Protectionism 101: HB 279 and the regulation of Fantasy Sports

[TL;DR warning – this is a long one.]

I usually stick to writing about local issues at this site since I feel I can have the most impact in and around Huntervsille, but occasionally the General Assembly will motivate me to write about something outside of the confines of Mecklenburg County. Last week, Mecklenburg County Commissioner Matthew Ridenhour alerted me to just such an occasion when he commented about HB 279, or the “Fantasy Sports Contest Act,” on his facebook page. I, for one, am glad the majority party in Raleigh is finally taking action to protect all North Carolina residents from the scourge of unregulated fantasy sports. Because if there was a single overarching reason voters returned Republicans to the majority in Raleigh last November, it was definitely to grow the size of state government by enacting more paternalistic regulations.

Becki Gray wrote a column at Carolina Journal last week asking a very reasonable question, “As hundreds of bills are filed in the General Assembly, I ask: What problem are lawmakers trying to solve?” I asked myself the same question about HB 279 – what problems are the sponsors of this bill trying to solve? The answer wasn’t readily apparent so I decided to email the fourteen sponsors of the bill and ask them what problems they were trying to solve and why NC needed to regulate fantasy sports? I haven’t participated in fantasy sports in a few years, and I have never participated in the growing phenomenon known as daily fantasy sports, so maybe I just wasn’t aware of the problems that needed solving by state government.

Rep. Jason Saine (R), a primary sponsor of HB 279, promptly responded to my email (and cc’ed the bills other primary sponsors) with an outline of their justification for the legislation. He wrote in part, “It is important to note that without a legal definition and parameters, other states have seen confusion regarding fantasy sports.” As evidence of this confusion he linked to an April 2016 news story about an opinion by the office of the Attorney General in Tennessee that fantasy sports contests constituted illegal gambling under TN law. TN became the third state to regulate fantasy sports when the governor signed a bill into law later that same month.

The current version of HB 279 is five pages long. If the primary concern of the bill sponsors is that an NC court could rule fantasy sports to be gambling, it seems like the concise language contained within the proposed section 78E-9 of the bill would be sufficient by itself to address this concern. Section 78E-9 states fantasy contests are not to be considered gambling under NC law. Problem solved, right?

I haven’t seen much written yet in the mainstream press about this bill since it was filed other than a short piece in the N&O last week, but I have read two opinion pieces. Both writers, Nic Haag in the Lincoln Herald and Keith Larson in the Charlotte Observer, raised excellent objections to HB 279, many echoing my own objections to this bill. HB 279, as currently written, is nothing more than another manifestation of protectionism that unnecessarily imposes arbitrary restrictions on competition.

Another concern I have (a concern also expressed by Commissioner Ridenhour in his facebook post) that neither of the other opinion pieces referenced is the overreach potential of this bill.  If the intent of the bill sponsors is only to offer consumer protections to fantasy players and not to regulate small fantasy leagues amongst friends/family/co-workers involving small sums of money (or even no money), why not clear up that ambiguity in the bill? The bill states no fantasy contest shall be offered in this State unless the operator has been registered with the [Secretary of State]. A “fantasy contest” is an online fantasy or simulated game or contest… and an “operator” is a person or entity that offers fantasy contests to members of the public.

There does not appear to be any language in the bill clearly setting forth the intent for it to only apply to fantasy sports companies operating a web based platform as opposed to fantasy leagues amongst friends who happen to use an existing web based platform like Fantasy Draft, Yahoo, etc. Without clear language setting forth the intent of this bill to exempt small leagues involving friends/family/co-workers, I could easily see the Secretary of State’s office or another state agency attempting to require registration and the registration fee for a group of friends/family/coworkers based on the ambiguous definitions of fantasy contest and operator – and I could easily see a court upholding such an attempt unless changes are made to the existing bill language.

Consider this hypothetical. You and your friends have run a fantasy league every football season for years, you charge a $25 buy-in, and use Yahoo’s online fantasy platform. This season two of your friends can’t participate and you want to replace them to keep the same number of participants in your league so you send out a quick social media post on your social media profile open to the public for anyone interested in joining your league to contact you. Are you now an “operator” offering a “fantasy contest” to members of the public requiring you to register with the Secretary of State?

I also received a response from Rep. John Bradford (R) to my question about what problems the sponsors of the bill are attempting to resolve. Rep. Bradford wrote in part, “The key concern for states, like NC, have been whether daily fantasy sports operators are collecting money from the general public, because that is the conduct where there is risk of harm… These operators create jobs and revenue in NC.” I have yet to be provided with evidence from any of the bill sponsors of any actual harm suffered by a fantasy sports participant in NC.

