Massachusetts AG Healey Announces Final Daily Fantasy Sports Regulations

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Massachusetts Attorney General Maura Healey officially filed her regulations to oversee the daily fantasy sports industry, including provisions that exclude contests based on college events, set a minimum age of 21 for players, and a variety of consumer protections.

Operators that plan on serving customers in Massachusetts are expected to implement any necessary changes by July 1.

The regulations note that “nothing in this regulation may be interpreted as authorizing a wager, bet, or gambling activity that is prohibited by law.”

Massachusetts joins Indiana and Virginia as the three states that now have some sort of regulation of the DFS industry as a part of state law.

DraftKings quickly indicated it intended to “fully comply” with the new regulations.

The final fantasy sports regulations in Massachusetts

The regulations generally follow the outline of when they were floated in November, with some tweaks. Here is a quick look at the major regulations being implemented:

You can read the full regulations here.

A closer look at the DFS regulations

While many of the regulations are self explanatory, some have caveats or wider impacts on the industry:

Segregated player accounts

The regulations go into great detail about segregation of players’ real-money accounts from an operator’s operational account, a problem that has been cropping up in the industry of late.

From the regulations:

Funds in DFS Consumer accounts must either be held 1) in trust for the DFS Consumer in a Segregated Account or 2) in a special purpose Segregated Account that is maintained and controlled by a properly constituted corporate entity that is not the DFSO and whose governing board includes one or more corporate directors who are independent of the DFSO and of any corporation related to or controlled by the DFSO.

A “Segregated Account” is defined in the regulations, as well:

A financial account that segregates funds that are owned by DFS Consumers and that, by its terms, is restricted to funds owned by DFS players in the United States, such that the DFSO’s operational funds may not be commingled.

The language in this section seeks to remove any doubt about the possibility of player funds being used on the operations side of a DFS site.

Deposit limits

One of the issues that operators pushed back against in the proposed regulations was a limit on consumer deposits. While the initial $1,000/month limit was kept in place, the final regulations also allow operators and consumers to potentially increase a user’s limit:

A DFSO shall not allow a DFS Consumer to deposit more than $1,000 in any calendar month, provided however that a DFSO may establish and Prominently Publish procedures for temporarily or permanently increasing a DFS Consumer’s deposit limit, at the request of the DFS Consumer, above $1,000 per calendar month.

Contest lock times: DraftKings’ “late swap” survived

The original Massachusetts regulations appeared to prevent a DFS player from being able to change his or her lineup after a contest officially “locked.” At the time, this appeared to be aimed at “late swap” at DraftKings, a functionality in which users could substitute fantasy players into their lineups, after a contest started.

However, new language appears in the final regulations:

b. DFSOs shall Prominently Publish rules that govern when each DFS contest shall lock that may include rules for multiple lock times in situations in which underlying competitions begin at different times. No lock times may occur after the commencement of the competition to which that lock time applies.

This language allows for “late swap”; Legal Sports Report confirmed this was the case with DraftKings.

Maximum number of entries in a contest

The regulations put a cap on the number of entries per user, per contest:

In any contest involving more than 100 entries, DFSOs shall not allow a DFS player to submit more than the lesser of: i. 3% of all entries, or ii. 150 entries.

However, the regulations also allow a limited number of contests that have unlimited entries:

DFSOs may establish DFS contests, representing less than 2% of the total number of contests it offers, in which there is no restriction on the number of entries, provided that (i) the DFSO clearly discloses that there are no limits on the number of entries by each player in such contest, and (ii) that the cost of participating in such contest is $50 or more per entry.

Identifying ‘veteran’ players

One of the regulations deals with identifying experienced players:

Identification of Highly-Experienced Players: DFSOs shall identify HighlyExperienced Players by a symbol attached to their username, or by other easily visible means, on all DFS Contest Platforms.

Here is the definition of a Highly-Experienced Player:

Any DFS player who has 1) entered more than 1,000 contests offered by a single DFSO; or 2) has won more than three DFS contest Prizes valued at $1,000 or more. Once a DFS player is classified as Highly-Experienced Player, a player will remain classified as such.

DraftKings indicated this change would be made “platform-wide,” not just in Massachusetts.

Season-long paid entry operators appear to be exempted

While language in both Indiana and Virginia would appear to apply to season-long fantasy operators that charge an entry fee, the regulations in Massachusetts would appear to allow those operators to function outside of the regs.

One of the parts of the “exempt contests” definition:

The contest encompasses an entire season of the activity in which the underlying competition is being conducted, consists of at least 150 underlying competitions, and the Prize or Prizes awarded, if any, are determined by agreement of the participants only in order to distribute fully the participants’ contributions to a fund established to award a Prize or Prizes for the contest.

What’s next in Massachusetts for DFS?

DFS sites will have to determine whether they are prepared to comply with the Massachusetts regulations, as written.

There is no registration fee in Massachusetts, so sites must only take steps to make sure they are in compliance with the regulations. Sites have more than three months to do so, through the end of June.

The AG in Massachusetts is acting independently of the legislature, which has not introduced a bill, and which appears to be in no rush to do so. The AG’s regulations, however, do not preclude the statehouse from implementing its own regulatory scheme, and possibly charging licensing fees and/or taxes in the future.

DraftKings’ and FanDuel reaction

DraftKings issued this press release after the regulations were released:

DraftKings, Inc. today announced its plan to fully comply with the final regulations put forth by Massachusetts Attorney General Maura Healey, signaling the company’s ongoing commitment to consumer protections, regulatory engagement, and continued responsiveness to AG Healey and her office.

DraftKings has already voluntarily implemented many of the consumer protections contained in the final regulations, including prohibiting DraftKings’ employees from playing in public contests for money and allowing players to put self-imposed deposit limits on their individual accounts.  The company will continue to work diligently to ensure it is in compliance with the full set of regulations as soon as possible.     

“We appreciate the leadership of the Attorney General and her office and their willingness to have a meaningful dialogue about issues of importance to our industry,” said DraftKings Chief Financial Officer, Tim Dent. “The regulations put forth today by Attorney General Healy are tough, but we will comply. We will continue to work with policymakers across the country to ensure that fantasy contests are fun and fair for the tens of millions of sports fans who enjoy playing them.”

Former Massachusetts Attorney General Martha Coakley said, “This is an impressive example of a company’s commitment to being responsive to its regulators. The fact that this process took place in only five months is a credit to all the parties involved here.”

FanDuel made this statement:

“We want to thank Attorney General Healey for her deliberate, comprehensive approach to ensuring the viability of fantasy sports in Massachusetts and protecting consumers in the state. The Attorney General requested and carefully reviewed comments from the fantasy sports industry and consumer protection advocates over the past 60 days, and made sensible adjustments to several provisions, which will ultimately benefit consumers. Although we share the goal of protecting consumers, we have concerns the regulations, in some instances, will restrict the ability to introduce new pro-consumer innovations. Nevertheless, we will work diligently to ensure we are in full compliance, and hope to see the regulations evolve over time to continue to allow further innovation.

“Again, the Attorney General took a thoughtful approach from the beginning, and we look forward to working with lawmakers across the country in a similar manner. We fully support sensible regulations to protect consumers and ensure sports fans nationwide can continue playing the games they love.”

How Massachusetts got here

Massachusetts has been one of the focal points for DFS regulation in the U.S.:

Photo by Edahlpr used under license CC BY-SA 4.0