DFS Operators Face Challenges as More States Ban Prop Bets DFS Operators Face Challenges as More States Ban Prop Bets

A contest offering that is essentially sports betting … cannot properly be characterized as [internet fantasy sports] simply because an operator labels it as such.

It’s been a rough couple of weeks for prop-style daily fantasy sports (DFS) operators.

On Tuesday, the New York State Gaming Commission (NYSGC) unanimously approved revisions to its comprehensive regulations for what it calls interactive fantasy sports (IFS) operators. One of the approved revisions specifically bans prop bets.

That same day, a coalition of fantasy sports operators said similar rules had just taken effect in Michigan. The Coalition for Fantasy Sports (CFS) warned that their members, which offer pick 'em games, could ultimately be forced out of the state.

Developments in both states come exactly two weeks after regulators in Florida issued cease and desist letters to three prop-style operators in that state.

Combined, the moves by regulators in Florida, Michigan, and New York signal a growing trend overall where states are starting to consider the DFS offerings as a form of real money sports betting.

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NY First Proposed Changes in July 2022

New York regulators introduced the idea of revamping its rules for fantasy sports operators more than a year ago.

NYSGC issued a Notice of Proposal outlining the proposed changes in the New York State Register on July 20, 2022. It issued a Notice of Revised Rulemaking on August 2 of this year.

Part 5602 covers the criteria for permissible contests, specifically banning prop bets. It states in part that fantasy sports contests “shall not be based on proposition betting and shall not have the effect of mimicking proposition betting. Contests in which a contestant chooses whether an individual athlete or a single team will surpass an identified statistical achievement would be prohibited.”

In response to a public commenter objecting to the rule, the NYSGC said it “believes that a contest offering that is essentially sports betting…cannot properly be characterized as IFS simply because an operator labels it as such.”

During its meeting on Tuesday, the NYSGC revealed that it received four public comments — from the CFS, FanDuel, Mojo Interactive, and Vivid Seats LLC — on its proposed changes. The regulator also received 1,462 form letters from PrizePicks, an IFS operator looking to win licensure and launch in New York — the biggest sports betting market in the US.

Proposed Rules in Michigan Also Advance

Meanwhile, the CFS issued a statement criticizing the Michigan Gaming Control Board (MGCB) for its proposed changes, many of which are similar to New York’s. The coalition is composed of three operators — PrizePicks, Sleeper, and Underdog Fantasy.

The changes are subject to approval by the Joint Committee on Administrative Rules (JCAR), a bipartisan legislative committee with oversight of rules proposed or adopted by state agencies.

CFS warned that JCAR “has accepted new rules proposed by the MGCB, which could limit certain types of fantasy sports games that are popular in Michigan.”

Specifically, the MGCB asked JCAR to sign off on Rule 531(3b), which stipulates that “unless otherwise approved by the board, a fantasy contest operator or licensed management company may not offer or allow…proposition selection or fantasy contests that have the effect of mimicking proposition selection.”

Also banned, under Rule 531(3d), are any fantasy contests “in which any statistical results of the performance of any individual athletes that determine the outcome of the fantasy contest have been partially or completely determined and are publicly known at the time any entry is accepted.”

The secretary of state must still approve the proposed rules before they can take effect.

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CFS projected disappointment after alleging “thousands of Michiganders reached out to lawmakers asking that the MGCB rules be rejected, submitting over 2,600 emails and making over 700 phone calls.

“Despite the public appeal, JCAR members held no meeting and took no action before their 15-day window expired [Monday], thereby approving the board’s rules by default. We will continue to work with regulators and policymakers to provide the innovative fantasy sports products customers want and love.”

Sen. Jim Runestad (R-White Lake), a member of JCAR, was critical of the regulator. He blamed Rep. Jim Haadsma (D-Battle Creek), who chairs JCAR, and other Democrats on the panel who “chose to do nothing.”

“They ignored the voices of Michiganders, bent to the will of big donors and corporate interests, and clearly violated the intent of the original fantasy sports bill as well as the will of the people,” Runestad said in a statement through CFS.

“Moving forward, I pledge to work with the Gaming Commission and other lawmakers to restore access to the legal fantasy sports games that have just been stripped away from Michiganders.”

CFS said MGCB considered a similar ban in 2021, but lawmakers ultimately convinced the regulator to back down.

PrizePicks has proven to be a plucky daily fantasy sports (DFS) operator in Michigan and took a commanding lead of the market over bigger rivals DraftKings and FanDuel starting in January.

Betr, PrizePicks, and Underdog Sports were the DFS operators that received cease and desist letters from the Florida Gaming Control Commission last month.

Prop bets are popular in DFS because they give bettors the opportunity to place wagers based on over/under predictions. DraftKings and FanDuel are also reportedly interested in offering them.