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California Attorney General Rob Bonta's opinion last week that deemed daily fantasy sports to be a form of illegal gambling is a new policy wrinkle in a state that has consistently been a flashpoint when it comes to the gaming market. 

With tribes holding exclusive rights to offer all Class III gaming in the state and with sports betting legalization efforts continuing to languish, alternative forms of gaming such as daily fantasy sports have continued to remain popular.

Bonta's opinion raises several critical questions about not only fantasy sports, but also how other verticals could ultimately be impacted and how leading sports-betting operators looking to court tribes are left with a difficult choice. 91ÌìÌÃÔ­„“ GamblingCompliance highlights some of these questions and who stands to benefit and lose as a result of the opinion.

Tribal Strength Underlined

Will this be a symbolic win, or must enforcement measures be taken for the opinion to be a complete victory for tribes?

The opinion reflects another significant policy victory in California for Indian gaming tribes, the latest in a series of wins as they continue to defend their gaming exclusivity in the state. Tribes remain one of the most powerful political voices in the Golden State, and commercial gaming interests have continued to be stymied by that influence. 

Tribal gaming leaders have made clear that any future sports betting legalization plan will go through the tribes, and while some have voiced frustration over a lack of enforcement against forms of gaming that run up against their gaming exclusivity, such as cardrooms, sweepstakes, and prediction markets, the tribes continue to be successful in defending their turf on the whole. 

Still, potential actions from the attorney general’s office in future weeks will show whether this is more of a symbolic victory for the tribes, or, if enforcement actions are taken, a truly meaningful one that continues to demonstrate that tribes are the one true power player in the state’s gaming picture. Tribes are likely to be very vocal in the coming weeks and months pushing for enforcement actions against any fantasy operator that continues to do business in California.

DFS 2.0 Operators Face Biggest Impact

How do pick 'em operators respond to the opinion?

The biggest impact of the opinion falls on second-generation DFS companies such as PrizePicks and Underdog, which now have a difficult choice to make, particularly given how broadly the opinion rejects daily fantasy in virtually all forms. 

In other states where the companies have faced legislative blowback regarding their pick 'em-style games, they were able to pivot away from their popular against-the-house product into modified daily fantasy games that were less likely to run afoul of regulators. In California, that may not be an option, as Bonta’s opinion deems both traditional and against-the-house games to be illegal. 

Underdog tried to take action even before the opinion was released, seeking to block Bonta from doing so through an injunction, but the effort was denied by a state judge. 

In its legal filing, the company said that Bonta's office had confirmed that "the goal would be to use the threat of an enforcement action...to pressure Underdog into agreeing to leave California entirely."

The decision Underdog and other operators now face is whether they acquiesce to the opinion, wave the white flag and withdraw from the most populous and likely most lucrative state in which they operate, or run the risk that if Bonta does elect to take enforcement action, California becomes a battleground for what could be one of the more consequential legal contests over fantasy sports in some time. In the immediate aftermath, the companies have indicated they will continue as normal, but that could change if enforcement actions begin.

FanDuel And DraftKings At Relationship Crossroads

Do the two sports-betting leaders risk their somewhat tenuous relationship with tribes by continuing to operate?

FanDuel and DraftKings face a similar quandary, but theirs is more of a business decision rather than one that will materially affect their continued survival. 

Since the ill-fated ballot initiative in 2022 that saw commercial gaming interests and Indian gaming tribes in a heated (and expensive) battle that led to voters soundly rejecting the legalization of sports betting, the two sports-betting market leaders have worked hard to curry favor with the tribes and build a relationship that, they hope, will ultimately lead to the two sides working together in any future sports-betting legalization.

However, the two companies have also continued to offer daily fantasy games in the state for many years, before and after the sports-betting initiative flopped, and they now face something of a crossroads in their relationship with tribes. 

Do DraftKings and FanDuel continue to operate daily fantasy in the state, which will likely draw the ire of the very tribes they are courting? Or will they take the short-term hit of the lost revenues from a target-rich California daily fantasy sports market, and potentially ceding customers to daily fantasy rivals or others such as sweepstakes and prediction-market operators, in return for the potential longer-term gain of a more fruitful relationship with tribes?

What's Next For Sweeps?

Could a similar opinion for sweepstakes gaming be in the state's future?

The broadness of the daily fantasy opinion draws a natural follow-up question of whether unregulated sweepstakes gaming platforms would meet a similar fate if the attorney general was similarly asked to weigh in.

Tribal leaders are currently backing newly amended legislation to explicitly prohibit sweepstakes gaming, including the dual-currency model favored by many sweepstakes operators, with Assembly Bill 831 clearing a Senate committee early this week. 

Legislation would be the preferred route of tribes and other sweepstakes opponents, as it could theoretically be enacted and enforced within months, while the attorney general's fantasy sports opinion took nearly two years to be released from when it was requested by then-Republican state Senator Scott Wilk. But if tribes fail to get such a measure through the legislature, seeking a similar opinion governing sweepstakes could be another option, and given the reasoning Bonta gave for finding daily fantasy games illegal, it is not hard to imagine he would react similarly to sweepstakes games.

Kalshi Could Be Biggest Winner Of All

Would daily fantasy enforcement simply clear the field for Kalshi and others?

One big potential winner from the attorney general's opinion are prediction markets such as Kalshi that are operating in all 50 states, including California. 

If daily fantasy and potentially sweepstakes challengers for the sports-betting adjacent dollar were chased out of California, prediction markets would effectively have the market all to themselves until tribes are able to put a sports betting legalization plan in place that passes muster with either a legislature or voters, or until prediction markets are curtailed by some type of federal court, legislative, or regulatory action.

Tribes have been among the most vocal opponents in the ongoing expansion of prediction markets for this very reason, and while tribes still have a great deal of influence among federal legislators, it is obviously much harder to carve out significant changes at the federal level than in a state capitol. 

If the daily fantasy companies are indeed forced out of California, prediction markets will likely be waiting with open arms to absorb those customers by promoting sports-event contracts, and they could ultimately build a significant head start in California on whatever sports-betting plan may come later.