DraftKings, FanDuel among daily fantasy sites ruled gambling by Nevada

Brent Schrotenboer | USA TODAY Sports

Nevada on Thursday declared daily fantasy sports to be gambling, becoming the first state to take action against the industry since it came under scrutiny last week.

The decision means daily fantasy sports sites such as FanDuel, DraftKings and others will be required under Nevada state law to have a license to operate there.

“Since offering (daily fantasy sports) in Nevada is illegal without the appropriate license, all unlicensed activities must cease and desist,” according to the notice released by the Nevada Gaming Control Board.

FanDuel and DraftKings have surged in growth recently with a business model that critics say resembles sports gambling, which is largely illegal outside of Nevada. Participants pay an entry fee to select a lineup of players competing in games that day or that week. Depending on the performance of their lineup, they can win cash prizes sometimes reaching $1 million.

The companies believe they are legal under a 2006 federal law that allows such games under certain conditions, but the law isn't as friendly in Iowa, Washington, Arizona, Louisiana and Montana, where residents are ineligible to play for money on DraftKings or FanDuel. In recent days, the companies have been hit by a surge of legal activity, including multiple federal lawsuits by consumers, the heightened prospect of regulation in other states and even federal law enforcement.

The FBI has opened a preliminary inquiry into the daily fantasy sports industry, a government official told USA TODAY Sports on condition of anonymity because the official was not authorized to talk about an ongoing matter.

Both companies issued statements about Nevada Thursday evening.

"On behalf of our users in Nevada, FanDuel is terribly disappointed that the Nevada Gaming Control Board has decided that only incumbent Nevada casinos may offer fantasy sports," FanDuel's statement said. "This decision stymies innovation and ignores the fact that fantasy sports is a skill-based entertainment product loved and played by millions of sports fans. This decision deprives these fans of a product that has been embraced broadly by the sports community including professional sports teams, leagues and media partners. We are examining all options and will exhaust all efforts to bring the fun, challenge and excitement of fantasy sports back to our Nevada fans. In the interim, because we are committed to ensuring we are compliant in all jurisdictions, regrettably, we are forced to cease operations in Nevada."

DraftKings also said it was disappointed.

“We understand that the gaming industry is important to Nevada and, for that reason, they are taking this exclusionary approach against the increasingly popular fantasy sports industry,": DraftKing's statement said. "We strongly disagree with this decision and will work diligently to ensure Nevadans have the right to participate in what we strongly believe is legal entertainment that millions of Americans enjoy. Unfortunately, we now have to temporarily disable our product for our thousands of customers in Nevada in order to be compliant in all jurisdictions.”

The spotlight on these companies has grown since last week, when they were forced to react to questions about the integrity of their games after a data breach involving a DraftKings employee. The same employee won $350,000 in a FanDuel contest, leading to questions about whether he had used that information to game the system.

The companies say he did not and that there was no wrongdoing. But New York Attorney General Eric Schneiderman is among many who want to know more. Last week, he sent letters to both companies asking for a host of information, including a list of employees with access to insider data and how they control for potential fraud.

Both companies said they have since banned employees from playing on rival sites for money.

Contributing: Kevin Johnson. Contact sports reporter Brent Schrotenboer at bschrotenb@usatoday.com