Boston College Expert Source: Fantasy Sports Leagues
Finance Associate Professor of the Practice Father Richard McGowan, SJ
Carroll School of Management
(617) 552-3474 (office)
Professor McGowan is a nationally recognized expert on legalized gaming, tobacco and alcohol industries. His research focuses on the interaction of the business and public policy processes. Father McGowan has written the books Privatize This?; State Lotteries and Legalized Gambling: Painless Revenue or Painful Mirage; Industry as a Player in the Social and Political Arenas, and Government and the Transformation of the Gaming Industry, The Gambling Problem.
On NY ruling:
“Clearly both companies are on the defensive.
“It’s going to be an interesting state-by-state decision which means the big firms like Draft Kings and Fan Duel won’t be able to exist. These rulings are doing away with their monopolies.
“It sounds like it’s the beginning of the end for the big operators but not necessarily the beginning of the end for all fantasy sports.
“The big operators need nationwide coverage and it sounds like they’re going to have individual requirements for each state; I just don’t see where they are going to be set up to do that. But maybe they’ll surprise us.”
As the New York Attorney General’s cease-and-desist order to fantasy sports giants FanDuel and DraftKings works its way through the court system, a Boston College gambling expert says whatever comes out of this challenge will set a legal precedent for all other states.
“If the New York position stands in court, then that’s the beginning of the end for fantasy sports,” says Fr. Richard McGowan, S.J., a nationally recognized expert who has published six books on gambling and government regulation of the gaming industry. “But if it’s tied up in court or thrown out, then it’s a great victory for fantasy sports, One way or the other, we’re going to see what’s going to happen with this industry within the next year.”
Saying their games constitute illegal gambling, Attorney General Eric Schneiderman ordered DraftKings and FanDuel to stop accepting bets from the estimated 500,000 state residents who use the sites. The move is just the latest clash between regulators and big money investors like Major League Baseball, the N.B.A., Comcast, Google, Cowboys owner Jerry Jones, and New England Patriots owner Robert Kraft.
“The big money is all behind FanDuel and DraftKings,” says Fr. McGowan, who serves on the Board of Directors of the Massachusetts' Compulsive Gambling Council. “It’s the New York Attorney General versus some really heavy hitters.
“DraftKings and FanDuel are obviously going to take him to court and say, ‘We’ve existed for the past four or five years as a game of skill and now all of a sudden you’re saying we’re a game of chance.’ It’s going to be really interesting to see who proves what a game of skill is and what a game of chance is.”
Last month, Nevada ordered the two companies to procure gaming licenses and in recent weeks, the U.S. Attorney in Manhattan has begun an investigation.
Fantasy sports companies have been arguing their games involve more skill than luck and may point to another popular pastime to help make their case.
“Poker was ruled a game of skill and that’s what the fantasy folks will hang their hat on,” says Fr. McGowan. “From that point of view I would say the fantasy sports people have a pretty good leg to stand on.
“The wisdom of Solomon is going to be needed for a judge to figure out whether this is a game of skill or chance.”
Amidst a skeptical public and with various investigations underway by federal and state regulators, the two major fantasy sports sites have indicated they are willing to self-regulate. The Fantasy Sports Control Agency would be designed to monitor daily and nondaily fantasy sports companies, and will help the industry “establish best practices.” But a Boston College gambling expert says self-regulation is akin to the fox guarding the hen house.
“The question is: Who else would know about the industry?” says Fr. Richard McGowan, S.J., a nationally recognized expert who has published six books on gambling and government regulation of the gaming industry. “It’s a tough industry to get to know because it hasn’t been overly publicized about what’s going on. It’s not that clear about what you would regulate and how you would regulate it. There’s the interesting issue.”
The industry’s giants, FanDuel and DraftKings, say fantasy sports is a game of skill, not luck, and therefore don’t fall under the federal ban on online gambling. The self-regulation won’t stop the investigations already underway, and it may not be enough to sway public opinion.
