NJ’s Proposed New DFS Rules Would Both Encourage And Discourage Smaller Operators

New Jersey is preparing to regulate fantasy sports just as it does sports betting, and the proposed rules offer a couple of odd twists.
draftkings football lineup

The days of daily fantasy sports operators scrambling to distance themselves from terms like “gambling” and “sports betting” are over, and this hasn’t gone unnoticed by the New Jersey Division of Consumer Affairs.

With sports betting legal and regulated in the state for the past six months, the Division of Consumer Affairs issued a press release last Friday noting it had proposed a set of new rules governing fantasy sports in NJ.

At the center of the rules is that “fantasy sports operators must obtain a permit from the Division in order to offer fantasy sports activities in New Jersey.”

How much do those permits cost? It depends.

The more you earn, the more you burn

The Division’s rules separate operators into tiers based on their annual gross revenue from fantasy sports. All prospective operators would be required to pay a $500 application fee, and then the permit fees are as follows:

Annual Gross RevenuePermit Fee
< $50,000$5,000
$50,000 - $99,999$10,000
$100,000 - $250,000$20,000
> $250,000$50,000

DraftKings and FanDuel rule the DFS industry (and DraftKings Sportsbook and FanDuel Sportsbook happen to be the early revenue leaders in New Jersey online sports betting), so the tiers are essentially saying, “DraftKings and FanDuel, this is going to cost you $50K; everyone else can get in on the cheap.”

In the opinion of Dan Back, the media director for DFS authority RotoGrinders, the New Jersey Division of Consumer Affairs is taking the correct approach on this front.

“I truly believe tiered fees are the most fair regulatory framework for fantasy sports,” Back told NJ Online Gambling. “In my mind, it doesn’t make a lot of sense for start-ups and smaller operators to pay the same amount as FanDuel and DraftKings. We are starting to see a few new innovative fantasy products hit the DFS landscape the past 12 months, so it’s always good to have regulatory structures that allow them to come to market in as many states as possible.”

While DK and FD might have reluctance to pay higher fees, the blow would be cushioned by the millions of dollars in sports betting revenue that each has been earning in New Jersey since August.

Meet them in Atlantic City

The other interesting twist in the proposed rules is that fantasy sports companies would be required to use operating equipment that’s located in Atlantic City, where the Division can inspect their facilities and servers.

Unlike the tiered fees, this might prove problematic for the smaller operators.

“The ‘equipment’ clause is the one oddity for me in this regulation,” Back said. “This would likely be no problem for FanDuel and DraftKings because of their immense resources. But for any small operator, this could be a real deal-breaker if the expectation would be for them to have physical equipment or offices in Atlantic City to be regulated in the state. In many cases, the cost of this would likely supersede the amount of revenue they would gain by operating in New Jersey.”

The other regulations covered in the fantasy sports rule proposal are generally standard for the industry, such as limiting players to one username and one account per site, operators having to segregate player funds so they aren’t mixed with operating accounts, and prohibiting underage bettors as well as contests that include high school sports.

(New Jersey already has a law blocking sports betting on college games that either take place in the state or feature universities from the state, so it will be interesting to see if DFS regulations might be similarly limiting; the subject is not broached in the rules released by the Division of Consumer Affairs.)

None of the rules are set in stone, of course. At this stage, the Division is accepting public comments until January 18, 2019, before taking further action.


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