Massachusetts AG Proposes Sweeping Daily Fantasy Sports Regulations That Will Likely Shift Industry

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Maura Healey DFS DraftKings FanDuel

Massachusetts attorney general Maura Healey announced a series of daily fantasy sports regulations she wants to see instituted in the commonwealth, including a ban on players that are younger than 21 and requiring that college contests cannot be offered to residents.

Healey has been on the record several times in the past regarding DFS, including saying that it is legal in Massachusetts, but that it still constitutes gambling. In introducing regulations for the DFS industry, she said her focus was on consumer protection.

The basics of DFS regulations in Massachusetts

In a press conference on Thursday morning, she announced regulations that she intends to put in place.

From the regulations:

940 CMR 34.00 is designed to protect Massachusetts consumers who play Daily Fantasy Sports contests for prizes from unfair and deceptive acts and practices that may arise in the gaming process.  The regulation is also intended to protect the families of persons who play Daily Fantasy Sports to the extent that they may be affected by unfair and deceptive practices that lead to unaffordable losses.

The regulations will be filed on Friday. There will be an open comment period on the regulations until Jan. 22.

Healey had this to say via a press release:

“These regulations are a first of their kind for the Daily Fantasy Sports industry, and they focus on protecting minors, ensuring truthful advertising, bringing more transparency to the industry, and leveling the playing field for all consumers. This is a first step, but an important step, as we continue to evaluate this new industry and make sure our laws keep up with these evolving technologies.”

Top line changes that the Massachusetts AG is instituting

The regulations are sweeping and would create a lot of changes for operators, at least for how they operate in Massachusetts. Keep in mind these regulations must only be adhered to in Massachusetts. Here is a sampling:

It appears that DraftKings and FanDuel had already been aware of what was coming in Masssachusetts, with recent changes at one or both regarding increased age and identity verification and responsible gambling protocols.

Reaction from operators

A FanDuel spokesperson offered this statement in the wake of the Massachusetts announcement:

“Attorney General Healy’s approach towards regulating fantasy sports makes a tremendous amount of sense — it provides strong protections for consumers and allows sports fans to continue doing something they love.  FanDuel believes that regulations which increase transparency and ensure contests are fair will benefit the entire fantasy industry.  We appreciate that there will be a public notice and comment period to collect input from all relevant parties and FanDuel will submit our comments to the regulations in the next 60 days.  We also welcome the opportunity to work with Attorney Generals in all states, along with other lawmakers, to implement fair regulations that benefit both consumers and sports tech innovators.”

A DraftKings spokesperson offered this statement:

“The Massachusetts Attorney General has taken a thoughtful and comprehensive approach to the Fantasy Sports Industry.  While we do have some concerns with the draft regulations, we intend to work closely with the Attorney General’s office to ensure we are operating in the best interest of our customers.  We will utilize the next 60 days to share our comments in the hopes of effecting some changes and are firmly committed to continuing to operate in a lawful and transparent manner.  We will immediately begin taking steps to prepare to implement the changes to our product that the Attorney General requires.

We appreciate that, in addition to Attorney General Healey, a number of state regulators and other authorities are taking a reasoned approach to the Fantasy Sports industry that considers the interests of sports fans who love to play these games and recognizes the value in innovation and entrepreneurship.

We believe the process followed by AG Healey and the Commonwealth of Massachusetts will ultimately result in a positive outcome for the millions of fantasy sports fans around the country who want to be able to enjoy DraftKings’ games in a fun, fair, and transparent environment.”

Massachusetts DFS regulation: Questions and answers

The Massachusetts regulations announced Thursday bring up a host of questions:

Do these regulations affect Massachusetts only?

In theory, yes. Healey only has authority over operations and operators and how they act in Massachusetts.

In practice, however, at least some of these regulations will likely have a universal impact, as it would likely not make sense to implement them only in Massachusetts and for Massachusetts players, although that is an option.

