When poker blogger Kevin Bonnet launched his website Fantasy Sports Live in 2006, he coined the term “daily fantasy sports” to give the impression that his contests were more like traditional fantasy sports (generally legal) than like sports wagering (at the time, generally illegal). Since then, that is for the most part, how daily fantasy sports has been classified by most regulatory bodies.

However, with traditional sports gambling decriminalized by the U.S. Supreme Court with its May 14, 2018 decision in Christie v. NCAA and at least 19 states having legalized and passed regulations to govern intrastate sports gambling, there seems to be emerging a small but noticeable effort by some governing agencies to reclassify daily fantasy sports into the same category as sports gambling.

This creeping change in regulatory view of daily fantasy sports is most notably by two, recent events. First, on July 23, the Office of the Chief Counsel for the Internal Revenue Service issued a General Advice Memorandum that purports daily fantasy sports companies, much like sports gambling companies, are “vlable for the excise tax on wagers” under the federal tax code. While an IRS General Advice Memorandum enjoys only Skidmore level deference (greatly oversimplified, this is a low level of deference), the IRS memorandum nevertheless invites the possibility that daily fantasy sports companies that fail to pay this tax will face legal challenge.

In addition, in the coming days, the Colorado Department of Regulatory Agencies will vote on changes to its fantasy sports law which, among other things, would transfer regulation of daily fantasy sports contests from the Director of the Division of Professions and Occupations to the Director of Gaming in the Department of Revenue. While this change would not lead to any immediate adverse effect for daily fantasy sports operators other than an immediate need for smaller companies that operate pursuant to a license to begin conducting an annual audit, the change to Colorado’s regulation of daily fantasy sports could similarly increase the likelihood of eventually aligning the taxation scheme of sports gambling with that of daily fantasy sports.

It remains to be seen if any of the highly-funded daily fantasy sports companies such as DraftKings, FanDuel and Yahoo will attempt to legally challenge either reclassification in the coming days. However, the failure to do so could ultimately lead to negative short- and long-term effects on their bottom line. Meanwhile, such reclassification could hurt smaller, startup daily fantasy sports operators even more given their general lack of resources to either pay higher taxes or engage in tax litigation.

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Marc Edelman (Marc@MarcEdelman.com) is a Professor of Law at Baruch College’s Zicklin School of Business and the founder of Edelman Law. He is the author of the Indiana Law Journal article “Regulating Fantasy Sports,” which is cited by the Illinois Supreme Court in Dew-Becker v. Wu. He is also co-author of the forthcoming Wisconsin Law Review article “A Short Treatise on Sports Gambling and the Law.”