Regarding the “jobs and revenue” justification for this bill, maybe someone can point me to the bills filed by Rep. Bradford (or any other bill sponsor) seeking to legalize drugs and prostitution on the same basis.

Why not allow the fantasy sports companies to police themselves and let the market sort out what consumer protections may or may not be needed? This unregulated market seems to have worked out pretty well so far in NC. Fantasy sports have been around in some form or another in NC for at least 15 years – and that’s being conservative. The bill sponsors may argue daily fantasy sports are different, but HB 279 as written makes no distinction between season long and daily fantasy contests. The fact that the bill sponsors can’t come up with a single instance of a fantasy sports operator defrauding or otherwise causing financial harm to an NC resident over the past 15 years should tell you all you need to know about this bill.

To further bolster their support for this bill, both Reps. Saine and Bradford have pointed out that the industry supports oversight and regulations like HB 279. As I pointed out to Rep. Saine, I don’t think that helps their argument. It only reinforces the perception that this proposed legislation is nothing but protectionism being pushed by current market participants to erect barriers to entry for future competitors.

Rep. Saine attached the two letters below in his email as evidence of industry support (he also posted them on his twitter feed) and Rep. Bradford wrote the following in a facebook comment on March 9, “NC companies operating in this space specifically asked for legislation to clearly separate fantasy sports from gambling activities.”

FantasyDraft Support FSTA NC Support


So, which “NC companies” are Rep. Bradford referring to? He doesn’t specify so I am going to assume at least one of them is the company that wrote a letter in support to Rep. Saine, Fantasy Draft, LLC. Who is Fantasy Draft, LLC? In the timeless words of local radio personality Tremaine “QCB” Sloan, I had never heard of them.

Fantasy Draft, LLC (“Fantasy Draft”) lists a Cornelius, NC address on their letterhead. They have a corporate logo on the top of the building at that address as well as roadside signage and they are listed on the company directory on the first floor of the building. They’ve been featured in stories at the Charlotte Observer and Cornelius Today. A quick perusal of the “Press Box” page of their website shows Charlotte, NC on all of their bylines. A story from November 13, 2014 on their site announcing their launch states that Fantasy Draft is based outside of Charlotte, NC. The story goes on to state, “The investment group behind FantasyDraft is led by Charlotte-based entrepreneur and business owner Robert Stevanovski and includes senior individuals at The Jordan Company, a private investment firm, with more than $8 billion in committed capital among others. Stevanovski owns several businesses that have generated over $3 billion dollars in revenue over the last five years.” Mr. Stevanovski is one of the co-founders of ACN, LLC based in Concord.

Interestingly, when you run a property search of the Cornelius address listed by Fantasy Draft it shows the owner as West Catawba Ave, LLC. The managing member of this company according to filings at the Secretary of State is Pasicor, LLC. The manager of Pasicor, LLC is Robert Stevanovski according to filings at the Secretary of State. One of the other tenants in the building with Fantasy Draft is Xoom Solar. Xoom Solar is a subsidiary of ACN, LLC.

Based on the above, it would seem obvious Fantasy Draft is an NC company. But, over at the Secretary of State’s website, I was unable to locate Fantasy Draft when I performed a corporate name search (you can perform the search here). Just searching the word “fantasy” in the corporate name search brings up approximately 140 results, 26 of which appeared to be related to fantasy sports in some manner, but no Fantasy Draft. I also attempted a search based on company officials and was still unable to locate Fantasy Draft. I then did a search online in the Mecklenburg County Register of Deeds assumed names database (you can perform the search here) just in case they were operating as a d/b/a or an assumed name and still found no results.

After searching online it appears Fantasy Draft is incorporated in Delaware and has filed as a foreign limited liability company in Mississippi (where fantasy sports legislation has already been signed into law) with its principal office in Cornelius, NC. The question for the bill sponsors is whether a physical presence and employees in NC is alone enough to consider Fantasy Draft an NC company. There is nothing wrong with incorporating in Delaware and filing to do business in other states, however, it does not make Fantasy Draft an NC company in my opinion. Whether Fantasy Draft is a foreign corporation transacting business in this state without a certificate of authority pursuant to NCGS §55-15-01 is another question entirely.

To be clear, I reject the premise that the state should be involved with regulation of fantasy sports. But, because of the number of bill sponsors (14) and because it’s a bi-partisan bill, I recognize HB 279 has a good chance of passing the House and heading to the Senate. Let’s hope before it does some other members of the House or members of the Senate can scale this bill back and limit it to simply preventing fraud and abuse and maximizing competition.