodenberg. I work as
a professor at Florida State University. One of my primary
research lines pertains to sports gaming. I am pleased to be
invited to testify at today's hearing and appreciate the
opportunity to be on this panel. My written statement and oral
testimony reflect only my personal views and do not necessarily
reflect the views of my employer or any of the media outlets
for whom I have written articles.
As I detail in my written statement, daily fantasy sports'
current legal status lies at the intersection of three
overlapping regulatory circles in a Venn diagram: Federal
gaming law, state gaming law, and general notions of consumer
protection.
Given the overlap, and recognizing the daily fantasy sports
represents only a small portion of the American sports gaming
market, I believe any substantive discussion of daily fantasy
sports must take place in the context of a simultaneous
examination of traditional sports wagering.
In this brief oral testimony, I focus on the most important
Federal statute in this realm, the Professional and Amateur
Sports Protection Act of 1992, or PASPA, for short. Justice
John Paul Stevens, writing for a unanimous U.S. Supreme Court
in a 1999 decision opined that, ``PASPA includes a variety of
exemptions, some with obscured congressional purposes.''
Similarly, the Department of Justice raised a number of
concerns about PASPA in a September 1991 letter to then Senator
Joe Biden.
The paradoxical nature of PASPA's grandfathering scheme
among the states has serious implications for potential
consumer-protection-related regulations of daily fantasy sports
as well as traditional sports gambling.
Over the course of nearly 5 years of litigation, three
Federal lawsuits against two different sitting state governors,
and three Court of Appeals decisions with a fourth decision
imminent, here is what we know about PASPA. First, for
grandfathered states such as Nevada, Delaware, Montana, Oregon,
and perhaps a few others, PASPA seemingly freezes in time,
circa 1992, those states' abilities to enact sports gaming
related regulations.
Second, for nongrandfathered states, PASPA seemingly
provides such states with the option of either retaining their
sports gambling prohibitions as is or repealing their
prohibitions entirely. To do otherwise would apparently render
PASPA unconstitutional under the Tenth Amendment. Whether any
middle ground is permitted under PASPA remains a subject of
still ongoing litigation filed by the NCAA, NBA, NFL, NHL, and
Major League Baseball against the Governor of New Jersey.
Third, for all states, whether grandfathered under PASPA or
not, the plain language of PASPA constrains the ability of
governments to enact commonsense consumer protection
legislation for both daily fantasy sports and traditional
sports wagering. No Federal court case has squarely decided
whether daily fantasy sports constitute illegal gambling.
Relatedly, a Department of Justice attorney testified before
Congress in 2000 and said, ``there is considerable debate we
found in our research over whether or not fantasy sports
leagues constitute gambling or whether they are simply a
contest.''
For all these reasons, I think it would be difficult for
Congress to address specific issues pertaining to daily fantasy
sports absent a contemporaneous evaluation of traditional
sports wagering.
Thank you, Chairman Burgess and members of the
subcommittee, for the opportunity to appear before you today. I
am happy to answer any questions you may have.
[The prepared statement of Mr. Rodenberg follows:]
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Mr. Burgess. The chair thanks the gentleman. Mr. Locke, you
are recognized. 5 minutes for your opening statement, please.
STATEMENT OF MARK LOCKE
Mr. Locke. Good morning. Many thanks to the committee for
giving me the opportunity to speak today and share my
experiences and views in relation to sports integrity. My name
is Mark Locke. I am the chief executive officer of Genius
Sports. We are a U.K.-based technology company that, among
other things, specialize in providing technology and education
services to sport in order to help them both protect the
integrity of their events and also to help them understand the
markets and the environment within which they operate.
As I see it, my role here today is to share my experience
and knowledge of factors that can influence the integrity of
sport. At no point during today's sessions will any views I
have be those other than my own, and I am certainly not
speaking on behalf of or representing in any way the views of
our partners or clients both here in the U.S. or
internationally.
Genius Sports was established as a technology company in
the year 2000, and we have been operating in the regulated
international gaming, sports, and lottery markets, providing
various technical solutions that, amongst other things, enable
us to collect data, model how events should be expected to
proceed, and monitor betting markets on a live and automated
basis. As a result of this work in technology, we are able to
help sports to recognize anomalies that could indicate
potential problems with the integrity of their events.
As sports become more widely appreciated and
internationalized, there has been an increasing need to have an
education and technology services available to provide sports
leagues and federations with the necessary breadth of knowledge
and expertise in order to help them to manage in a safe and
responsible fashion the growth of their events. We work across
all sports, from technology, to education, helping these sports
to achieve those goals.
I hope that my experience and knowledge will be helpful to
the committee today. And once again, many thanks for giving me
the honor of participating.
[The prepared statement of Mr. Locke follows:]
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Mr. Burgess. The chair thanks the gentleman. The chair
recognizes Ms. Slader. 5 minutes for your opening statement,
please.
STATEMENT OF LINDSAY SLADER
Ms. Slader. And I think that there is a map coming up on
the screen here. Perfect.
Thank you, Chairman Burgess and members of the subcommittee
for having me here today. My name is Lindsay Slader. I am the
operations manager of GeoComply, who is a geolocation
technology provider.
We have all heard of the Internet of things. The term used
to describe how the Internet has gone from a desktop computer
at home or the office to the near ubiquitous network of
connected devices today. From phones in our cars, to our TV,
everything is connected. However, with the Internet of things
has also come the need for the Internet of places. States'
rights concerns, as well as the requirement for national
sovereignty over what can and can't be accessed on a
territorial basis, have given rise to the need to determine
with a very high degree of certainty what jurisdiction an
Internet-connected consumer is governed by.
Historically the notion that you could indeed draw
geographic boundaries on the Internet would have been
laughable, such was the weakness of the original technologies
and the availability of cheap and easy methods to fake your
location. However, with the advent of regulated iGaming in the
U.S. in 2013, four of the five U.S. states who are
participating meaningfully in iGaming today have taken the
initiative in deploying stringent geolocation and security
protocols in order to geofence their services solely within
their boundaries. By doing so, they act with the clear letter
and spirit of the Federal law of UIGEA, which requires such
rigorous geolocation tools as a prerequisite of operating
within a particular jurisdiction.
Given the more recent rise of daily fantasy sports, the
need to define physical location on the Internet has only
become more significant. No matter how, nor in what manner,
such an industry may be regulated, there is now advanced
geolocation technology available to powerfully filter consumer
access in any shape or form that may be required.
Be it to promote or restrict online access, technology is
no longer an impediment to a chosen business or legislative
model. It can be an indispensable tool and enabler.
GeoComply's technology is currently in action throughout
the U.S., processing up to 1 million transactions per day. Our
technology ensures state rights are respected through adequate
geofencing and business operators are equipped with advanced
tools needed to uphold relevant business and compliance
requirements.
For Internet gaming and lottery, we are currently working
with licensed operators to uphold State regulations and the
geographic borders of New Jersey, Nevada, Delaware, and
Georgia. This also means not only enabling eligible traffic
from these states, but also blocking traffic from states that
outlaw Internet gaming, such as Utah, California, New York, and
so on.
For DFS, our geolocation solutions are designed to be
highly adaptive to the constantly changing landscape of the DFS
industry thus far. Given the volume and speed at which state
DFS legislation is currently evolving, our systems are designed
to turn on or off access at the drop of a hat for any
particular state or region. I believe last week, for example,
legislative changes were seen in about three states, whereas
tomorrow, there could be a whole host of others.
