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US – Small fantasy sports business join forces for New York appeal

By - 30 March 2016

A newly formed coalition of small fantasy sports business operators and vendors has joined forces in an attempt to amend proposed legislation in New York State that would impose an onerous $500,000 fee in order to be licensed to operate fantasy sports contests in the state.

The new association has formed in opposition to DraftKings and FanDuel, both of which support the New York legislation.

The Fantasy Sports Trade Association (FSTA), which is supposed to represent all of its members, big and small, has been co-opted by DraftKings and FanDuel, which have led the charge to pass legislation across the country that effectively shuts down smaller operators. Hence the formation of the Small Business Fantasy Sports Trade Association (SBFSTA). Policy makers and the public have been led to believe that DraftKings and FanDuel speak for all fantasy sports operators. They do not.

“We will take this fight across the country on behalf of all of the fans,” said SBFSTA spokesman Alex Kaganovsky. “We will not stand by while the two major players in the industry, which have direct financial ties with three of the major professional sports leagues, are permitted their own duopoly in New York.”

Mr. Kaganovsky said that as written, the current New York bill sets up a battle between David and Goliath and is little more than a concealed effort by DraftKings and FanDuel to eliminate competition by driving out the hundreds of small operators who cannot possibly pay the high fees and taxes called for in the legislation.

“We are very grateful to Senator John Bonacic and Assemblyman Gary Pretlowfor hearing our voices during our trip to Albany. And while we are hopeful that changes will be made to keep us viable, we remain concerned that the DraftKings and Fan Duel legislation, as written, would be devastating to small fantasy sports businesses across New York, Mr. Kaganovsky said.

“Mom and Pop type businesses count for about 95 per cent of the fantasy sports industry. There is a lot more to fantasy sports than DraftKings and FanDuel. Small businesses have been the lifeblood of this industry for decades.”

Recent legislation introduced in the New York State Senate (S 6793) would require that licensed fantasy sports game operators must pay a one-time fee of$500,000. The bill would also impose a tax rate of 15 percent on gross revenue generated by players in the state of New York. The newly created SBFSTA believes this would force many small game operators out of business.

“The ripple effect of this legislation is enormous,” said DraftSharks Matt Schauf. “There are lots of small vendors that rely on each other. If one business goes under, others will start falling like dominoes. This is tantamount to moving the goal posts in the middle of the game, only the fans are the ones who end up losing. There is absolutely no way that any small game operator can pay a$500,000 fee.”

Small fantasy sports businesses believed that the Fantasy Sports Trade Association (FSTA) was looking out for their best interest. However, it became clear that the association had been co-opted by DraftKings and FanDuel after legislation passed that was devastating to small business in Virginia and Indiana. Only the largest operators will be able to afford the licensing fees and taxes created by those new laws. Pending legislation in New York is even more restrictive and amounts to a predatory pricing scheme which will lead to a duopoly.

“DraftKings and FanDuel do not speak for everyone,” said Mr. Schauf. “They are steamrolling our businesses and drowning out our voices, and it needs to stop.”

The two major fantasy sports operators recently reached a settlement with New York Attorney General Eric Schneiderman, agreeing to stop operating in New York until September, unless legislation is passed before June 30 that would allow them to operate. Small fantasy sports businesses were not involved in those negotiations. However, the new proposed legislation affects all businesses.
Litigation or legislation is pending in several other states, but New York is considered the main battleground and likely to set the standard for how other states will attempt to regulate fantasy sports moving forward.

“We understand the desire on the part of lawmakers to have some say in how our industry operates,” Mr. Kaganovsky said. “But we just want to make sure we have a level playing field so that no one group has advantage over another.”

To that end, the SBFSTA is working with legislators to amend senate bill 6793. The association is also eager to work with any other legislators who may introduce fantasy sports legislation that provides licensing and taxes that are fair to businesses respective to their size.

“Existing small businesses and start-up companies need smart legislation that will allow them to operate and thrive in the great state of New York alongside the billion dollar giants like FanDuel and DraftKings,” said Mr. Kaganovsky.

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