Q&A: A look at how daily fantasy sports sites including DraftKings, FanDuel operate

LAS VEGAS, Nev. – Daily fantasy sports websites including DraftKings and FanDuel have been ordered to shut down in Nevada after regulators said they can’t operate without a gambling license. The companies, which have flooded televisions and computers with advertisements promising big payouts to winners, have come under increased scrutiny by regulators after it was revealed employees often played on competing sites, raising questions about possible insider information being used to win.

Here’s a look at how these sites operate and their ties to sports leagues:

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HOW DO DAILY FANTASY SPORTS WORK?

The sites take traditional season-long fantasy leagues — where points are earned each week based on a roster of players picked before the season’s start — and squeeze the stats down to a day or week. Customers playing for free or paying for an entry, as low as a couple quarters or as much as thousands of dollars, get a “bankroll” to spend on players to create a fantasy team for the day. Like most games, the competitor who earns the most points based on those players’ statistics wins. Unlike traditional sports betting in Las Vegas, customers play against others, not the house, and winning isn’t determined by a single game’s outcome.

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IT’S NOT GAMBLING? IT’S NOT ILLEGAL?

The sites say the games are based more on skill, not luck and point to a specific exemption carved out for fantasy sports in the federal Unlawful Internet Gambling Enforcement Act of 2006. It was enacted at a time when season-long fantasy sports matchups, not daily ones, were becoming popular.

New York-based FanDuel and Boston-based DraftKings say the law that addresses processing payments for online gambling applies to them. That law doesn’t necessarily make the sites OK in states where the definition of gambling can vary wildly depending on if the contest is entirely skill-based or mostly skill-based. That’s kept both out of at least five states. On Thursday in Nevada, the sites were ordered to shut down and apply for gambling licenses if they want to do business.

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HOW INVOLVED ARE THE MAJOR SPORTS LEAGUES?

The NBA has a stake in FanDuel. MLB, the NHL and Major League Soccer are DraftKings investors. The NFL hasn’t made any direct investments or partnership deals, but its teams are allowed to accept advertising from the sites. The league has said the contests aren’t gambling because players need skill to play and win. ESPN said it was cutting sponsored DraftKings elements from within its news shows but not the frequent commercials.

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WHAT ABOUT THE NCAA?

The governing body for college sports, which has strict rules for its players prohibiting sports betting, has expressed its discomfort with daily fantasy sports. Seeing a parallel between it and gambling, the Southeastern Conference has asked sports network ESPN to remove the companies’ ads from the SEC’s network. And commissioners for the Football Bowl Subdivision want DraftKings and FanDuel to stop offering college sports fantasy contests on their sites.