By providing the means to respect sovereignty and the
jurisdictional powers of a given physical territory, all via
the Internet, geolocation technology, therefore, provides a
necessary two-fold function: one, to uphold the preferences and
rights of any given jurisdiction seeking to enable yet contain
user access within their borders; and, two, to respect the
wishes of any jurisdictions that choose to not participate or
license such activity or that may ban it all together.
Neither can be achieved without adequately robust and
adaptive geolocation tools. So if a state doesn't want it, they
don't have to have it. Every use case has a technical solution.
To perform a geolocation, GeoComply is able to gather
pinpoint-accurate location data from a number of data sources
to determine the whereabouts of a user. Then we confirm the
integrity of that data to ensure it is secure and hasn't been
masked or tampered with by any host of tools, such as proxies,
VPNs, remote desktop software, jailbroken devices, mock
location settings, and atomizers, the list goes on.
By the time we approve or deny a transaction, the data may
have gone through up to 350 checks that our compliance
algorithm seeks to verify. These settings can be set and
adjusted by regulators and operators, depending on the market
needs and requirements. Therefore, it should be well noted that
the technology and safeguards which may be necessary if state
or Federal parties choose to become more involved in DFS, in
some shape or form, are very capable and, in fact, quite robust
to uphold such standards.
GeoComply believes that all legislative and regulatory
issues can easily be addressed with effective geofencing
technology.
If I can point your attention toward the map up on the
screen.
So as you can see on the map here, these are live
geolocation queries and instant analytics currently happening
in realtime in the U.S. In particular, this demonstrates the
importance of pinpoint-accurate location data, given the
significant population centers in America that line your state
and Federal borders. And this technology can be custom
configured and adapted accordingly to any given use case be it
DFS or Internet gaming or any other industry.
And then just a quick video clip. This is a zoom-in on the
New Jersey-New York border, which is really a significant area
for all the stakeholders speaking here today, be it gaming or
DFS. This shows that not only can we accurately pinpoint
someone's location, but also defend any given border even from
the banks of the Hudson River in such a highly densely
populated area.
That concludes my testimony. Thank you for having me.
[The prepared statement of Ms. Slader follows:]
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Mr. Burgess. The chair thanks the gentlelady. The chair
recognizes Mr. Gnat. 5 minutes for your opening statement,
please.
STATEMENT OF JORDAN GNAT
Mr. Gnat. Thank you, Chairman Burgess, Ranking Member
Schakowsky, Ranking Member Pallone, and members of the
subcommittee, for the opportunity to testify before you today.
My name is Jordan Gnat and I am the senior vice-president
of strategic business development for Scientific Games
Corporation. Scientific Games is a leading innovator in the
regulated global lottery, gaming, and interactive industries
offering a range of products, technologies, and services to
more than 300 customers on six continents for the last 40
years. Scientific Games is also the service provider to the
Delaware Lottery of its legal, regulated sports betting
offering at over 100 retailers and three race tracks.
I am honored to be with you today to share my observations
from my 12 plus years in the international gaming industry. I
would like to offer some insights regarding the means by which
other countries have successfully implemented regulated sports
wagering systems.
My testimony will outline two case studies from Ontario,
Canada, and the EU to help illustrate how these best practices,
from geolocation and age verification, to betting limits,
realtime global monitoring of betting activity, and education
have been enabled effective and transparent sports wagering in
international jurisdictions.
Additionally, in almost all cases, these regulatory systems
have enabled both governmental lotteries and commercial gaming
operators to offer innovative products through multiple, highly
regulated, licensed distribution channels. In fact, nine of the
top ten legal sports betting jurisdictions in the world offer
sports wagering either exclusively through their lottery or a
combination of lottery and commercial operators, being land-
based or Internet.
Let's begin with Canada. Legal sports wagering has been
available in Canada since the early 1990s. Each of the five
provincial lottery corporations in Canada offer a full line of
sports betting, but in the form of parlay wagering, meaning
that a wager placed must be on the outcome of more than one
event, activity, or performance.
To provide you with an example of how legal, secure,
regulated sports betting happens in Canada, I will use the
Province of Ontario as a case study. Ontario launched Pro-Line
in 1994, and it is available at the nearly 10,000 licensed
lottery retailers in the province. The first product launch was
a simple three game parlay with a minimum and maximum betting
limit set. Over the past 20 plus years, the product offerings
have continued to evolve in sophistication to include two-event
parlays, proposition wagering, and cross event wagering. The
product has also evolved from a lottery-only channel to now
include the casino channel. Recognizing the differences between
the two, Ontario created a differentiated model for lottery
retailers. With betting maximums for players at $100 and
casinos, with betting maximums for players at $1,000. For its
Internet activity, Ontario is soon to offer its sports betting
products online alongside its current casino and lottery
products.
British Columbia, for example, offers a full range of
Internet sports betting products. Both provinces use
geolocation and age verification systems to ensure that players
are of age and located specifically in BC or Ontario.
I will now turn to Europe. The majority of jurisdictions in
Europe offer sports wagering through their lottery or a
combination of lottery and commercial operators. Each
jurisdiction establishes its own betting rules, risk management
teams, policies, odd setting frameworks, or outsources it to
professional organizations.
In 2012, the World Lottery Association introduced the
Global Lottery Monitoring System, GLMS. The system went live in
partnership with Sportradar in June 2015. GLMS provides its
members alerts on betting anomalies from around the world. Each
member reacts to the alert independently, looking at the
betting in their particular market, and determines what
corrective action is necessary, including voiding bets, and
reporting to the appropriate authorities.
There are 27 global members of GLMS from Europe, Canada,
South America, Asia, and Africa. The program is planned to be
expanded in the latter part of 2016.
In addition to technological advancements, professional
sports organizations themselves are beginning to introduce
measures to ensure game integrity. As an example, in 2013,
FIFA, FIFPro, and Interpol came together to announce a new
initiative to combat match fixing in the form of a training
program called ``Don't Fix It.'' The program focused on
raising, quote, awareness of the dangers of match fixing among
players, referees, officials, administrators, organizations,
and public authorities, and to raise the ability of those
involved in professional soccer to know how to recognize it,
reject it, and report it.
It is estimated that the illegal U.S. sports betting market
could be as much as $400 billion. To put this number into
perspective, the legal, regulated global lottery business is
approximately $280 billion and the U.S. casino industry is
approximately $240 billion.
The point to understand here is that sports betting is
already an enormous market in the U.S. Implementation of
regulations that ensure integrity, accountability, and consumer
safeguards in sports wagering can turn the current multi-
billion-dollar black market into a transparent, effective
system that keeps professional sports and amateur sports safe
for future generations.
Mr. Chairman and Ranking Member Schakowsky, I again want to
thank you and your members of this committee for inviting me to
testify before you today at this very important hearing.
I hope my presentation has provided helpful insights on
some key elements of successful regulatory systems employed
around the globe, and I look forward to the opportunity to
answer your or our colleagues' questions. Thank you.
[The prepared statement of Mr. Gnat follows:]
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Mr. Burgess. The chair thanks the gentleman. Mr. Eggert,
you are recognized. 5 minutes for opening statement, please.
STATEMENT OF KURT EGGERT
Mr. Eggert. Thank you, Chairman Burgess and Ranking Members
Schakowsky and Pallone. I appreciate the chance to talk about
daily fantasy sports. I am a law professor. This is my third
time testifying in front of this subcommittee about Internet
gambling issues. And I must be doing something right, or you
wouldn't keep inviting me back. At least that is my hope.
I should say up front, I don't oppose or support daily
fantasy sports or gambling. My purpose is to argue that if it
is legalized, it needs to be regulated so that there is proper
consumer protection, to maximize the experience of players, and
to protect them from being cheated or beaten unfairly, and also
to make sure that problem gamers get the help they need so that
gambling and daily fantasy sports don't destroy the players and
their families.
