Bad Bet: Fantasy sports bills could put state gaming revenues at risk

NFL football on field with a pile of moneyIn 2004, Oklahoma voters approved State Question 712, which established legal compacts between the state of Oklahoma and Native American tribes to regulate tribal gaming. Under the gaming compacts, tribes contribute over $125 million to the state, which goes almost exclusively to public education. However, the compacts and the millions in education funds may be in jeopardy if the Oklahoma Legislature passes a bill aimed at authorizing daily fantasy sports contests.

How Oklahoma’s gaming compacts work

Under State Question 712, the State-Tribal Gaming Act, Oklahoma’s Native American tribes agreed to pay a share of revenue from Class III tribal gaming operations to the state as “exclusivity payments.” After an initial $250,000 is allocated to the Department of Mental Health and Substance Abuse Services for gambling education and treatment, 87.5 percent of gaming revenues are deposited in the 1017 Education Reform Fund, with the remaining 12.5 percent allocated to the General Revenue Fund. Tribal gaming revenues contributed $128.4 million to Oklahoma in FY 2015.

Thirty-one tribes are part of the gaming compact, with the lion’s share of revenue (70 percent in 2015) coming from four tribes – the Chickasaw ($45.4 million), Choctaw ($21.0 million), Cherokee ($14.3 million) and Muscogee (Creek) ($9.0 million) Nations. The state also collects some $20 million annually from racetrack gaming terminals. Gaming revenues are expected to contribute $127.1 million to the HB 1017 Fund for common education in FY 2016, which amounts to about 5 percent of common education’s annual appropriation. An additional $17.9 million from gaming goes to the General Revenue Fund.

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Fantasy sports bills could put compacts at risk

Under Part 11 of the Model Tribal Gaming Compact approved by SQ 712, tribes were granted exclusive rights to operate gaming establishments in return for sharing part of the revenue with the state. However, under the compact this agreement only holds “so long as the state does not change its laws after the effective date of this Compact to permit the operation of any additional form of gaming by any such organizational licensee, or change its laws to permit any additional electronic or machine gaming within Oklahoma.”

This exclusivity guarantee is what is at stake with HB 2278 and SB 1396, labelled the Oklahoma Fantasy Contests Acts.  As anyone who watches NFL football or listens to sports radio knows, daily fantasy sports contests are big business.  The two largest operations, DraftKings and FanDuel, are among the most aggressive sports advertisers, aiming to attract customers to pay entry fees for short-term competitions based on the performance of selected teams of players. Following an insider-activity incident last fall involving a DraftKings manager that generated enormous publicity and sparked federal and state investigations, the industry is now promoting legislation in Oklahoma and numerous other states to provide legal authority and a regulatory framework for their operations.

“A growing consensus is emerging that daily fantasy sports are indeed a form of gambling.”

The daily sports fantasy industry strongly contends that their  contests are games of skill, not chance, and do not constitute gambling. Their Oklahoma bills include language asserting that “nothing contained in Chapter 38 of Title 21 of the  Oklahoma Statutes” – which govern gambling operations – “shall be applicable to a fantasy contest as defined in this act.” However, this interpretation has been roundly disputed, and a growing consensus is emerging that daily fantasy sports are indeed a form of gambling:

It’s possible that if the fantasy sports industry can gain passage of HB 2278 or SB 1396, it can protect itself from Oklahoma’s anti-gambling laws. In return, Oklahoma would get a $2,500 annual registration fee from each operator offering fantasy contests within the state. But Oklahoma would open itself to a compelling challenge that authorizing daily fantasy sports would be permitting “the operation of any additional form of gaming” under the terms of the tribal gaming compacts — a claim already asserted by the Cherokee Nation, Chickasaw Nation, Muscogee (Creek) Nation, and other tribes.

The bottom line

Authorizing fantasy sports could put more than $125 million of state revenue at risk, most of which is currently going to education funding. In a time when Oklahoma already faces a massive budget shortfall, that seems a most foolhardy wager.

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ABOUT THE AUTHOR

Former Executive Director David Blatt joined OK Policy in 2008 and served as its Executive Director from 2010 to 2019. He previously served as Director of Public Policy for Community Action Project of Tulsa County and as a budget analyst for the Oklahoma State Senate. He has a Ph.D. in political science from Cornell University and a B.A. from the University of Alberta. David has been selected as Political Scientist of the Year by the Oklahoma Political Science Association, Local Social Justice Champion by the Dan Allen Center for Social Justice, and Public Citizen of the Year by the National Association of Social Workers.

3 thoughts on “Bad Bet: Fantasy sports bills could put state gaming revenues at risk

  1. I will vote NO to this. I do not believe in giving any more funding to the government of Oklahoma for “education”. It is always diverted to some other purpose. The legislature and the administration think they know better then the people about where these funds go. They seldom go to education in total. They are siphoned off and lost in the state budget. There is no accountability now, before and going forward. We need to get rid of quite a few of our state budget items and there would then be enough for education. I am tired of paying and giving for our students and our teachers only to see those funds never get to the education system. The State House and State Senate are just as inept as their Federal counterparts.

  2. Bruce, you may be thinking of the initiative petition effort now underway to provide additional funding for education. The blog post refers to compacts that were approved by the people in 2004 and that are an existing revenue source.

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