[toc]Trouble is brewing in the birthplace of daily fantasy sports regulation and the home of DraftKings.
A special commission in Massachusetts voted to recommend that DFS be included under a definition of online gaming, an unwelcome development for an industry that has made great strides on the legal front in recent years.
What happened in Massachusetts for DFS
The Massachusetts Special Commission on Online Gaming, Fantasy Sports Gaming and Daily Fantasy Sports met on Monday and voted whether to accept a final version of its report.
A draft of that reported surfaced last week, in which the commission recommended DFS be treated just like any other form of online gaming. (Such a definition would include online casinos and poker, as well as games of skill.)
The final vote was close — 5-3, with one abstention — to accept the report.
What the Massachusetts report means
It would be foolhardy to dismiss the report as trivial in Massachusetts or beyond. Why?
- The law formally legalizing DFS — which piggybacked on regulations enacted by Attorney General Maura Healey — sunsets in August of next year. That leaves an opportunity in which the state could change how it deals with fantasy sports.
- The commission was formed by the aforementioned law, and it isn’t just a bunch of random people. It involved key stakeholders from the legislature who will be digging back into the law next year. The report is not likely to be put in a drawer and forgotten.
- Massachusetts included, 14 states have passed laws saying that DFS is a “game of skill” and not gaming or gambling. These states could look to Massachusetts as an alternative to what states have done thus far.
No matter what, the optics are poor for the DFS industry that this report even exists, no matter what Massachusetts decides to do in 2018.
DraftKings isn’t happy with the decision
James Chisholm, DraftKings’ director of public affairs, offered this statement after the vote:
“While this commission report is merely a recommendation, it runs directly counter to the economic development law that overwhelmingly passed last year designed to promote the state’s Innovation Economy. The commission’s actions today, as we and our partners in the fantasy sports industry pointed out time and time again, could restrain our company’s ability to thrive and create jobs here in Massachusetts.
These recommendations if ever adopted would put us behind every other state in the country on this issue, and send a troubling message to other startups. We urge Governor Baker, Speaker DeLeo, Senate President Rosenberg, and rest of the Legislature to reaffirm their commitment to Massachusetts startups and reject these ill advised recommendations in whatever legislation is finalized.”
FanDuel had no comment.
The stakes are high beyond Massachusetts
Massachusetts is important both in real terms and symbolically.
To date DraftKings and FanDuel have overwhelmingly won the battle of whether DFS should be called gaming or not. If the first state to regulate DFS suddenly pivots to treating it an entirely different way — more like a form of online gambling and not its own thing — it could have wide-ranging implications:
- Important states like Illinois, California, Texas, Pennsylvania and Florida have yet to pass DFS legislation. A new precedent could provide a roadmap for any of those states or others.
- Other states also have sunset provisions for DFS regulations. Massachusetts could again set a precedent.
- While some state AGs have said that DFS is illegal gambling, no court has yet ruled on that. Nor has any state passed a law saying DFS is anything but a skill game so far. The possibility that Massachusetts could treat DFS as gaming creates the potential to open a Pandora’s box from a legal perspective.
There’s also the idea that Boston-based DraftKings could lose control of the narrative of its legality on its home turf. That is something that would seem almost unthinkable before this report came out. Massachusetts, so far, has bent over backwards to protect the DFS start-up.
Is there a need to reinvent the wheel?
Whether you think DFS is gambling or not, there’s a question of whether it needs to be treated exactly as such, at this point.
Some states have passed laws that are not really regulation at all, and just serve to provide legal clarity for paid-entry fantasy sports. But Massachusetts has stood as one of the states with the most rigorous regulations in the country.
About the only quibbles with Massachusetts’ law is that regulation could be more proactive rather than reactive via the AG’s office. And the state could levy some sort of fee/tax to oversee the industry.
If Massachusetts were going to legislate DFS as a form of gaming, it probably should have figured that out before now. The state already enacted a law calling it a game of skill. Reversing itself would buck a trend that it helped to start across the US. To change course now is misguided policymaking at best and irresponsible at worst.
Regulation of DFS around the US may not be perfect. But it does at least appear to be right-sized for the industry as currently situated. A world in which DFS is called online gambling throughout the country has the potential to kill the product.
Take away Massachusetts and what happens to DFS regulation?
If Massachusetts calls DFS “online gaming,” it’s within the realm of possibility that DraftKings, FanDuel, and other operators simply have to pull out of the state. That means those regulations discussed above that are the toughest in the country are essentially meaningless. (That’s at least as it applies to the industry as currently constructed.)
Because of the low barrier to entry — no taxes or fees — a lot of paid-entry operators are serving Massachusetts and are hypothetically complying with regs. Take away Massachusetts’ regulation, and suddenly oversight of all DFS sites is potentially less robust. We saw what happened before regulations took effect. A number of sites went insolvent and stole players’ funds.
Yes, there are states like New York and Missouri that have pretty rigorous oversight. But not all operators serve those states.
Sites must comply with the highest level of state regulation they encounter, which is Massachusetts in many cases. The bottom line: If Massachusetts creates an environment that the DFS industry can’t live with, it’s not good for regulation across the country.
The legislature is far from a conclusion on what’s next for DFS. But it could end up being the biggest fight for DFS since New York legalized it last year.