One issue that constantly comes up is, is it gambling or
not? Is this a game of skill or a game of chance? And I would
like to say that for the people who are really good at it, it
is not a game of skill, it is not a game of chance, it is a
game of algorithms.
The top players are, as far as I could tell, I have read a
lot of interviews of the big winners, they are not long-time
sports experts. Many of them I have seen come up through either
poker or data management. And what they do is they construct
these very sophisticated algorithms and import a huge amount of
data, much more data than any human could hold in their brain
at one time, and use these algorithms to spit out lineups, and
then they can take these lineups and enter them into multiple,
multiple, many times different competitions, both high stakes,
mid stakes, low stakes.
And so you can be just an average recreational gamer and
suddenly be playing head to head with one of the top daily
fantasy sports gamers in the world and perhaps not even
recognize it. That would be as if you are out there playing
tennis and suddenly Roger Federer is slamming balls at you, and
you are playing for money.
The last two times I testified, I talked about Internet
poker, and the big issue there are BOTs. And the Internet poker
industry says, it is wrong to use these algorithms to beat
human players, and they claim that they can stop it. I am not
sure they can, but at least they are trying.
In daily fantasy sports, as far as I can tell, they don't
even try to stop algorithms; instead, welcome the
professionals, who gamble a lot of money every day, against
people without these algorithms. So they have a huge advantage,
not because they know more about sports, but because they have
more data and have algorithms that can use that data to select
the best portfolio of teams.
I would like to ask industry representatives to explain,
why is this a good thing to have a few top players take all
this money from the many recreational players who are just
trying to have a good time?
So let's look at what these algorithms can do. They can
track, say in baseball, for a hitter, they can track whether
the hitter is good against lefties or righties or against this
particular pitcher, they can track what direction the wind is
likely to blow on a given day, they can track when will the sun
be in the batter's eyes. I listened to one person who just won
a competition, and he said, we were tracking the strike zone of
the umpire. How many average players can import that kind of
knowledge and make use of it? But the professionals can.
So what do you do to help the recreational player? I think
you need strong consumer protection. You need to limit the
amount of lineups that people can enter, because people who are
entering a lot of lineups are either pros or people probably
with a problem. You also need to label the high earners so that
the average player knows, look, I am going against somebody way
out of my league, and can either choose to play or not.
You also need services for problem gamers. You need them to
know that they can get help if they need it. You need to
prevent insider playing. And you also need regulators to
oversee the games to make sure that people get paid and that
the right people get paid.
So with that, I am done. I appreciate you inviting me back.
And I am happy to answer your questions.
[The prepared statement of Mr. Eggert can be found at:
http://docs.house.gov/meetings/if/if17/20160511/104902/hhrg-
114-if17-wstate-eggertk-20160511.pdf.]
Mr. Burgess. Well, thank you. And thanks to all of our
witnesses for their testimony.
And we will move now into the question and answer portion
of the hearing for member questions. I will begin the
questioning by recognizing myself for 5 minutes.
And, again, let me just say, fascinating amount of
information you have provided for us this morning.
Perhaps if I could, Mr. Eggert, let me just ask you before
we leave your algorithm concept, and Ms. Slader, I want to
include you in this question, because you heard Chairman Upton
talk about how do you exclude someone who is underage, OK, from
involving themselves in these daily fantasy sports.
You know where they are and you kind of know something
about how they are playing. Is there a way to exclude the 18-
and-under-year-old group from playing these sports? And we all
know teenage boys live on sports, right? That is all they do.
Ms. Slader. I can speak to excluding individuals, not
necessarily about verifying their age or identity.
When GeoComply does a geolocation, the geolocation is
anonymous, so we don't know who they are, where they live,
whether they are a big-time player or anything. All we are
concerned about is where they are. But if we, based on the data
that we have, or the operator of the Web site decides that we
need to exclude this player, cut them off for a certain period
of time, GeoComply can help with that. We have tools that would
cause you to always fail a geolocation, and therefore never be
able to enter a contest. You could do that by their account
name, you could do it by any device that has ever been
associated with their account.
So if they play on two computers and a tablet, we can block
them all. You could do it by an IP address, so their home
Internet connection or work or wherever they may have ever
played. So there are lots of tools at our disposal to keep
people out if you singled out an individual.
Mr. Burgess. Yes. But the cleverness of a 16-year-old
really shouldn't be underestimated.
Mr. Eggert, how do you recommend that this issue be
addressed? Is there a way to do it with data, with algorithms?
Mr. Eggert. Well, the new Massachusetts regulations
require, you have to prove who you are and you have to have
only one account and one name. And I think that is necessary
both to make sure that minors aren't playing the games and also
to give people tools if they want to self-exclude, you can have
a process where they can self-exclude and they just can't come
in with a different name. So I think it can be done, and I
think it has to be done.
Mr. Burgess. Yes, but that is for someone who wants to play
by the rules, but someone who wants to not play by the rules,
how are you going to exclude them?
Mr. Eggert. Well, if you have to prove who you are in order
to play, there may be ways around that, but at least I think
the states should try to make sure they know who is playing and
that they are of age and that they haven't excluded themselves.
Mr. Burgess. Well, Mr. Schoenke, let me just ask you from
the small business perspective here, how do you see addressing
that problem? Chairman Upton addressed it, the underage person
should not be allowed to play. How do you prevent that from
happening?
Mr. Schoenke. We as an industry, the FTSA have always been
against minors playing fantasy sports, paid fantasy sports
contests for money. Our leading providers and our leading
companies use something called Know Your Customer technology.
When people sign up, they give a whole bunch of information on
them, name, address, they run it through databases using
leading third-party companies to figure out if the customer is
who they say they are, and then, you need a credit card, you
need to sign up for credit card information. And then the
companies, the major providers of daily fantasy, they don't
want minors to play. If they find out that a minor is playing,
they will refund the person in question.
Mr. Burgess. All right. Let me just ask you, are most of
the transactions done on a credit card-type transaction----
Mr. Schoenke. Yes.
Mr. Burgess [continuing]. Or using bit coins and digital
currency to----
Mr. Schoenke. Yes.
Mr. Burgess [continuing]. For these transactions?
Mr. Schoenke. Yes. So it is all primary credit cards,
PayPal, you know, those kinds of transactions.
Mr. Burgess. Mr. Brubaker, let me just ask you, and I don't
know, maybe I should be asking others one the panel as well, I
mean, I don't want to telegraph the limited amount of knowledge
that I have about this issue, but I am just having a hard time
with the season-long sports and the daily fantasy sports.
Clearly those are different avenues.
I guess what I don't understand is football, if I
understand correctly, you play a game once a week, any given
Sunday, and yet daily fantasy sports you are playing these same
games all week long, but there is no actual game being played.
So how is that constructed? How do you actually construct a
daily fantasy sports transaction when the games are only played
one day a week?
Mr. Brubaker. So on daily, you bet one game, or you have
one contest that you play. All right? In season-long, you draft
your own team to play for an entire season. You are the GM of a
football team, and you draft the players for your team and you
enter them for that weekend. And then the next weekend, if you
have an injury, say Tom Brady gets injured, he is your guy you
drafted, you have to sit him and put a different quarterback in
his spot. That is all the work you have to do.
Mr. Burgess. You are obligated for the whole season at that
point? You can't fire your team and walk away?
Mr. Brubaker. I don't believe you can, well, you can. There
are waivers and there are trades you can do with other people
within your league to, if you need a quarterback, you can trade
a running back for another team's quarterback, something like
that. Those are the transactions that go on in season-long that
don't happen in daily.
