Fantasy sports operators notched a key legal victory Wednesday when Virginia lawmakers passed a bill legalizing and regulating the games, the first major win for the embattled industry as it oversees a surge of lobbying in statehouses around the country.
Virginia’s bill specifically exempts cash-prize fantasy sports contests from the state’s definition of illegal gambling. It also assesses a $50,000 registration fee, requires verification that players are over 18, and bars company employees from competing with the general public in games with cash prizes.
The bill now heads to Governor Terry McAuliffe for final approval.
Fantasy sports companies, led by Boston’s DraftKings Inc. and New York’s FanDuel Inc., supported the Virginia bill as part of a multistate campaign to explicitly legalize and regulate their contests.
In a statement, DraftKings lobbyist Griffin Finan praised the Virginia bill’s “thoughtful and appropriate consumer protections” and said the company is “actively engaged with dozens of legislatures around the country to replicate this success.”
That legislative effort has intensified since the fall, when regulators began questioning whether fantasy sports contests violate state and federal antigambling laws. The most serious challenge so far has come from New York, where Attorney General Eric Schneiderman has sued to ban DraftKings and FanDuel from operating.
The companies are fighting that lawsuit, arguing that fantasy sports involve too much skill to be technically considered gambling under New York law. Earlier this week, a DraftKings lawyer said the company could be driven out of business if it is forced to shut down in New York.
The legal questions have taken a toll on the industry. DraftKings investor 21st Century Fox Inc. recently said it had cut the value of its $160 million stake in the company by about 60 percent. Mutual funds have also reduced the value of their most expensive DraftKings shares, and a key payment processor has said it is dropping all daily fantasy sports clients.
Research firm Eilers & Krejcik Gaming LLC estimates that players spent about $3.1 billion on entry fees for daily fantasy sports in 2015. DraftKings and FanDuel, which account for nearly all of the market, typically keep 10 percent of those entry fees as company revenues.
Twenty-one state legislatures have introduced bills that would explicitly legalize daily fantasy contests and regulate the companies providing the games, according to a DraftKings tally of legislative action.
Lawmakers in California, Indiana, and West Virginia also have passed a fantasy sports regulatory bills out of at least one chamber, moving them closer to potentially becoming state law.
Kansas remains the only state to enact a law specifically exempting fantasy sports from gambling laws. That measure was passed last spring, months before the industry became the target of regulatory probes.
Massachusetts is among the states seeking to more heavily regulate the industry. Attorney General Maura Healey is expected to release regulations within weeks that would restrict the companies’ advertising practices and ban players under 21, among other measures.
In fantasy sports, players assemble fictional rosters of real-life athletes and collect points based on their on-field performance. The companies collect entry fees for those online contests and pay out prizes, which can exceed $1 million in the biggest games.
State Senator Ryan McDougle, one of the sponsors of the Virginia fantasy sports bill, said more than 1 million people play fantasy sports games in the state.
“We wanted to make sure that the people playing were protected,” he said. But at the same time, “those protections are not ones that I think are overly burdensome to the companies. It’s still allowing them to operate.”