The Massachusetts Gaming Commission published its “white paper” on daily fantasy sports, asking for the legislature to provide clarity and regulation for the industry. That came just a day before the attorney general’s office was slated to held a hearing on Tuesday to consider regulations that would oversee DFS operators.
At the top level, the MGC suggested fairly quick action for DFS from the state legislature:
The Commission hopes to have made clear in this Paper that there is some urgency for the Legislature to address the issue of DFS. Unsettled Massachusetts law and piecemeal regulation make playing DFS a risky activity, both legally and practically for Massachusetts citizens, and makes operations and fund-raising highly problematic for DFS operators, including DraftKings, an innovative new economic engine in our midst. Prompt clarification of the law is highly desirable for citizens, players, and operators alike.
The background of the MGC and DFS
The MGC has likely considered the subject of DFS as much as any other governmental body in the United States, at this point. Its interest in the industry cropped up in October, in the wake of Attorney General Maura Healey making a declaration that DFS contests are legal under state law.
At a meeting in October, it was already clear that the commission had done a lot of legwork, coming to the conclusion that the legality of DFS in the U.S. was “in flux.” Then, in December, the MGC held a daylong forum on DFS to further inform itself in advance of compiling its white paper.
The research and opinions it has gathered over the past several months was on display in the white paper, which provided recommendations on what should happen next in Massachusetts regarding DFS.
Takeaways on the DFS white paper
The white paper went into great detail on a number of subjects, including the currently legality of DFS in Massachusetts and suggestions for moving forward:
- Despite the AG’s earlier opinion that DFS is legal under state law, the paper says the industry resides in “unsettled legal territory.”
- The MGC recommends that the legislature act to give DFS further legal clarity, and more protections than the proposed regulations from the AG’s office.
- The paper suggests that an “omnibus approach” to online gaming — including DFS — is likely the most prudent way to approach the industry as a whole.
Current legality of DFS in Massachusetts
The paper does not come to a conclusion of whether DFS is legal or illegal, but it presents an argument that it resides in a gray area:
From our own review of the gambling statutes currently in effect in the Commonwealth and from our review of the opinions of interested others, we believe that DFS does implicate certain provisions of existing civil and criminal statutes. However, while it could be argued that DFS is illegal under existing Massachusetts law, the balance of Massachusetts law may make that reading illogical.
The MGC goes on to say that in some ways current legality is a distraction: “The real question for the Legislature is ultimately not ‘Is DFS legal?’ but ‘Do we want DFS to be legal, and if so, under what conditions?’ ”
The paper goes on to address potential concerns for DFS under state statutes, including ones regarding betting pools and lotteries, as well as the federal laws PASPA and UIGEA.
Should DFS be regulated?
The MGC came to the clear conclusion that DFS should be regulated, and points to the hypocrisy of saying some forms of gaming are OK, while others are not, in many jurisdictions:
We are left now with a public policy position that seems to assert that gambling is bad/illegal, except when it is not. And what makes gambling not bad/illegal is when the Legislature authorizes a regulatory framework and a public purpose for a particular kind of gambling. Generally speaking, we have largely come to accept gambling as a legitimate form of economic activity, entertainment and public or philanthropic revenue generation (even within the religious community) – under certain regulatory conditions.
What should be regulated?
The paper also identifies key areas that should be addressed, such as:
- Know your customer protocols
- Player protection (in terms of both funds and problem gambling)
- Technical security (i.e. protecting data)
- Suitability and licensure of sites to operate
- Making sure DFS does not have an impact on “real-world sports”
How much regulation is necessary?
The white paper offers different ways to consider regulation of the industry, including a “heavy” casino-like approach. It seems like the MGC settles on a more industry-friendly model as the most likely path forward:
A “light” regulatory schema with more discretion afforded to the regulatory body to make judgement calls might make sense in that it may provide the necessary flexibility to address both evolving technology and evolving issues given the contemplative pace of legislative change.