So daily, you pick your players. Now, I am no expert in
daily. I did get a FanDuel account a few weeks ago to learn how
to play that, and I was playing baseball. So in that, you pick
a pitcher, you pick a catcher, you pick a first baseman, so on
and so forth, and you lock those people in on your team for
that game only and you pay your fee. And then at the end of
that game, all the players that you pick, their stats are added
up, and if you beat everybody else, you win, if you don't, you
don't.
Season-long, you do your draft before the first game of the
season is played, be it baseball or football. You don't know if
you won or not until the end of the season after all 16 games
have been played. So that is the difference.
Mr. Burgess. Thank you for that.
Ms. Schakowsky, you are recognized 5 minutes for questions,
please.
Ms. Schakowsky. Thank you.
Professor Eggert, you referred to the Massachusetts
attorney general who just issued regulations. I am wondering if
there are any other states or is this the furthest-along model
of regulation?
Mr. Eggert. I think it is a good model. I know that
Tennessee just issued some regulations. To be honest, I think
those are fairly well-advanced. I think Massachusetts is a good
model, but I think it can be improved on.
Ms. Schakowsky. OK.
Well, one of the concerns that the regulations issued in
Massachusetts attempt to address is fly-by-night daily fantasy
sports companies that collect wages and fees from users and
then fail to pay out. Are you seeing that at all as a problem?
Mr. Eggert. Well, right now, the industry is dominated by
the two major companies, and they are far from fly-by-night. I
haven't heard of instances in the U.S. where that has happened.
I know it has happened with gaming organizations in the Cayman
Islands, for example. And so that can well be an issue. I
haven't seen it here.
Ms. Schakowsky. OK.
So, Mr. Brubaker, you are talking basically about the 2
percent of the industry? Because if 98 percent are dominated by
two companies, is your space the rest?
Mr. Brubaker. Well, there have been different statistics
for what DraftKings and FanDuel mean to the rest of the
industry. There are daily statistics only, which I think is 95
percent for DraftKings and FanDuel and 5 percent for the other
daily providers. There are several other daily providers that
do daily fantasy sports.
Ms. Schakowsky. OK.
Mr. Brubaker. And there are also all the small companies
that do season-long, which would skew that percentage.
Ms. Schakowsky. Right.
Mr. Brubaker. But we are small. I mean, they are small
companies.
Ms. Schakowsky. Professor Eggert, are you seeing gambling
addicts playing DFS? And do you know if this is a big issue?
Mr. Eggert. I think there was a recent study that indicated
that there is an overlap between people with problem gambling
issues and daily fantasy sports play.
Obviously, this is a very new industry and the kind of
study that would really nail this down takes a lot to do, and I
anticipate that we will see more of that.
Ms. Schakowsky. Thank you.
You mentioned in your written testimony that Massachusetts
regulations would forbid daily fantasy contests based on
amateur sports, such as high school or college. And the NCAA
has repeatedly professed its opposition to NCAA sports being
part of it. So why is this prohibition important?
Mr. Eggert. I think it is important to protect amateurs,
high school kids, college kids, from having somebody have a
great interest in whether they score that touchdown or fall out
of bounds right at the 1-yard line. When we have seen game-
fixing in college sports, it is really hard for a college kid
isn't making a lot of money, will never go pro, it is very
tempting to take a pile of money to do the wrong thing. And I
think we need to protect high school and college athletes from
that.
Ms. Schakowsky. Does anybody on this panel disagree with
that?
OK.
In the time remaining, if you could talk a little bit
more--you did already--about what you would add to
Massachusetts regulation and what might then be the more
complete model for States. And are you saying that the state is
the best place to regulate?
Mr. Eggert. I think the state is the best place to regulate
because I think that there are local interests that are
implicated. I think some states don't want to have gambling or
daily fantasy sports which are equivalent to gambling, and I
think that they should have the right to do that if they don't
want to have it. It shouldn't be forced on them.
Ms. Schakowsky. So talk to me about what Massachusetts, for
example, or any state should add in terms of consumer
protection. That is my emphasis.
Mr. Eggert. Well, what I would want to look at, these
regulations have just gone into place, and it would be good to
see how they work. My concern is I would consider reducing even
further the limits that they have only the number of entries.
They allow a decent number of entries, and what we have seen is
that the professionals enter a lot. And it may be that they
have overstated the number.
I would also want to look at a form of labeling of, I
think, what they call highly experienced players. I think that
should be based on how much you make rather than have you
entered a lot of games. Because somebody may have entered a lot
of games and not be very good, and they shouldn't be labeled
as, oh, this is a scary person.
Ms. Schakowsky. It could be a person with a problem,
though, right?
Mr. Eggert. It could be a person with a problem, but if you
over-label as the top players and label many people who aren't,
I think people will start ignoring the labels. So I would want
to tighten up who gets labeled as a highly experienced player.
Ms. Schakowsky. Thank you.
I yield back.
Mr. Burgess. The chair thanks the gentlelady.
The gentlelady yields back, and the chair recognizes the
gentleman from New Jersey, Mr. Lance, the vice chairman of the
subcommittee, 5 minutes for questions, please.
Mr. Lance. Thank you, Mr. Chairman.
Mr. Locke, as a sports monitoring service in many legal
international sports-wagering jurisdictions, can you walk us
through how your technology works to protect the integrity of
sport? Is usage of this technology required in most legal
sports-wagering jurisdictions?
Mr. Locke. Sure. I mean, the technology and the services
that we offer operate in two distinct areas.
The first is around the technology play, which allows us to
aggregate and monitor betting lines internationally. What we do
is we model how we expect sports events to look on a
mathematical basis, and then what we do is we overlay what is
actually going on in international betting markets in a live
environment with that. And the way that we work with sports in
that respect is we provide factual data on any anomalies, any
differences to what we would expect that could indicate issues
that need to be looked at.
Also, from a technology point of view, what we do is we
work with sports to identify correlated risk. So, for example,
if you are seeing anomalies with particular players and umpires
or officials all in the same game or all in the same series of
games, we will highlight that, as well, for sports to look into
and sports to police.
The other side, which is important and I think the
emphasis, especially here, should be focused on is around
education. The way that we work with sports at the moment is to
help sports to understand the environment that they work in and
any of the risks that they may be exposed to.
A great example of that is if, say, for example, a team
physio is in a bar having a drink, he runs into somebody, they
strike up a conversation, they just share the fact that there
might be a particular injury of a particular player. The guy
goes away, places some wages, and comes back. He is able to put
pressure on the physio of the team by saying, ``Listen, you fed
us some inside information. Here is your share of the
winnings.'' And he has effectively put him in a position where
he feels like he is providing inside information.
So part of our services is around educating the teams, the
players, the umpires as to the risks that they may be exposed
to in the markets that they operate in.
Mr. Lance. OK.
Anyone else on the panel who would like to comment on that?
Mr. Brubaker, in your testimony, you discussed the
challenges for small operators to comply with 50-state audits
that had been required in recently passed legislation.
Can you give us a sense of how many of your members have
players in all 50 states? And do you see a path forward for
states accepting audits from one another to reduce the
regulatory burden on smaller operators?
Mr. Brubaker. So, on the states, there are only 45 states
that fantasy sports can be played in right now. And so the five
are going to escape me at this moment, but I would imagine that
most companies have players from almost every state. Now, there
are not a lot of players in some states. You may have 400 or
500 in a state like New Jersey; you may have 20 in Delaware.
But they are spread out all over the country.
And the second part of your question was, sir? I am sorry.
