New Jersey Republican Gov. Chris Christie on Thursday signed into law a measure to regulate and tax daily fantasy sports.
The law imposes a 10.5 percent tax on the winnings of companies that offer daily fantasy sports.
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Supporters of the measure estimate daily fantasy sports would generate $6.6 million annually in state taxes.
The Republican governor, who did not comment on the law, has supported New Jersey's effort in an attempt to use sports gambling revenues to boost the fortunes of the state's casino and horse racing industries.
The law won praise from fantasy sports operators, who say New Jersey has become the 16th state to enact legislation regulating daily fantasy sports.
"The law establishes multiple layers of oversight, placing New Jersey at the forefront of consumer protection nationally, and creating a new source of tax revenue with major potential for growth in the state," Marc LaVorgna, a spokesman for DraftKings and FanDuel, said in a statement.
The contests allow people to deposit money in accounts, create fantasy rosters of sports teams by selecting real players and then compete against other contestants based on the statistical performances of those players.
The law enables daily fantasy sports providers to partner with a casino or racetrack, but doesn't require they do so.
It prohibits the use of high school sports games and players.
Daily fantasy sports were being played in the state before the law was enacted, but were not subject to any regulatory framework or state taxation.
Lawmakers drafted the bill to say specifically that the games don't constitute gambling under New Jersey law, otherwise the games would require a constitutional amendment, said Democratic Assemblyman John Burzichelli, who sponsored the bill.
The new law is one of several measures New Jersey is taking to help the struggling casino and horse racing industries. Earlier this summer, the U.S. Supreme Court agreed to hear the state's challenge to a federal ban on sports betting in all but four states.