Rejecting the Zero-Sum Game in Daily Fantasy Sports: A Proposal for Arizona

The daily-fantasy-sports (“DFS”) industry has been on a meteoric rise since its introduction in 2007. Led by market leaders DraftKings and FanDuel, DFS is a multibillion-dollar industry that has taken advantage of the advent of the Internet and the public’s desire for more immediate results. Commercials and advertisements promoting huge payouts in exchange for small entry fees quickly garnered the attention of not only sports fans, but also many top state officials. DFS operators rely on the Unlawful Internet Gambling Enforcement Act (“UIGEA”) to argue that they are operating legally. Although UIGEA exempts fantasy sports from traditional internet-gambling regulation, there is no evidence to suggest that the drafters contemplated DFS. The questionable legality of DFS eventually caught up with the aggressive business models of DraftKings and FanDuel. Now, the DFS industry is backing state-by-state lobbying efforts to resolve the legal uncertainty.

Arizona’s Tribal–State Gaming Compact (the “Compact”) further complicates the inquiry into whether DFS constitutes illegal gambling. Historically, Arizona has considered DFS a game of chance and therefore illegal gambling. In 1998, then-Arizona Attorney General Grant Woods opined that fantasy sports participation is illegal gambling. Several recent legislative attempts in Arizona to legalize and regulate DFS have been unsuccessful. The limits on what Native American tribes in Arizona can do are eliminated by a “poison pill” provision in the Compact if the state expands permissible off-reservation gaming. The triggering of the poison pill also significantly reduces tribes’ obligation to share revenue with the state.

Despite the Arizona ban on DFS, DraftKings received $48,742 from Arizona participants in 2014. Arizona consumers need protection in this growing industry, and the failure to legalize DFS is depriving Arizona’s economy of revenue. This Note recommends that Arizona resolve the uncertain legal status of DFS by passing legislation that would legalize and regulate DFS in Arizona while satisfying the countervailing interests of Arizona tribes. The solution this Note proposes incorporates the ideal definition of DFS, appropriate consumer protections, DFS operator licensing fees and taxes, regulatory oversight, and compliance with the Compact.