Mr. Lance. Do you see a path forward for states accepting
audits from another state to reduce the regulatory burden on
smaller operators?
Mr. Brubaker. The path forward is for us to get to a lot of
states and talk to legislators and try to get that changed.
Some state bills that we have seen just say there has to be an
annual audit. It is not quite as specific as some other states
that say it has to be from an auditor within the state.
And so there is a lot of work to do, and when you are a
small organization with a small number of companies, that is a
lot of work and it takes a lot of time. We will push for those
regulatory issues to be uniform across all the platforms, but
we are playing catch-up in a lot of these States right now.
Mr. Lance. Thank you, Mr. Chairman. I yield back 50
seconds.
Mr. Burgess. The chair thanks the gentleman.
The gentleman yields back. The chair recognizes the other
gentleman from New Jersey, Mr. Pallone, the ranking member of
the full committee, 5 minutes for your questions, please.
Mr. Pallone. Thank you, Mr. Chairman.
I obviously believe there is a lot of hypocrisy surrounding
the support of daily fantasy sports compared to traditional
sports-betting. And the daily fantasy sports industry has been
arguing that daily fantasy sports is somehow completely
separate from sports-betting despite the fact that similarities
can't be denied.
And the same is true of the professional sports leagues. At
the same time that they are embracing daily fantasy sports,
they are banding together to prevent New Jersey from allowing
sports-betting, claiming they are trying to protect the
integrity of professional sports. It is going to get involved
in organized crime and illegal stuff.
So sports-betting, as has been mentioned, is legal in some
States and in many other countries, including Canada, and the
sports world is not falling apart.
My questions are mostly for you, Mr. Gnat. You said in your
testimony that Canada has had legal betting since the early
1990s. Is sports-betting in Canada limited to betting on
Canadian sports, or do Canadians legally bet on American sports
as well?
Mr. Gnat. Thank you.
In Canada, you can bet on any sport in any country. And
even in certain jurisdictions, as the sports have continued to
gain sophistication, the offerings have begun to gain
sophistication as well.
Mr. Pallone. I am just going to interrupt you because I
have to get through this.
Have you heard of any major game-fixing scandals linked to
sports-betting in American sports since sports-betting was
legalized in Canada?
Mr. Gnat. Not to my knowledge.
Mr. Pallone. All right. So there haven't been any major
scandals.
We also know that the illegal sports-betting market in the
U.S., you mentioned, is estimated to be as high as $400
billion. So the integrity-of-the-game argument just doesn't
make sense to me. In fact, legalizing sports-betting would
simply allow for the same kinds of consumer protections that we
are discussing today for daily fantasy sports.
So my question is, would you like to comment on how
bringing the current black market, organized crime, mob,
whatever, doing all this sports-betting, if you bring it out
into the sunshine and make it legal, how could you ensure
integrity?
Mr. Gnat. Regulation, just in general, brings an
environment of accountability, integrity, and consumer trust.
Prohibiting does not do that. It traditionally drives it
underground, where you have no integrity in the game. And
therefore, the people involved are not accountable to anybody,
and the consumers' interests are not maintained.
So I think that when you take a look at examples of how it
has been done in other jurisdictions, even in Nevada, sports-
betting has been done legally and responsibly in other
jurisdictions, and, as you said, the world does not come
crashing down around it.
Mr. Pallone. Kind of like prohibition of alcohol, I would
think.
If sports-betting were not legalized, do you see a way to
stop the practice from occurring illegally?
Mr. Gnat. I don't see how you can prevent something that is
an industry of this size and this magnitude that exists today.
Mr. Pallone. All right.
Now let me go to the Fantasy Sports Trade Association, Mr.
Schoenke, if I can.
I know you said that you can comprehensively answer any
questions about the industry, because even though FanDuels and
DraftKings are not here, I am going to ask you the questions
that they would normally be here to answer.
Last year, DraftKings applied and received a gambling
license in the United Kingdom. FanDuel also applied for a
gambling license, I stress gambling license, in the U.K. but
hasn't yet received it, to my knowledge. Yet, in the U.S., both
companies maintain that daily fantasy sports is not gambling.
So what is DraftKings' rationale for getting a gambling
license in the U.K. if they say that daily fantasy sports is
not gambling? And what about FanDuels? How do they justify this
when they ask for a gambling license in the U.K.?
Mr. Schoenke. The laws of the United States are very
different than the laws of the United Kingdom. In the United
Kingdom, any game that has any skill is also under gambling. In
America, in most states, if a game has more skill than luck, it
is not considered gambling.
That is why fantasy sports, for over 20 years, as an
enterprise, has never been considered gambling. We didn't meet
before Congress or at the State levels, but that has been
called into question the last----
Mr. Pallone. But they are doing the same thing, right, in
both places?
Mr. Schoenke. Well, I think that the laws are different. It
is a different country. Here in the United States.
Mr. Pallone. Well, it sounds like in one place----
Mr. Schoenke [continuing]. If you have more skill than
luck, it is considered----
Mr. Pallone. Well, they are not really doing anything
differently. You are not telling me that, right?
Mr. Schoenke. Well, it is the same game, definitely.
Mr. Pallone. OK. That is all I am asking. It sounds like
the difference is that in one country they have a lot of smart
lawyers or lobbyists that are defining things in one way and in
the other they are not. But the game is the same, correct? The
game is the same.
Mr. Schoenke. It is still a game that has far more skill
than luck.
Mr. Pallone. All right. Thank you very much.
Thank you, Mr. Chairman.
Mr. Burgess. The chair thanks the gentleman.
The chair now recognizes the gentleman from Oklahoma, Mr.
Mullin, 5 minutes for your questions, please.
Mr. Mullin. Thank you, Mr. Chairman.
And thank you to the panel for being here. A lot of
interest in this, more so than members, I think, that are
interested in it. But, Chairman, appreciate you having the
hearing. Outside, there are a lot of people wanting to get in.
And I think there are a lot of unknown facts that people
are trying to get information, and that is the whole point of
this panel, OK, what exactly is the way that we are heading?
What is the future? And how is this going to be a benefit or a
negative?
And so I am going to focus just a little bit on this, and
this is kind of a generic question for the panel itself. Is
anybody aware of certain pushbacks, lawsuits, concerns through
the states or through different organizations that have come
after online betting?
Anybody want to take that? Not all at once.
Mr. Rodenberg. I am happy to speak to that.
Mr. Mullin. OK.
Mr. Rodenberg. So I think it comes from two distinct areas.
Certainly, there have been a large number, perhaps dozens, of
private lawsuits that have been consolidated as part of a class
action.
Mr. Mullin. What are those lawsuits concerning?
Mr. Rodenberg. A number of different claims based on
allegations of fraud, based on allegations of illegal gambling.
They are in very preliminary stages. The vast majority of those
lawsuits have been consolidated in a Federal district court in
Massachusetts.
Mr. Mullin. Let me stay there for just a second. On the
fraud, what specifically are we talking about with fraud?
Mr. Rodenberg. Allegations have been made of false
advertising, misuse of inside information, as part of these
private lawsuits. A number of the claims were similar enough
that they were consolidated. But they are at such a preliminary
stage, nothing has been resolved in the course of them, though.
Mr. Mullin. Is that due to a specific group? Is that due to
the ability to be able to fraud people online because it is
faceless and nameless and unregulated?
Mr. Rodenberg. Perhaps that is a component of it. I mean,
perhaps indirectly, to answer your question, a majority of the
defendants are the daily fantasy companies themselves, as well
as a few of the lawsuits have named investors and affiliated
companies, including payment processors, including some high-
level successful daily fantasy players. So perhaps some of that
can be inferred, in terms of who the defendants are.
