January 23, 2018

Fantasy sports bill includes tax, panel

Flickr/Keith Allison

With the legal status of daily fantasy sports set to expire in about five months, Sen. Eileen Donoghue has proposed making the popular fantasy contests permanently legal, putting the Massachusetts Gaming Commission in charge of overseeing the industry and levying a 15 percent tax on game operators.

Donoghue said her bill (SD 2480) builds upon the findings and recommendations of a special commission she helmed last year and attempts to establish a regulatory structure for daily fantasy sports (DFS) that protects players, benefits the state and doesn't hinder further growth in the industry.

"I do think it's important that we deal with this in a way that clarifies things. I think we have a lot more information than we did two years ago in terms of the nature of the industry, what's happened here and in other countries and states, and how it's been treated," Donoghue said Monday afternoon. "We want to deal fairly with them and encourage what is an emerging industry."

In 2016, after DFS had exploded into the mainstream with an advertising blitz, the Legislature cleared up what had been something of a grey area by adding a provision to an economic development law deeming "fantasy contests" legal.

The temporary legal authority the Legislature granted for fantasy contests is set to expire July 31, 2018 unless lawmakers again give DFS the green light.

Donoghue's bill makes online daily fantasy sports contests exempt from the state's prohibition on "illegal gaming" and creates a new chapter devoted to the regulation of daily fantasy sports. Daily fantasy sports operators -- like Boston-based DraftKings and FanDuel -- would be required to register with the Massachusetts Gaming Commission, pay a registration fee of as much as $100,000 and be approved by the Gaming Commission to operate.

Once approved to offer DFS games, the DFS operator would be required by Donoghue's bill to pay a 15 percent tax on its gross revenue. Donoghue said she settled on a 15 percent tax -- a lower tax rate than the state's casinos will be required to pay -- after talking to the DFS industry and looking at the tax rate in New York and Pennsylvania.

"The brick and mortar casinos are paying 25 percent under the gaming statute, but we did hear from the industry that they operate on smaller margins," Donoghue said.

It would be up to the Gaming Commission to draft and promulgate DFS regulations that ensure fairness in gameplay, require the use of geolocation to verify that no player is located outside of Massachusetts, impose a minimum age requirement of 21 years old, lay out standards for fighting compulsive gambling, require messages about responsible gaming be displayed prominently, ensure player data security and more.

"DraftKings is committed to working collaboratively with the legislature to adopt common sense fantasy sports legislation which protects consumers and allows our industry to continue to grow and create jobs here in Massachusetts," James Chisholm, director of global public affairs for DraftKings, said in a statement Monday.

A Boston-based company, DraftKings this month announced that it will increase the size of its workforce by 75 percent in the next 18 months -- from its current 425 employees to more than 700 by mid-2019. At least 600 of those jobs will be based in Boston, the company said.

Bettors in Massachusetts can already place legal online wagers on horse races. Suffolk Downs, the Thoroughbred track and simulcast center in Revere and East Boston, processed $150 million in legal wagers last year, including $100 million wagered by Massachusetts residents online through Suffolk Downs' state-regulated advanced-deposit wagering systems, the track said.

Donoghue noted that the special commission she led last year looked at other forms of online gaming -- like online casino gambling and eSports -- but said her bill "doesn't address" those types of games. She said she chose to start with a bill for DFS because "that was the industry that kind of got the ball rolling on this and we wanted to bring that, legislatively, to some conclusion."

Though Donoghue's bill is primarily focused on daily fantasy sports, it also contemplates a gaming landscape that could eventually include legal wagering on professional sports games.

The U.S. Supreme Court last month heard oral arguments in the case Christie v. National Collegiate Athletic Association, which the state of New Jersey brought as a challenge to the Professional and Amateur Sports Protection Act. PASPA limits which states can offer legal sports betting.

If the high court rules that states are free to legalize sports betting, the decision to do so would belong to the Legislature and Gov. Charlie Baker. With that in mind, Donoghue's bill includes a section that creates an eight-person special commission to "conduct a comprehensive study and offer proposed legislation relative to the regulation of online sports betting" if the Supreme Court deems any part of PASPA is unconstitutional.

Donoghue said the Supreme Court striking down PASPA could be "a whole sea change as it relates to sports betting."

"The general feeling is that if suddenly sports betting, which is an enormous illegal industry right now, were to be given a green light that things could happen very rapidly," she said.

The special commission -- members of which would be picked by the governor, Gaming Commission, Senate president, Senate minority leader, House speaker and House minority leader -- would be required to convene within 30 days of the Supreme Court's ruling and file its recommendations within 120 days of the court's decision.

Discussing the case bound for the Supreme Court last month, Gaming Commission Chairman Stephen Crosby said he thinks it will be important for the commission to share its expertise with the Legislature and suggested the commission prepare a whitepaper that would provide "a sort of lay of the land today and lay of the land under each of the different outcomes" of the Supreme Court case.

"There are a lot of states teeing this up and if there is a competitive consideration we ought to at least give the Legislature enough of a heads-up with enough time that if they wanted to prepare, sort of, or at least have some committee that knew what was going on, they have time to do that," Crosby said last month.

Last year, a UMass Lowell-Washington Post poll found that 55 percent of Americans support making gambling on professional sports legal in all states and that one in five people surveyed had placed an illegal bet. Thirty-three percent of respondents disapproved of allowing gambling on professional sports in all states, and another 12 percent had no opinion, according to the poll.

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