Virginia on Monday became the first state to approve regulations outlining how daily fantasy sports websites can operate legally within its borders.
Virginia Gov. Terry McAuliffe signed into law the "Fantasy Contests Act," a bill that distinguishes daily fantasy sports sites like DraftKings and FanDuel from gambling sites. McAuliffe's approval comes amid a flurry of legislative debate over whether such sites constitute illegal gambling.
DraftKings applauded the new law.
"Today, Virginia became the first state in the nation this year to put in place a thoughtful and appropriate regulatory framework to protect the rights of fantasy players," DraftKings said in a statement. "We thank Governor McAuliffe for his leadership and advocacy and are hopeful that other states across the country will follow Virginia's lead. We will continue to work actively to replicate this success with dozens of legislatures and are excited to continue these efforts."
The daily fantasy sports industry has experienced huge growth in recent years, generating an estimated $2.6 billion in entry fees in 2015 alone, according to Eilers Research. But that rapid growth has led to questions about the legality of such contests, which offer cash prizes to contestants who compete in abbreviated daily versions of the traditional season-long fantasy sports leagues.
The new law is a home run for sites like DraftKings and FanDuel, which are fighting for their survival as many states have found the industry to be in violation of state gambling laws. Laws in at least six states prohibit their residents from playing daily fantasy sports games.
Supporters argue that building hypothetical rosters from real sports players and accumulating points based on their performance is a game of skill, not chance, and not subject to laws that govern games such as poker.
But several states disagree. New York Attorney General Eric Schneiderman issued cease-and-desist letters to the companies in November, arguing that the games are illegal because they depend on factors outside of players' control. Texas Attorney General Ken Paxton has expressed a similar view, while Nevada regulators have said the sites can't operate in that state without a gaming license.
In its fight for survival, the industry has launched a lobbying effort to support bills introduced in statehouses across the country that would exempt website operators from state gambling laws. According to the Wall Street Journal, since the beginning of the year, 16 states have introduced bills to create legal protections for operators, nearly all of them with the backing of the operators themselves.
Virginia's new law stipulates that all players be 18 years or older and bans employees and immediate relatives from participating in contests. Websites must also keep the funds of its players separate from the company's operational funds. They must also pay a $50,000 fee to operate in the state and submit to an annual audit of their operations.