Mr. Mullin. What are the qualifications for a fantasy
sports group to go online? Is there a regulating body that
oversees it, that says, before you are able to do this, you
have to comply with certain agreements; we are going to come in
and we are going to look over your shoulder? Does that exist?
Or is it just put up a Web site and let's go bet?
Mr. Rodenberg. In a small minority of states, all literally
within the last couple weeks--Virginia, Indiana, Tennessee.
There are regulations in Massachusetts now. Those have recently
been enacted and signed by state governors, but most of them
have effective dates sometime this summer, so it is literally
in its infancy.
Outside of formal state-run regulations, certainly a vast
majority of fantasy companies are members of Fantasy Sports
Trade Association, whether Mr. Schoenke's organization or
others, but that is certainly more of a private self-regulatory
model than a formal governmental one.
Mr. Mullin. Mr. Locke, what did your company have to do?
Mr. Locke. What did we have to do within fantasy?
Mr. Mullin. Yes, to build a new business inside the United
States and to keep down the complaints, make sure it is fair,
make sure that it is on the up-and-up, so to say. Were there
certain qualifications you had to comply with, or just use your
best business model?
Mr. Locke. So we are not a fantasy operator. We work in
sports integrity. So we provide services to sports that enable
them to protect their events. In terms of working in the U.S.,
we have not had to comply with any regulations.
Mr. Mullin. So you work with the fantasy betting
organizations?
Mr. Locke. We don't work with any fantasy betting
organizations in the U.S. Our prime business in the U.S. is
working with sports to help protect the integrity of their
events.
Mr. Mullin. OK.
What are the biggest pushbacks, these complaints that we
are seeing? Is it coming from the state or coming from
organizations? Is it coming from the sport community itself?
Mr. Rodenberg. It is related to my previous response. The
biggest pushback has come at the state level. So, as of 2 weeks
ago, by my count, there are roughly a dozen state attorney
generals----
Mr. Mullin. OK.
Mr. Rodenberg [continuing]. From New York to Illinois to
Texas, from Hawaii to Idaho to Georgia to Tennessee, that have
looked at daily fantasy under the auspices of their state law,
and they have concluded that it constitutes illegal sports
gambling in their state. They have issued--whether it is a
cease-and-desist letter or a negotiated settlement with daily
fantasy companies. In the last 6 months, fantasy companies have
removed themselves from those excluded states.
Certainly the list of excluded states has risen
dramatically from the original 5 states--Washington, Louisiana,
Arizona, Montana, and Iowa--to now it is slightly over 15. So
certainly the number of excluded states has increased in the
last 6 months. But that is the other, in terms of pushback,
that has come from the state level so far.
Mr. Mullin. Thank you. Thank you for your time. My time has
run out.
Thank you, Mr. Chairman.
Mr. Burgess. The chair thanks the gentleman.
The chair recognizes the gentlelady from New York, 5
minutes for your questions, please, Ms. Clarke.
Ms. Clarke. Thank you, Mr. Chairman.
Mr. McManus, brick-and-mortar casinos are subject to strict
regulation that mandate consumer protections, such as age
verification, support for problem gamblers. Casinos can lose
their license to operate legally if they don't comply with
these safeguards.
Of course, consumer protections must be implemented
carefully and effectively to be successful. Some of the
consumer protections that have been suggested for daily fantasy
are similar to those that have already successfully been put in
place by casino operators.
I would like to hear from you how MGM complies with
gambling regulations and protects consumers. For instance, are
age restrictions on gambling that apply in every state in which
gambling is permitted? Can you discuss how you ensure that your
customers are old enough to gamble legally?
Mr. McManus. Yes. Thank you for the question.
We only operate land-based casinos. We don't have an online
presence at this time. So it is a different approach to age
verification. But we do it the old-fashioned way, as you would
for serving alcohol. You ask for identification; you verify
identification. There is extensive training for our gaming
staff, security staff, and for, frankly, anyone to question
whether somebody is of age.
Some states have regulations that require you to present
identification as you enter a casino. Others, it is just a
responsibility of the operator to assure that only people of
age are gambling. Within our facilities in our jurisdictions,
and I don't know if there are differences elsewhere, the
minimum age is 21.
Ms. Clarke. So let me ask, Nevada regulations prohibit some
gambling by certain employees of the holder of the gambling
license. What policies do you have in place to ensure that MGM
employees are complying with that regulation?
Mr. McManus. Yes, different jurisdictions have different
rules. Some exclude all employees. In Nevada, if you are a key
employee, you are excluded. I, for instance, am excluded from
gambling at our facilities. I could play at a competitor's
facility. And that is really to avoid even the appearance of
impropriety, that a gambling game is somehow fixed.
Ms. Clarke. And what about casino policies for handling
gamers' money? For example, betting pools are kept separate
from funds used for casino operations, right?
Mr. McManus. Yes. In Nevada, we have requirements to
maintain sufficient cash in our cage to make sure that we can
pay winners, things of that sort. Again, in the online
environment, it is a little different because you have an
account, typically. Most of our customers are paying for chips
with cash.
Ms. Clarke. Right. We are just trying to get the
distinction crystal clear.
Mr. McManus. Yes.
Ms. Clarke. You also have policies in place to help people
addicted to gambling. How do your casino employees identify
problem gamblers? And how are they trained to respond if they
learn that a customer may be struggling with a problem gaming?
Mr. McManus. Sure. And I am by no means the authority on
problem gaming. There is extensive training, though, for our
employees.
And I would say the biggest thing that is uniformly
accepted in the land-based-casino industry is making
information and help available. There are 800-numbers. There
are methods for self-exclusion or self-limiting, in some cases,
where, somebody who has identified themselves with a problem is
able to say, ``Please don't let me game here,'' and we enforce
that. And, frankly, our regulators enforce that, where we would
be fined if we were marketing to somebody who self-excluded
themselves.
How somebody is specifically identified at a gaming table,
for instance, I am really not the expert on that.
Ms. Clarke. No problem.
Are there any other consumer protections that your casinos
have in place?
Mr. McManus. We have many consumer protections. Gaming
regulation is exhaustive. It is thorough. The most basic
consumer protection is making sure that the casinos are run by
honest and reputable people and their backgrounds are
scrutinized so you know who you are dealing with. And then it
is every aspect of our industry is regulated that you have to
do it with integrity, from advertising to how you conduct the
game.
Ms. Clarke. Very well.
Mr. Chairman, I yield back.
Mr. Burgess. The gentlelady yields back.
The chair thanks the gentlelady and recognizes the
gentleman from Kentucky, Mr. Guthrie, 5 minutes for your
questions, please.
Mr. Guthrie. Thank you. This has been interesting. I
appreciate it.
Professor Eggert, in your testimony, you discussed the
prevalence of scripting tools on daily fantasy sports Web
sites. My understanding is that a script allows one player to
enter or change multiple lineups and many contests faster than
a human could. Is that correct?
And what about a DFS site could make it more optimal for
scripting tools than a season-long fantasy sports?
Mr. Eggert. Yes, that is correct. If you have an algorithm
that generates hundreds and hundreds of lineups, professionals
use scripting tools in order to easily input those into the DFS
site.
And as far as how it is different from season-long, I
haven't looked into scripting tools in season-long. My
understanding is that the purpose of season-long is to do
trades and things like that where people are much more engaged
in the game and so the strategy is how to work with other
players. And so I suspect that scripting tools aren't used that
much because people are much more hands-on with their
individual lineups. But, again, I haven't looked at the season-
long as much.
Mr. Guthrie. OK. Thank you.
