NJ Hopes to Hit Budget Home Run with Daily Fantasy Sports Games

John Reitmeyer | April 4, 2017 | Budget
Analysts project that issuing permits and charging operations fees could bring in new annual revenue of $6.6 million

The 2017 Major League Baseball season began earlier this week with players like Mets’ outfielder Curtis Granderson now eligible to be used in fantasy sports games.
With a new baseball season underway, thousands of New Jersey residents have resumed participating in daily fantasy sports games that can generate lucrative cash prizes for the winners. If state lawmakers have their way, the same games could also generate millions of dollars in new revenue for cash-strapped New Jersey.

A bill that recently advanced to the full state Assembly would for the first time establish regulations in New Jersey for large-scale fantasy sports games, including requiring operators to conduct annual financial audits and maintain sufficient monetary reserves.

The measure would also require those offering the fantasy games to purchase an operating permit from the state and pay an operations fee equal to 10.5 percent of quarterly gross revenue. The bill would apply to large-scale daily fantasy games like those offered by popular websites DraftKings and FanDuel. It would not impact more modest fantasy sports games involving family and friends.

$6.6 million in annual revenue

Nonpartisan legislative analysts predict as much as $6.6 million in new annual revenue could be raised for the state budget if the bill becomes law. The legislation would also establish substantial penalties to punish anyone caught tampering with the outcome of a fantasy game or operating one in New Jersey without a permit, meaning more revenue could be raised if the rules aren’t followed.

Sponsors of the measure point to the need to regulate what’s become a hugely popular activity for sports fans, and also a highly profitable one for some of the best players. A group that works in New Jersey to help those with gambling addictions is also urging lawmakers to ensure some of the projected revenues are set aside to support its efforts.

Unlike season-long fantasy sports games that involve players tracking statistical performances for the entire length of a professional-sports season, daily fantasy games offer sports fans the opportunity to play each day using the statistics generated by players during that day’s games. In recent years, websites like DraftKings and FanDuel have begun to offer such games, including those with a salary cap that prevents the daily contest teams from being stacked with only the best players at every position.

The online format has also allowed the pool of potential daily fantasy players who compete against one another to expand dramatically, compared with the more traditional seasonal leagues. And though players usually pay only a few dollars to join a daily contest, prizes can rise into the millions, making the nationwide games lucrative for both the websites and the winning players.

Sports betting

But as daily fantasy games have taken off in popularity and become a multibillion dollar industry nationally, questions have also been raised about whether the contests that are played for cash prizes should be considered a form of sports betting, which is banned in most states, including New Jersey. Proponents of the daily fantasy games maintain that success requires much more than luck as the most sophisticated players spend hours going over lineups and matchups, assessing trends, and even tracking the likely weather conditions at stadiums across the country on game days.

A federal Internet-gambling law passed in 2006 also included an exemption for fantasy contests that rely on the performances of real players participating in real games, but several states have taken the position that daily fantasy contests where cash is at stake are illegal sports gambling and have prohibited them from operating.

The fantasy sports measure advancing in the New Jersey Legislature would officially establish the legality of the large-scale fantasy games when cash prizes are offered, as long as the operators follow the proposed regulations and pay the costs of obtaining operating permits.

Defining fantasy

The bill defines a large-scale fantasy sports activity subject to state regulation as a “contest with an entry fee in which a participant owns or manages an imaginary team and competes against other participants or a target score for a predetermined prize with the outcome reflecting the relative skill of the participants and determined by statistics generated based on performance by actual individuals participating in actual competitions or athletic events.”

The measure enables the state to issue permits to operators of both daily and season-long fantasy sports games, and allows casino operators and licensed horserace tracks to partner with them. In addition to establishing financial guidelines like requiring audits and monetary reserves, the bill would prohibit players who are under 18 and ban the offering of any fantasy games linked to high-school sports.

Penalties for tampering with the games would range from up to $50,000 for individuals to up to $200,000 for operators, according to the bill. Fines of up to $25,000 and up $100,000 would also be established for operating fantasy games in New Jersey without a permit.

In the money

Nonpartisan analysts from the state Office of Legislative Services estimate the bill could generate at least $6.6 million in annual revenue for the state net of the costs it will take to regulate the fantasy games. The analysis was based on national estimates of how many people are playing fantasy sports games and how much money players typically spend in a given year. In all, they estimate the fantasy games could become a $625 million industry in New Jersey, and that 10 percent of that amount would be kept by the operators as entry fees, making it subject to the new state permitting charges.

“The fantasy sports industry is a growing market year after year,” said bill sponsor Vince Mazzeo (D-Atlantic). “The time is right for New Jersey to enter the fold with regulations aimed at providing strong consumer protections for our residents.”

Mazzeo’s bill passed the Assembly Appropriations Committee along party lines during a meeting last month, and a version is also advancing in the Senate.

During the Assembly committee meeting, Neva Pryor, executive director of the nonprofit Council on Compulsive Gambling of New Jersey, said lawmakers should consider earmarking a percentage of the projected revenues to help fund her organization’s efforts to help those with gambling addictions. The council operates the 800-GAMBLER hotline and the website 800gambler.org.

“Gambling counselors have documented actual cases of fantasy sports players with a severe gambling problem,” Pryor said. “If you pass this bill, we are requesting that 2 percent of the revenues collected go to the council to cover the added expenses for its hotline and education and treatment.”
“We urge you to consider the consumer over revenue,” she said.