[toc]The Massachusetts Gaming Commission weighed in on the daily fantasy sports industry via a report and a meeting on Thursday, saying the “legal status of DFS is in flux.”
You can read the entire portion of the packet dedicated to DFS from the MGC meeting here. The report was prepared by MGC staff attorney Justin Stempeck.
The commissioners, over the course of the meeting, agreed that some sort of regulation of the industry was necessary, but did not commit to prescribing a course of action. They agreed that a white paper on what the commonwealth should do moving forward and outlining the issues surrounding the DFS industry was the next step to be taken.
Takeaways from the MGC meeting and report
The MGC came to a number of conclusions in its analysis of daily fantasy sports:
- Whether DFS is entirely legal under state law is not necessarily a settled matter.
- Whether DFS is entirely legal under federal law is not a settled matter.
- The use of the Unlawful Internet Gambling Enforcement Act as a grounds for federal legality is an “over-simplification” of the statute.
- The MGC has no authority to regulate DFS, under its current mandate.
The conclusion of the report speaks to the idea that the current legality of DFS is still at question:
As is clear from the discussion and examples set forth in this memorandum, the legal status of DFS is in flux. The common denominator to any analysis of DFS will hinge on specific state interpretation of whether DFS constitutes illegal gaming under state law, which could potentially also trigger liability under federal statutes as mentioned above.
The tone of the meeting, in which the report was discussed at length, was the industry needs to be regulated by the legislature.
Steve Crosby, chairman of the MGC, said regulation of some sort was needed, but wondered aloud exactly how much regulation was necessary and if licensing and taxing are needed.
MGC can’t regulate DFS, right now
The commission does not believe it has the ability to do anything as it relates to the DFS industry, without action from the legislature. From Stempeck’s review:
As the Gaming Act is currently drafted, the MGC has no ability to regulate DFS without formal legislative action broadening its oversight powers. Even if DFS were determined to qualify as a percentage game, the Act does not provide the MGC with generalized authority over gaming outside of a “gaming establishment.”
The UIGEA and DFS
Stempeck asserted that the UIGEA is not blanket coverage of legality under federal law.
While both Fanduel and DraftKings rely on UIGEA to support their conclusions that DFS are legal, this conclusion is not entirely clear, particularly where DFS did not exist at the time that UIGEA was passed in 2006. Dozens of articles have broadly stated that UIGEA is a federal law that made DFS legal. Such a conclusion is an over-simplification of the statute, which has a far narrower scope.
It is essentially an enforcement act dealing specifically with payment processing. UIGEA on its own does not legalize DFS or fantasy sports of any kind.
Stempeck also questions DFS operators who are running contests based on single events vis a vis UIGEA; DraftKings, most notably, offers the contests he mentioned in his report:
Based on this definition, it is unclear how certain DFS providers can offer contests, such as golf and NASCAR, with results based on solely one tournament/race.
The report noted that several other federal laws could be triggered by the daily fantasy sports industry: the Wire Act, the Illegal Gambling Business Act and the Professional and Amateur Sports Protection Act.
What the Massachusetts report says on state law
Stempeck goes through all potentially relevant statutes and court cases that would speak to the legality of daily fantasy sports, with sections on “illegal gaming,” “lotteries” and “betting pools”:
Previously, state attorney general Maura Healey offered that she believed DFS is legal under state law. But Stembeck appears to intimate that even that is an open question. On DFS’ possible intersection with lotteries under state statutes:
To date, no Massachusetts case has addressed whether fantasy sports or daily fantasy sports would constitute a “lottery” as in the examples set forth above. The cited cases all involved analyzing chance versus skill where the individual playing the game had a direct effect on the outcome of the game (i.e., personally operating a crane, choosing cards or throwing darts). These examples stand in contrast to daily fantasy sports where the player’s skill is exercised only in choosing the roster, as the player has no ability to control the final outcome of the sporting events. It is not clear whose skill a Massachusetts court would examine in determining the skill versus chance contest in the fantasy sports arena.
And on its possible intersection with the laws and betting pools; the report notes that Nevada recently determined that daily fantasy sports constitutes a betting pool under its gaming regulations:
Many of the contests offered by DFS operators involve numerous participants paying their entry fees into a common pool, from which the winner receives his/her award (with the operator also receiving a percentage of the total pool value). No Massachusetts court has addressed whether fantasy sports or DFS would qualify as betting pools and thus run afoul of either G.L. c. 271, §§ 16A or 17.
The gaming commission, however, is not responsible for determining whether something is legal or illegal under the law.
Comments from MGC commissioners
Here is some of what the commissioners on the MGC said during Thursday’s meeting:
Cameron noted that she recently attended the International Association of Gaming Regulators Conference: “The consensus from regulators around the world is that it (DFS) should be regulated.” She said a variety of issues in regards to fantasy came up at the conference, including game integrity and fairness issues, money laundering and responsible gambling measures, among many others.
“I certainly came away thinking there are issues here, and I, as one commissioner, think that there is a need to regulate this industry,” Cameron said.
Zuniga started his comments by comparing DFS to other forms of gaming:
“I know we’re not trying to answer the question of the legality here, but I think there is enough similarity to other forms of gambling that have been widely accepted as gambling that it merits the regulation that Commissioner Cameron and everybody seems to be coalescing around,” Zuniga said.
McHugh asserted that the amount of money in the industry requires more oversight than was currently being provided, comparing to oversight of stocks and commodities:
“It seems to me any transaction, or any vehicle by which lots of money can be transferred from one person to another, needs that kind of oversight from an exterior source to ensure the conditions under which that money is being transferred from one to another are coniditions a. that everybody knows about and b. that are in fact observable” McHugh said.
Chairman Steve Crosby
Speaking after his fellow commissioners, Crosby offered his thoughts:
- “I think it’s clear that the consensus here and it’s common-sensical — that there needs to be some degree of regulation of this phenomenon. But there already is. We have consumer protection laws on the books that would relate to this of some sorts. … We don’t necessarily set up a regulatory body for every industry that needs to be regulated.”
- “I think we need to think about this industry … why does it require, what level of regulation. Does it require an agency, or does it just require some new consumer protection laws?”
- “We do have one fiduciary obligation to the casino industry, and we have been very firm that we believe that it would not be fair to change the rules of the road to change the competitive environment radically with the bricks-and-mortar folks at least being at the table.”
- He said he was unsure if taxes on the industry were necessary. “If we came in heavy on this, you can crush an industry like this overnight.”
DraftKings CEO Jason Robins offered this statement after the meeting and report:
“We applaud the careful consideration the Commission is giving to issues our industry is facing. We are committed to working with all relevant government authorities to ensure that the industry operates in a manner that is completely transparent and fair for all consumers. We will definitely take the Commission up on its invitation to participate and weigh in on its examination of a potential regulatory structure for fantasy sports. We are hopeful that this examination will give real consideration to the interests of the millions of individuals across the country who love to play our games.”