And, Mr. Schoenke and Mr. Brubaker, how do your member
companies view scripts on their services?
Mr. Schoenke. So, scripts is a new term; this is a new
technology. Largely what it was was that the companies didn't
have the functionality in their own game and so some players
figured out how to do something on their own, so they developed
something to swap out players at the last second if there was
an injury.
But since then, the industry has shifted in terms of
scripts. The companies have built a lot more functionality into
their games so they can do it. Also, the leading companies,
FanDuel, DraftKings, Yahoo, have banned third-party scripts.
And we have also seen this addressed at the state level,
where the state regulations we talked about in Massachusetts
and also the state laws that are passing in Indiana, Tennessee,
and Virginia, they also ban third-party scripts as well. So I
think that is going to minimize any kind of unfair advantage
that people would have by using these----
Mr. Guthrie. Mr. Brubaker, you will answer this, Mr.
Brubaker, as well. I know the service providers, you just said.
But fantasy games, are they able to detect when somebody is
using the script on their site?
Mr. Schoenke. Yes, I can answer that.
There is technology they are using. They are using the best
practices. It is definitely the goal. These regulations and
laws make it an incentive to do it.
Also, if a customer is caught using a script, there is a
disincentive for them to use it. Their account will be
suspended, could be revoked completely. So there is a
disincentive for them to try to make an end-around as well.
Mr. Guthrie. OK.
Mr. Brubaker?
Mr. Brubaker. For season-long fantasy sports, you do a
draft before every season starts. So there would be 12 teams in
a league, and each general manager of that team would hold a
draft, and they would go through all 12 people, then they would
start over. You have seen drafts on TV before. Same thing.
There is no scripting in season-long. Scripting is something
unique to daily fantasy sports. And it does allow people to
enter multiple contests. And I think Peter did a pretty good
job of explaining how they do it on the DFS side.
Mr. Guthrie. OK. In a previous question, though, you said
that there are two major players in the daily fantasy sports
and you represent the small player?
Mr. Brubaker. So there are two major players in all of
fantasy sports.
Mr. Guthrie. So what is the difference? But what is a key
characteristic of a small player, I guess?
Mr. Brubaker. Small companies. Small companies. So there
are probably 80 providers that are not DraftKings and FanDuel.
And they range, as Peter mentioned, Yahoo is one the larger
ones, but many are very small companies that have 2,000, 3,000,
5,000 players total in their company, where DraftKings and
FanDuel have millions of players.
So the scale is completely different between what the two
big companies do and the traditional smaller companies, season-
long companies, that have been around for many, many years.
Mr. Guthrie. OK. I am about out of time.
And there was a question previously asked, and Mr. Eggert
answered it, but, Mr. Brubaker, if you would. Some have made
the argument that setting a license or registration fee--I am
going to read quick because I am running out of time--are a
barrier to entry into the marketplace to keep fly-by-night
operators from running off with players' money.
Are fly-by-night operators a concern in the daily fantasy
marketplace?
Mr. Brubaker. Maybe Peter should answer the daily question.
Is that all right?
Mr. Guthrie. OK. That is fine, yes.
Mr. Schoenke. In the state laws that we have been
advocating for, at least with FSTA's work with legislators, one
of the key components for consumer protection is that the
consumer funds be protected so that there will be segregation
of funds. And that is one thing we are strongly advocating for
at the state legislatures.
Mr. Guthrie. Well, thank you. I have run out of time, and I
yield back. I appreciate your answers. Thank you.
Mr. Burgess. The chair thanks the gentleman.
The chair now recognizes the gentlelady from Indiana, Mrs.
Brooks, 5 minutes for your questions, please.
Mrs. Brooks. Thank you, Mr. Chairman.
I am very pleased that in this 114th Congress we have been
in exploring what we call the disruptor series, which changes
the landscape of the economy. And we have explored things like
Uber and Bitcoin and now this. And with this packed audience
today, it is interesting because I think this, too, is
something that is really kind of disrupting the way we think
about the world of gaming and gambling.
And I think it is important for us to explore the largest
disruptor in the gambling community, the daily fantasy sports.
But there are a lot of different questions that we have to
grapple with, as to whether or not, we don't want to limit
innovation, but we want to protect consumers, and where do we
find that balance.
And, obviously, Indiana has just taken the lead in becoming
the second State in the Nation, as I understand, to adopt what
we thought was thoughtfully developed legislation. It creates
the regulatory framework that ensures games are fair,
participants are over 18 years of age, and that sites allow
players to restrict their own play.
And while some of the regulatory measures maybe are stern,
150,000 Hoosiers are participating in daily fantasy sports, and
they need to have confidence in the integrity of the products.
And so I hope that we can continue to explore how to expand the
safeguards that Hoosiers now enjoy and ensure that we can
embrace this new trend in sports entertainment.
A couple of questions that I have. My question is, if we
don't allow this type of--well, I learned yesterday that the
total illegal sports-betting market in the United States grew
to $148.8 billion in 2015--the illegal sports betting.
And so I guess to Dr. Rodenberg and maybe others, if states
don't allow this within their state, won't this simply drive
more competition overseas to places--where are the places that
we would be competing with? And can you just talk about that
and can the industry talk about that, if we don't figure this
out?
Mr. Rodenberg. Sure. Antigua, Curacao, and Costa Rica are
the most likely overseas jurisdictions that have sports-book
operations some may and some may not offer those services to
American citizens. That is certainly a possibility, that if
daily fantasy is not legalized and regulated in jurisdictions
like yours that may be so inclined, that there could be an
underground market. The offering of DFS is so new, though, I
think that is a little premature.
And one interesting figure in terms of the $140-plus-
billion. The overall kind of market of daily fantasy is quite
small relative to that. I mean, the estimates I have seen are
anywhere between $3 billion and $4 billion, so it is a very
small portion of the overall American sports-gaming market.
So, while important and certainly relevant to the
disruption and the disruptor series that you are evaluating as
part of the subcommittee, it is still a small portion of the
overall American sports-gaming market.
Mrs. Brooks. However, like Uber and Bitcoin and others,
they maybe started out small, but look at where it grows.
Any other comments from anyone else about the offshore
competition if we don't get this right and figure this out?
Anyone want to comment?
Mr. McManus. Yes, I would like to comment.
I think I can speak for my entire industry here, any form
of unlawful gambling is bad. And we do find that these forms of
entertainment are not going to go away if they are made
unlawful, and you will develop a black market if you don't have
a legal outlet for daily fantasy.
One comment I would like to make when we talk about season-
long verses daily, for me the distinction on whether regulation
is appropriate is whether it is house-banked. If it is a
season-long fantasy operator who just creates the platform for
private leagues, I see no need for regulation. But as soon as
you are taking money from citizens and promising to pay back
under certain scenarios, you should be regulated, and,
respectfully, whether it is a small business or a large
business.
Mrs. Brooks. Mr. Brubaker, you have talked about the
difficulty with small operators complying with 50 different
state audits. And can you give us a sense of how many of your
members have players in all 50 states?
Mr. Brubaker. We don't know for sure. That question came up
previous to your arrival, and there were five states where no
play is allowed or has been allowed. And Dr. Rodenberg did
mention there have been some changes since that from different
attorneys general that have made some decisions. But I would
say most of our companies have players in every legal state.
Mrs. Brooks. OK. Thank you.
My time is up. I yield back.
Mr. Burgess. The chair thanks the gentlelady.
At this point, I believe all members' requests for time
have been honored, and I would recognize the gentleman from New
Jersey for an additional 5 minutes should he so desire.
Mr. Pallone. Thank you.
