CTNJ file photo
Attorney General George Jepsen (CTNJ file photo)

Attorney General George Jepsen threw cold water on a proposal to impose a 8.75 percent surcharge on daily fantasy sport operators, such as DraftKings and Fan Duel.

In an opinion released Monday, Jepsen told Senate President Martin Looney and Senate Majority Leader Bob Duff “there is a substantial risk that the passage of such legislation could jeopardize the state’s revenue-sharing arrangements with the Tribes.”

Jepsen said the Mohegan and Mashantucket Pequot Tribes, which operate casinos in the southeastern part of the state, could view the legislation as a violation of the Compact and the Memorandum of Understanding the state has with the tribes. The two tribes currently give the state a 25 percent cut of its revenue from slot machines, including video slot machines. The state risks losing that money if it violates its agreement with the tribes.

The legislature’s Finance, Revenue, and Bonding Committee included the daily fantasy sports surcharge in their tax package and assumed the state would collect $9.5 million.

In a statement following the release of Jepsen’s opinion, Looney concluded that, “due to the risk and uncertainty that would result from a potential legal challenge, the prospect of passing legislation this session is unlikely.”

Jepsen opined that it’s still unclear whether these sites where people pay to participate in fantasy sports are considered gambling.

“There presently exists a high degree of uncertainty about whether daily fantasy sports contests constitute games of skill or games of chance,” Jepsen wrote.

If they are games of “skill” then they would be exempt from Connecticut’s criminal gambling laws and and “exempting such contests from the definition of gambling would be unnecessary.” The tax package seeks to define daily fantasy sports as something other than gaming.

Jepsen based a majority of his opinion on how “video facsimile” games have been broadly defined by the tribes memorandum with the state.

“The state has taken the position that a number of games other than video slot machines operated by the Tribes on their respective reservations constituted video facsimile games to which the state was entitled a share of revenue under the MOUs because the games were initiated through a device or machine rather than a person,” Jepsen wrote. “In the event of a future dispute over whether daily fantasy sports constitue video Facsimile games, the Tribes would almost surely point to the state’s expansive past interpretation of that term.”

The two tribes did not testify on legislation, which sought to define fantasy daily sports, and and have not taken a public position on the legislative proposals to authorize daily fantasy sports contests.

Jepsen said there’s also a question about whether daily fantasy sports constitutes a “commercial casino game,” which is not defined in the state’s MOU with the tribes.

“Moreover, as a general matter, courts have been sympathetic to tribal efforts to protect their rights under the Indian Gaming Regulatory Act.”

Jepsen concluded that “no one can predict with any level of certainty how a court, if faced with these issues, would rule. With that uncertainty comes the risk that legislation of the sort proposed could place in jeopardy the state’s revenue-sharing arrangements with the Tribes.”