On Friday, U.S. President Joe Biden announced that the U.S. federal government would begin cracking down on market consolidation in the tech sector by more heavily scrutinizing proposed tech industry mergers. Meanwhile, at the same time, a number of state governments are doing just the opposite in sports gaming markets — passing new legislation to foster market consolidation in daily fantasy sports and sports gambling .
The state-law created oligopoly in both sports gambling and daily fantasy sports markets represents the antithesis to President Biden’s broader action, as it arguably has a chilling effect on innovation and attempted new market entry in both gaming markets.
These state-generated barriers to entry have come to exist in three different forms. One mechanism that some states have adopted to prevent new and smaller companies from entering the marketplace is through imposing registration fees that are sufficiently high that they ensure new operators will lose money in their early years. For example, in Delaware, Indiana and Pennsylvania, any company that wishes to offer a fantasy sports contest must pay of $50,000 registration fee.
Other states, meanwhile, have simply failed to license new market competitors whatsoever — helping to ensure that the industry’s oligopoly of yesterday remains its oligopoly of tomorrow. In this realm, New York State remains the worst offender, where nearly six years after the state legislature legalizing interactive fantasy sports, the state gaming commission has still not made available an application packet for companies launched after 2015 to enter the state’s interactive fantasy sports market.
Finally, some state licensing boards have even implemented quotas on the number of licenses available to offer online sports gambling or fantasy sports contests. These quotas began in realm of licensing traditional sports gambling where jurisdictions such as Washington, D.C. have adopted as few as just one online sports gambling operator (subject to a limited carveout for sports stadium autonomy). However, more recently, the State of Connecticut extended the idea of licensing quotas into fantasy sports as well.
It is hard to square some states’ efforts to limit competition in emerging sports gaming markets with an emerging federal policy aimed at fostering free and fair competition in broader high tech markets. Moreover, in some ways market consolidation in online gaming should be seen as even more bothersome than market consolidation in other high tech industries. This is because whereas there is little doubt that companies such as Google and Amazon gained substantial market share through product innovation, companies such as DraftKings and FanDuel gained their initial market share by entering through “regulatory arbitrage,” and their willingness to enter the DFS marketplace when their contests’ compliance with both federal and state law fell firmly within a legal gray area.
Marc Edelman (Marc@MarcEdelman.com) is a Professor of Law at Baruch College’s Zicklin School of Business and the founder of Edelman Law, Sports Ethics Director of the Robert Zicklin Center on Corporate Integrity, and the author of many scholarly legal articles on fantasy sports, including the Indiana Law Journal article “Regulating Fantasy Sports.” Nothing contained herein should be considered legal advice.