As to Mr. Brubaker, let me follow up on the gentlewoman's
comments.
You talked about the difficulty small fantasy sports
companies may have trying to comply with so many different
state laws. So do you support Federal involvement? And is there
a way to do something at the Federal level that doesn't force
states who don't want daily fantasy sports or gaming to allow
it?
Mr. Brubaker. We will work with just about anybody that
wants to help us figure this out. If that is the Federal
Government, we will do that. If it is going state to state,
that is a much harder path for us to go down.
Certainly, so we looked at UIGEA as companies, these small
companies did, and they saw that in 2006 as a green light by
the Federal Government to go online with fantasy sports. Now,
that was all season-long at that time. That was before daily
even was contemplated.
So we have companies that are relying on you guys and said,
go ahead and go start your businesses, and they have gone out
and they have started their businesses. And now we have States
coming in and changing the game, changing the format.
I don't think you will hear any daily fantasy sports
company or season-long fantasy sports company balk at consumer
protections as long as they are done in a way that is
financially viable to stay in business.
Mr. Pallone. All right. Well, maybe that is something----
Mr. Brubaker. If they get too expensive.
Mr. Pallone. Maybe that is something we can look into.
Thank you.
Let me go back to Mr. Schoenke again.
And, again, I am asking you specifics about DraftKings and
FanDuel, which you said you can answer. I want to talk about
the so-called insider trading scandal that was reported on last
fall. Ethan Haskell, a DraftKings employee, was accused of
using information he obtained in the course of his work to help
his play on FanDuel's platform. And an independent
investigation cleared him of any wrongdoing, noting that he
didn't receive the information until his lineup was locked.
But the report prepared by the law firm that conducted the
independent investigation was not publicly released. Do you
know why DraftKings did not release that report?
Mr. Schoenke. I don't have that information. I know they
have been pretty forthcoming with a lot of the details of
what----
Mr. Pallone. The mike.
Mr. Schoenke. I apologize. I said I don't have the details
of that.
Mr. Pallone. All right. But, again, we are relying on you
to answer these questions of DraftKings and FanDuel.
Where did the information received by Mr. Haskell come
from? Do you know who sent it to him? Was that person playing
daily fantasy sports? Did that person gain an advantage from
the information?
Mr. Schoenke. The information that he had was the number of
players, the percentage ownership, which may give you an
advantage if you know that one player, you know, has a lot of
ownership and one player doesn't. And so it was the internal,
you know, mechanism to calculate that. And he compiled the
report after the game was locked, when it was no big deal, and
there was an inadvertent release of that.
Mr. Pallone. Well, Mr. Schoenke, you know, since you say
you can answer these questions, maybe you can't today, but with
the chairman's permission, I would like you to follow up and
get back to me and try to answer them on behalf of DraftKings,
if you would.
All right. Now, DraftKings prohibits its own employees and
employees of other daily fantasy sports operators from playing
on its site, and FanDuel prohibits its employees from playing
on its own site or other daily fantasy sport sites.
How does DraftKings ensure that employees of other daily
fantasy sports operators are not playing? Do competitors share
their employee lists with DraftKings, to your knowledge?
Mr. Schoenke. It is also a component of the laws that we
are advocating for across the country and that have been
passed. One of the key components is that daily fantasy sports
companies and, actually, all paid fantasy sports companies
cannot play on other people's platform. So there is obviously a
big legal incentive to get it right, as well.
Mr. Pallone. And how does FanDuel ensure that its employees
are not playing on another DFS site? Do competitors share those
lists of users with FanDuel?
Mr. Schoenke. As far as what the specific companies are
doing, I don't have that.
Mr. Pallone. Well, again, I would ask you to find out,
because Professor Eggert points out that employees have access
to spreadsheets that show the players who are the biggest
losers on the DFS sites. And I am just wondering how does
FanDuel ensure that those lists are not being used to invite
those losers to head-to-head matches. And same thing with
DraftKings. You, I guess, can't answer these things right now.
Mr. Schoenke. No, but we as an industry are advocating for
laws at the state level to prevent this from happening. And I
think that will be a big disincentive for any company to allow
that to happen.
Mr. Pallone. Well, I am going to ask you to get back to me
on these questions. Because, again, the two companies didn't
come, and they say that you can answer the questions. So please
get back to us. And I will send it in writing, as well, so you
know.
Thank you, Mr. Chairman.
Mr. Burgess. The chair thanks the gentleman.
A couple of things for followup. And I guess, Mr. Eggert,
even off topic from what we have been discussing, the concept
of the amount of data that--or maybe, Mr. Gnat, this is to
you--the amount of data that is generated seems just to be
phenomenal.
And is this useful for anyone else involved in the sport?
Is, say, a general manager interested in some of these
performance statistics? It just seems like this has the
potential for changing the way competition is handled by how
well you are able to manage these large data flows.
Would either of you care to comment on that?
Mr. Eggert. Oh, I think general managers have an
increasingly great interest in data acquisition and management.
And I think the sport is moving in that direction, to be more
data-based and less just see how the person swings the bat. It
has gotten so far that I think there is an ESPN fantasy sports
analyst who is good at this kind of data management so that she
can talk about these issues. So data is becoming increasingly
important.
Mr. Burgess. Mr. Gnat, did you have something you wanted to
add to that?
Mr. Gnat. Thank you, Mr. Chairman.
As far as I know, there are lots of sports organizations
out there today who actually employ members of their general
manager's staff who are data analysts, who will go and look at
players and see how they play in certain environments and
decide how they select.
I mean, the entire concept of the movie ``Moneyball'' and
the whole Billy Beane and how he was selecting teams for the
Oakland As, that is all really based on the concept of starting
with data analytics.
Mr. Burgess. Well, Ms. Brooks is quite correct; we have
been doing the disruptor series, and, of course, at the base of
the disruptor series is the way data is now handled and managed
throughout every stratum of our ecosystem right now.
Mr. Pallone made the observation that this could perhaps
drive interest in a team that otherwise their won-lost record
might not generate that much enthusiasm but because you might
have players that were on a roster you are now interested in
the performance of that team. And while he was describing that,
I couldn't help but think that, had this been around 30 years
ago, the New Jersey Generals might still be a franchise of the
USFL, but maybe not. I don't know. It is just purely
speculation at this point.
Mr. Lance. Purely speculative, Mr. Chairman.
Mr. Burgess. Well, again, I want to thank our panel.
Ms. Schakowsky. May I make a comment?
Mr. Burgess. Yes, please. The gentlelady is recognized.
Ms. Schakowsky. So, last night, I was one of about 5
million people who have checked out John Oliver's explanation
of daily fantasy sports. Regardless of one's position on it,
you might get a kick out of it. I am not his agent. I get no
kickback from John Oliver. But it is a humorous but also
informative, from my point of view, explanation of daily
fantasy sports.
Mr. Burgess. The chair thanks the gentlelady.
Seeing no further members wishing to ask questions for this
panel, I do want to thank our witnesses for being here today.
Before we conclude, I would like to submit the following
documents for the record by unanimous consent: a letter from
the American Gaming Association; a letter from The Mellman
Group; a letter from the Stop Predatory Gambling group; a
letter from the National Conference of State Legislators; a
letter from the Office of the Attorney General from the State
of Texas.
[The information appears at the conclusion of the hearing.]
Mr. Burgess. Pursuant to committee rules, I remind members
they have 10 business days to submit additional questions for
the record. And I ask the witnesses to submit their responses
within 10 business days upon receipt of those questions.
Without objection, the subcommittee stands adjourned.
[Whereupon, at 12:02 p.m., the subcommittee was adjourned.]
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