Massachusetts Lottery Eyes Daily Fantasy Sports Space
Legal Sports Report

Massachusetts Lottery Looks To Daily Fantasy Sports: Questions And Answers

DFS Lottery
This article may be outdated. Get the latest news on Daily Fantasy Sports here.
Massachusetts has emerged as the epicenter of the evolution of daily fantasy sports, with lawmakers and regulators pushing for a thoughtful yet rapid resolution of the DFS question.

Now the state’s Lottery Commission is opening up another angle by aggressively signaling an interest in offering a “fantasy sports platform” alongside Massachusetts’ existing lottery products.

Such an expansion would be unprecedented and could impact the regulatory, legislative, and competitive landscapes for DFS.

The contours of Massachusetts’ approach to lottery fantasy are only starting to come into focus. Below are questions and answers, along with analysis and speculation, regarding the push by the Massachusetts lottery to enter the fantasy sports space.

What are the chances the Massachusetts lottery pursues daily fantasy sports?

Pursuit seems almost certain at this point, although execution may be a trickier ask (more on that in a bit).

In a November 2nd presentation to the Massachusetts Lottery Commission (MSLC), Michael Sweeney, Massachusetts Lottery Executive Director, asserted that the “biggest current challenge facing the Lottery is the daily fantasy sports industry.”

(That represents a significant shift from comments Sweeney made on September 22, when he said that the Lottery hasn’t “seen any type of impact” from DFS “as far as revenues go)

“The immediate protection and responsible growth of the Lottery is a must,” added Sweeney, “given that it is the single largest source of unrestricted funds –nearly $1 billion –to the Commonwealth’s 351 cities and towns.”

Critically, Sweeney argued that a lottery DFS product would create “a new revenue source as opposed to eroding existing offerings.”

View Sweeney’s full presentation.

The likely timeline

The MSLC meeting is one of the first steps in a process that will likely take months to produce any sort of commercially-available product — assuming the Lottery can gain support from lawmakers to offer such a product, which is far from a given.

Massachusetts held limited hearings around the concept of lottery DFS in September, and a bill to authorize similar games was floated in July.

The next step in that process, per Sweeney, is for the Commission to gather information on the nuts-and-bolts of offering lottery DFS.

During his presentation, Sweeney called on the MSLC to “issue an RFI to better understand the daily fantasy sports market and identify what technology and resources would be necessary to pursue the introduction of a fantasy sports offering.”

That RFI is tentatively set to be issued prior to the end of the year.

That process will apparently begin close to the ground level. State Treasurer Deborah Goldberg, who heads the MSLC, said in early October that she was generally unaware of DFS prior to seeing ads for DraftKings at a Red Sox game in the fall.

The results of that RFI will provide the fodder for a formal recommendation regarding lottery DFS from Sweeney to the Commission, a recommendation expected to arrive in the spring.

Potential hurdles to lottery DFS

The path to a lottery fantasy product in Massachusetts is a relatively visible one, but that’s not to say there aren’t hurdles in store.

Depending on how the vision for the product evolves, a number of key stakeholders could exert an influence over the process:

Federal

There are certainly several imaginable lottery DFS products that might run afoul of PASPA, the federal law that restricts the ability of state governments to regulate sports betting.

PASPA specifically prohibits:

a governmental entity to sponsor, operate, advertise, promote, license, or authorize by law or compact […] a lottery, sweepstakes, or other betting, gambling, or wagering scheme based, directly or indirectly (through the use of geographical references or otherwise), on one or more competitive games in which amateur or professional athletes participate, or are intended to participate, or on one or more performances of such athletes in such games.

Commercial DFS has so far sidestepped the PASPA problem by asserting that the product isn’t gambling. Lottery DFS might have a much harder time making that argument.

More context on the intersection of PASPA and DFS here and here.

State

If the Lottery definitively concludes that a fantasy product is necessary for ensuring the continued flow of revenue to the beneficiaries of the lottery, then you’re unlikely to see widespread opposition to lottery DFS on Beacon Hill.

It is worth noting that Gov. Charlie Baker sounded skeptical notes in early October regarding a lottery DFS product, saying that “the lottery has a fundamental purpose and a defined role, and it has been reasonably successful at doing that.”

The general regulatory and legislative uncertainty surrounding DFS in Massachusetts could delay or otherwise alter the Lottery’s plans.

Retailers

Current Massachusetts Lottery products generate significant revenue for roughly 7,500 retailers – an average of $38,000 annually, per the MSLC.

Those retailers would be naturally skeptical of any online lottery product, even a new variant that ostensibly doesn’t directly compete with current products.

Goldberg stressed the importance of getting retailers on board with any online product. “As we look at what slice of this we might be able to consider, I think one of the things we have to do is tie in our retailers to whatever it is we end up doing,” Goldberg said.

That reality implies that any fantasy lottery product will include a land-based point of sale – perhaps an exclusive point of sale – with the ability to view results online, similar to how Massachusetts operates its Keno-style lottery product.

DFS operators

It’s likely that major DFS operators would attempt to delay the rollout of a fantasy lottery product, or to shape the product in such a way as to limit the competitive impact.