Do the AG’s regs go far enough?
There is certainly an argument that there would be no need for regulation of the DFS industry, if and when the AG’s regulations go into effect. But the MGC recommended action beyond those regulations:
An appropriately robust regulatory structure should consider how to work in concert with the Attorney General’s proposed consumer protection regulations to address these same concerns prospectively, so that issues are detected and addressed, or avoided altogether without the need for consumer action.
The omnibus approach
Instead of just looking at DFS on its own, the MGC recommended that DFS be considered alongside other forms of online gaming. In trying to define what activities should be regulated, the paper offered this possibility:
For example, the Legislature might use this definition: “Is this economic activity characterized by a payment by a player for an opportunity to win an award based on the outcome of a future event, which is not otherwise regulated?”
As such, the paper concludes that rather than dealing with specific types of online gaming as they crop up, a broader approach should be taken:
Any new regulatory effort for just one of these games will surely beg the question of how to handle the others. A regulatory strategy that is broad enough and flexible enough to adapt to any and all of these proliferating games may be worth serious consideration.
The AG’s public hearing
The attorney general’s office held a hearing for public comments on proposed regulations of the DFS industry that were offered in November. No public officials offered their takes on the final form the consumer protection regulations might or should take; the hearing was just for interested parties to make their voices heard regarding the proposed regulations.
Audio of the hearing can be heard here.
“We will review the comments that were presented today and throughout this public process,” AG Healey said in a statement after the hearing was complete. “Our focus is on finalizing these strong regulations that will bring needed transparency to this industry and protect consumers, minors, and their families.”
The public may still offer comment on the regulations through Jan. 22; public comment given so far can be seen here.
FSTA’s public comment
The Fantasy Sports Trade Association, DraftKings, and the National Council on Problem Gambling were among the organizations and individuals that testified at the hearing. Interests representing the DFS industry were supportive of regulations, but did have some issues with them.
“We look forward to working with you to solve these issues, and hope it will be a model for other states across the country to follow,” Peter Schoenke, the chairman of the FSTA, said. “The FSTA does have some concerns with the proposed regulations, especially as it impacts the fantasy sports industry, beyond daily fantasy sports.”
Among the issues the FSTA identified, in its view:
- The definition of a DFS operator, a DFS contractor and a DFS contest, are too broad as proposed, and would unnecessarily target free-play games.
- The minimum age of 21 is tied arbitrarily to drinking laws; 18 should be the minimum age
- The regulations’ wording regarding “scripts” is too broad and would capture informational tools that should be allowed.
- The restrictions on deposits by users — a $1,000 monthly limit — are too onerous.
- Fantasy sports for college sports should be allowed; the regulations outlaw them.
Schoenke indicated the FSTA would also offer more extensive written comments.
DraftKings’ public comment
Griffin Finan, counsel for DraftKings, appeared on behalf of the Boston-based DFS operator. He echoed many of the comments made by Schoenke. DraftKings was generally in favor of many of the regulations proposed, Finan said, as well as the aims behind them — mainly consumer protections.
“While we do not believe state-sponsored regulation is necessary to achieve these goals and we believe DraftKings currently provides customers with many of the protections these regulations address, we recognize that the attorney general has an interest in ensuring that Massachusetts consumers have the same protections regardless of which DFS platform they use to participate in DFS contests,” Finan said.
Finan said that DraftKings has made many changes to its platform in preparation of being in compliance with the regulations.
DraftKings also took issue with the $1,000 monthly deposit limit, the minimum age of 21 for players, and the guidelines for defining a “beginner” contest, among others.
NCPG public comment
National Council on Problem Gambling Executive Director Keith Whyte said his organization is neutral on daily fantasy sports and its legalization and regulation. He said he was only concerned for DFS players and potential gambling problems they might experience.
Whyte put forth the DFS guidelines his group put together along with some operators. He spoke about the mechanics of self exclusion and wanted to make sure it was easily accessible to customers.