A site could theoretically pull out of Massachusetts and ignore these regulations.

Do these regulations go into effect immediately?

Healey says she expects operators to get in compliance immediately. The regulations were filed on Friday. According to an interview at Fortune, it appears she will not take action during the public comment period, which ends Jan. 22.

There will be a hearing to discuss the regulations on Jan. 12.

How easy will it be for DFS operators to make these changes?

While DFS operators are likely doing some of what is outlined by the regulations, there are many things they are not. For example:

And that’s just a few of the changes that must be made. Getting in compliance with the regulations is certainly no easy feat.

Will this have an impact on the New York attorney general?

That scenario seems unlikely. New York attorney general Eric Schneiderman has said be believes DFS contests are illegal under state gambling law. Healey’s regulations, even if implemented in New York, don’t change what he views as continued operation of a gambling business in New York.

Healey even said in her comments that DFS is gambling, in her book, although a legal form under Massachusetts law.

Why doesn’t the New York AG, or other AGs, just do what the Massachusetts AG did?

The Massachusetts attorney general, simply put, has more power than her counterparts in other states, and in New York.

Massachusetts law gives Healey’s office power to institute consumer protection regulations. Generally, AGs are just charged with enforcing the laws that are on the books.

Of course, Schneiderman likely has no desire to do what Healey did, as outlined above, even if he could.

What does this mean for the Massachusetts legislature and DFS?

Healey noted in her comments at the press conference that her actions do not affect any future plans that the legislature may have; the regulations she is being put in place are meant to be what she believes is an immediate fix for the industry in terms of protecting consumers.

The legislature has not introduced any legislation, and is likely waiting for a report from the Massachusetts Gaming Commission to act.

Several of the state’s top legislators have called for regulation of the industry; it will be interesting to see if Healey’s measures go far enough for them. Some lawmakers have called for licensing and taxation of the industry.

What impact would the regulations have on players?

The impact will be pretty sizable for players in Massachusetts, and some of the regulations could also emerge as changes that affect players in other states.

The barrier to sign up is likely going to get more difficult at many DFS sites. Some sites just required an email address and to click a checkbox saying you are over 18 years of age. Identity verification largely took place when players deposited and/or withdrew.

Now, age verification must take place upon registration, it appears:

No DFSO will allow a Minor to participate in any contest, whether or not a Prize is offered in that contest.

Other changes are largely player friendly, and in many ways are meant to level the playing field for more casual players against pros. Many players have called for scripts to be outlawed for some time; these regulations provide for that. The number of entries is being limited based on the size of the contest. From the regulations:

The final regulation seems ripe for editing in the open period, as this effectively does not cap the ability to enter multiple lineups in very large, guaranteed prize pool contests.

Do the regulations mean college DFS contests are going away entirely?

This seems unlikely. More likely is that Massachusetts players will not be allowed to enter college DFS contests.

Is DraftKings’ “late swap” feature going away?

There is a specific mention in the regulations that appears to be targeted at DraftKings’ “late swap,” which allows users to change players who are playing in real-life games that start after the start of a DFS contest.

As of the time a DFS contest locks, no further entries or substitution of participants will be accepted in connection with that contest.  Nor will participants be allowed to make further alterations or substitutions in connection with their entry or entries.

This would seem likely to be one of the items DraftKings may push back against; it’s one thing that differentiates its product from FanDuel.

It would be difficult — or even impossible — to bar only Massachusetts players from using late swap, as this would create an uneven playing field for them, if other players had access to it.

It’s also interesting because “late swap” is some ways the impetus of all the scrutiny that has taken place over the past two months. DraftKings lineup data was leaked before all NFL contests were over on a Sunday in September, and when “late swap” was still available at DraftKings. The employee in question was cleared of wrongdoing in an external review.

Photo by Zgreenblatt used under the Creative Commons Attribution-Share Alike 3.0 Unported license.