With that said, it’s also possible that DFS operators could partner with the Massachusetts Lottery for mutual benefit. More on that scenario below.

Commercial casinos

There has been little comment on this issue from commercial casino interests. Their eventual involvement in the issue will depend on:

  1. How the scope of the proposal for lottery fantasy evolves.
  2. The regulatory trajectory for standard DFS.

The broader the scope of lottery fantasy and the greater the role commercial casino licensees play in regulated DFS, the more likely resistance to lottery fantasy from the commercial casino lobby becomes.

Professional sports

Professional sports leagues and teams are another x-factor. A number of prominent pro sports teams in Massachusetts have deep ties to DFS operators, as do several leagues, players, and arenas.

How would the lottery’s initiative intersect with Massachusetts’ efforts to regulate DFS?

The push by the MSLC comes amidst a flurry of attention from state officials, attention that seems likely to result in some form of state regulation of daily fantasy sports.

The Massachusetts Gaming Commission is currently working on a white paper that will likely define the general boundaries for the discussion, but the state legislature could ultimately pursue a number of options, as could Attorney General Maura Healey.

Both Healey and the legislature appear to be in a holding pattern pending the release of the MGC report.

In any case, there’s no reason why the Lottery’s DFS product and the regulated DFS product have to intersect. In theory, the two could proceed as similar but separate products, with one overseen by the MSLC and the other overseen by whatever state agency eventually handles DFS.

But it’s worth noting that Sweeney’s presentation calls on the MSLC to “engage the Legislature to make it clear that the Lottery offers a venue for daily fantasy sports that protects the consumer and preserves fundamental fairness within the game, while creating a new source of revenue for local aid.”

How would a lottery version of DFS differ from standard DFS?

The early-stage nature of Massachusetts’ initiative obviously complicates any comparison. But, based on what we know about the lottery and some of the comments made by officials, there are a few key differences we can reasonably expect to emerge.

House-banked vs peer-to-peer

DFS typically operates as a peer-to-peer wagering system. The complexity, volatility, need for liquidity, and dozens of other factors unique to peer-to-peer systems all strongly suggest that Massachusetts will offer a house-banked variant of fantasy sports betting.

Then again, the fantasy sports product offered by the Montana state lottery is a pool-based game, so it’s not out of the question that Massachusetts could follow suit.

Land-based point of sale

As discussed above, political realities will likely necessitate that Massachusetts’ lottery DFS product is sold primarily or exclusively via land-based retailers.

Simpler, quicker

The nature of the lottery, combined with the restrictions inherent in a land-based point of sale, strongly suggest that any lottery DFS product will be a heavily abridged – perhaps even unrecognizable – version of the current DFS product.

Less skill / no skill

Sweeney sees the lottery DFS product fundamentally diverging from the current DFS product. “How [pro sports] players are actually generated and how the public engages the selection of the team or the players may look fundamentally different,” Sweeney said at the MSLC meeting, according to WBUR.

But the product may stop short of being a pure game of chance.

For example, GamblingCompliance described a potential Massachusetts lottery fantasy product where “sports fans might be given six players at random, but then might be allowed to switch out one of them for another athlete by paying a couple of dollars.”

And Sweeney stressed at the MSLC meeting that the Lottery would focus on a fantasy product that won’t risk cannibalizing revenue from existing products, implying that the fantasy lottery product could rely on a unique gameplay mechanism as opposed to simply grafting fantasy sports elements on top of a scratch-off or keno product.

How would DFS sites respond to lottery DFS?

Market leaders

On one hand, the emergence of a state lottery DFS product represents a clear source of competition for FanDuel and DraftKings, as a lottery DFS product:

  • Would aim at many of the same dollars spent by many of the same consumers.
  • Could dilute the effectiveness of marketing done by DFS sites.
  • Could possibly beat DFS sites at their own big-prize promotional game (headline-grabbing jackpots are something of a lottery speciality).

On the other hand, a state lottery DFS product could represent a significant opportunity for operators like DraftKings and FanDuel.

If either (or both) manage to secure a branded lottery DFS game offered by the Massachusetts Lottery, the potential:

  • Uplift in consumer awareness of DFS.
  • Additional revenue.
  • Entry point into additional states.

… could all prove to be significant wins.

Other DFS providers

For second-tier sites, the picture is similarly mixed.

The increased competition and fragmentation of the market that may result from the entry of state lotteries will generate additional pressure on operators already reeling from a highly fluid legal and regulatory environment.

But lotteries will need platforms and unique products in order to exploit the DFS opportunity, and some second-tier operators may see potential in pivoting to serve those needs.

Will other states follow suit?

Massachusetts is the only state I’m aware of where the lottery is actively considering a fantasy sports product.

Montana currently offers a fantasy product via the state lottery, but that product is unique as it enjoys an exemption from PASPA.

The size and profile of the Massachusetts State Lottery — over $5bn in sales during FY 2015 — ensure that any decision made around a lottery fantasy sports product will reverberate through other state lotteries, especially if the MSLC turns to a larger vendor with existing lottery contracts in other states to provide the product.

Image credit: Icatnews / Shutterstock.com.

Chris Grove
- Chris is the publisher of LegalSportsReport.com and OnlinePokerReport.com. Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.
Privacy Policy