“You do have to wonder if the cat is already out of the bag,” says Fr. McGowan, who serves on the Board of Directors of the Massachusetts' Compulsive Gambling Council. “Will this be enough to satisfy people? The industry is really going to have to lay out their cards in exactly how they’re going to self-regulate and what penalties they’re going to impose if there are violations.”
Meanwhile, states are trying to figure out how best to approach the widely popular activity: do you ban it, like Nevada has done, or regulate it? If regulation is the answer, who is the enforcer?
“There’s the whole thing about ‘capture theory,’” says Fr. McGowan. “In another words, when you regulate an industry, the only people who know about the industry are in the industry. If you’re going to regulate it, you’re going to have to hire people who are already doing this and that’s going to be interesting: who do you hire and how do you regulate this industry?
“If this doesn’t work, do you abolish the entire industry or do states themselves offer fantasy sports?”
With the clamor to regulate fantasy sports showing no signs of quieting down, a Boston College gambling expert says it’s not if the multi-million dollar industry will have to swallow its regulatory medicine, but when - and how big the dose will be.
“Right now Fan Duel and DraftKings are not regulated whatsoever,” says Fr. Richard McGowan, S.J., a national expert on gambling. “And unfortunately these two big firms, in a lot of people’s eyes, are colluding with one another. There certainly seems to be a lack of trust in the people who are operating these two sports fantasy sites. Both have lost the public trust and the only way they’re going to get the public trust back is to be regulated by the government.”
Daily fantasy sports is legal in all but five states.The calls for regulation are coming as these two daily fantasy sports giants are fighting off suspicions of insider trading and access to valuable company data after a Draft Kings employee won $350,000 in a FanDuel contest. Fr. McGowan, who serves on the Board of Directors of the Massachusetts' Compulsive Gambling Council, says there are three regulatory scenarios, some considerably more painful to the industry than others.
Scenario One: Individual State Regulation
“The states now smell the money,” says Fr. McGowan, who has published six books on gambling, the gaming industry, and government regulation of the gaming industry. “The lottery commissioner in Massachusetts is talking about the lottery here offering its own version of fantasy sports. The worst case scenario for fantasy sports businesses is you’d have lottery commissions competing against the various sports firms, and these firms would have to get a license in each state in order to be able to compete against the lottery.
“Instead of being regulated at a federal level, all these fantasy sports people are going to be regulated by each state that has a lottery and they’re going to be facing different rules in each state so it could be really difficult for them to run the entire operation in each state individually."
Scenario Two: States Get into Fantasy Sports Business
“The most frightening scenario for them is if the states actually start saying, ‘Our state lottery commissions are going to start offering this service.' Remember that state lotteries have a monopoly on what they’re doing. Let’s face it, if it’s gambling money, most states think it’s their revenue and to allow a private firm to make most of the money won’t be something they’re interested in.”
Scenario Three: Fantasy Sports Industry is Taxed Like Casino Industry
“The best scenario for the industry right now is for fantasy businesses to be taxed at a higher rate,” says Fr. McGowan, who feels the higher tax is the mostly likely scenario in the short term. “At the very least, Fantasy Sports sites are going to be taxed like casinos are taxed. Casinos are taxed at least 25% of their revenues and I would imagine that’s what’s going to happen to fantasy sports, which pays a minimal tax rate. They’re not taxed extra like a casino would be. I would imagine they’d be taxed at a much higher rate than they are right now, probably at the 25% of revenues that casinos are now paying.
McGowan says given the publicity over the last two weeks, there are going to be public policy changes in fantasy sports.
“What’s going to save the fantasy sports industry a bit is that they’ve been classified as games of skill versus games of chance but that means they’ll still be regulated by the state and each state is probably going to have different regulations for them. So it’s going to be very difficult to run a business nationwide.
“This is sports gambling – that’s what is going on. With that in mind, the other interesting thing that could happen is this might spur on the legalization of sports gambling outright.”
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