Illinois politician proposes heavy regulations for fantasy sports

HB 4323 would impose onerous rules and restrictions on fantasy-sports operations.

An estimated 57 million people in the U.S. and Canada play fantasy sports.

Many of these people live in Illinois – but some state politicians want to heap unnecessary regulations on this growing industry, making it harder for the next FanDuel to emerge and limiting new options for fantasy-sports enthusiasts.

On Oct. 27, state Rep. Mike Zalewski, D-Riverside, introduced House Bill 4323, which he says provides needed oversight of fantasy-sports providers such as FanDuel Inc. and DraftKings Inc. In these contests, users pay fees and compete by building teams of professional athletes from particular leagues or competitions and earn points based on the athletes’ actual performances in real-world games. Winners of these competitions can win big monetary prizes.

The good news is that HB 4323 would amend Illinois’ Criminal Code to exempt participants in “fantasy contests” from prosecution for illegal gambling. However, the remainder of the bill is unnecessary and ultimately could be harmful to consumers.

Zalewski’s bill would require fantasy-contest operators to adopt several policies and procedures, including:

• Preventing employees of fantasy-contest operators from competing in any fantasy contest offered by another fantasy-contest operator. But FanDuel and DraftKings, which dominate the industry, had already adopted policies to prevent their employees from participating in other fantasy contests before Zalewski introduced this legislation, making the bill’s requirement that they do so unnecessary.

• Preventing the sharing of confidential information that could affect fantasy-contest play until the information is made publicly available

• Providing mechanisms to verify that fantasy-contest players are at least 18 years old

• Checking for tax liens and child-support obligations greater than $10,000 prior to paying a cash prize greater than $5,000 to any fantasy-contest player. Making fantasy-contest providers act as watchdogs for tax liens and child-support obligations has nothing to do with protecting consumers, but simply provides the state one more mechanism to ensure tax compliance.

• Establishing mechanisms to ensure that the providers have sufficient funds to pay winners of such contests. There is no evidence that any fantasy-contest operator has ever had a problem paying contest winners, or that operators have commingled users’ accounts with operating funds. And it is particularly ironic for the state of Illinois to require fantasy-sports contest providers to ensure they have enough money to pay winners, when the Illinois Lottery currently is not paying winners of over $600.

• Contracting with third parties for annual independent audits and submitting the results to the attorney general’s office. The attorney general can also seek fines against fantasy-contest operators that don’t follow the rules.

Zalewski claims these standards are necessary to protect consumers of fantasy-sports contests. But the Fantasy Sports Trade Association already announced plans to create an outside control board to ensure ethical behavior and develop industry standards. And if the consumers of these services believed they were unprotected, they would no longer participate. Indeed, Zalewski himself has participated in fantasy sports and only stopped doing so when he decided to introduce his bill.

Illinois already has a powerful consumer fraud act, which not only allows consumers to sue companies such as these for fraud, but also allows consumers to collect attorneys’ fees and punitive damages in some cases. The Federal Trade Commission can also investigate and prosecute fraudulent business practices, including those by fantasy-contest operators.

This bill could discourage more consumer-friendly providers from entering the market. Some of the problems facing FanDuel and DraftKings could provide opportunities for entrepreneurs to offer customers better products. But the regulations in this bill may enshrine in law the way the established companies operate and prevent new operators from entering the field. This would leave consumers with fewer choices and less control over the future of the industry.

Most users know that playing fantasy sports is risky and that they are not likely to win big payouts. They play primarily for fun. These regulations could end up hurting unsophisticated players by creating a false perception that the government has made the games fairer or easier to win.

Illinois should make sure those who enjoy fantasy sports are not liable under any criminal laws. But the state should not regulate fantasy-sports contests under the guise of consumer protection, particularly when it could actually hurt consumers in the long run.