A month ago, the daily fantasy industry was rocked by a scandal that has since shaken it to its core. Now Boston-based DraftKings’ mere existence is in question – but there is a very likely path to survival.
Business as it has been for DraftKings is coming to an end. Life as an entirely unregulated entity won’t continue for much longer, as high profile legislators and regulators are firmly fixed on the business details of daily fantasy. Yet for all of the prognostications of doom, DraftKings could survive in Massachusetts, thanks to several important factors at both a national and local level.
Here’s a look at how things might shape up in DraftKings’ home state.
Waiting for the attorney general
Unless the U.S. Justice Department makes serious progress in its investigation of daily fantasy’s legality, the expectation is that the industry will be regulated at a “state-by-state level.” In that regard, the only true consensus at this point in Massachusetts is that Attorney General Maura Healey will lead the way.
“The Mayor will review the Attorney General’s findings when available,” read a statement from Boston Mayor Marty Walsh’s office. The same is true from Governor Charlie Baker.
Figuring out exactly what the attorney general will do is an imperfect science, though given Healey’s statements and positions, it’s not impossible to discern the basics.
At the end of the day, the legislature and governor have the ultimate say.
Mark Hichar, Chair of the Gaming Law Group at Hinckley Allen, explained how he sees the position of Healey in ruling on DraftKings.
“She determined that DraftKings was operating lawfully in Massachusetts, or to say it differently, they weren’t breaking any Massachusetts or federal laws,” Hichar explained. “But she said that she wanted to look more into their operations in order to decide if consumer protection regulation would be appropriate.”
The power of the attorney general, in this case, would center on the Massachusetts Consumer Protection law, Massachusetts General Laws Chapter 93A. Essentially, it hands the attorney general authority to impose regulations to safeguard consumers.
“I think since the attorney general is the chief law enforcement officer of the state, and she has the division of consumer protection within her office,” said Hichar. “You know, it is really her job to enforce the Massachusetts consumer protection legislation, which is very robust in the 93A, that prohibits ‘false and misleading advertising.’ And generally it prohibits unfair and deceptive acts and practices.”
What would that mean for DraftKings, exactly? Essentially, Hichar sees initial regulation coming in three main areas:
- A formal ban on employees of daily fantasy companies playing any fantasy games for money
- Complete disclosures in advertising in terms of the “average win” for players
- Disclosing that, depending on the contest, large disparities occur in terms number of players vs. number of winners
Other regulation would potentially follow, all centered around achieving transparency for the average player of daily fantasy (full consumer protection, in other words).
Of course, there’s a decent chance that DraftKings would face further regulation, but it wouldn’t come from the attorney general.
Where the AG’s authority ends and where the legislature’s begins
DraftKings could escape the attorney general’s office without too much Massachusetts damage. That isn’t necessarily down to Healey’s particular leniency towards daily fantasy. It’s more to do with the fundamental breakdown of power in Massachusetts.
Hichar explained:
Well Attorney General Healey can impose regulation under the 93A laws today. So she could impose consumer protection without further legislation. At the end of the day, the legislature and governor have the ultimate say because they could decide, and she would enforce, they could decide to enact laws that would require a licensing structure for fantasy sports in Massachusetts. She could not impose a licensing scheme on her own. A scheme which called for X-percent to go to the state.
Taxation through regulation, in other words, would have to come from elected representatives. And locally, that sounds like a possible course of action. Massachusetts Senate President Stanley Rosenberg has previously called for DraftKings to pay a state tax, similar to what casinos do. House Speaker Robert DeLeo has also spoken in favor a tax.
Such a bill would have to survive not only both houses, but also the possibility of a veto from Governor Baker. While Baker has previously said that he shares “some of the concerns” that the Senate and House leaders have regarding daily fantasy, he has stopped short of committing fully on the subject.
Ultimately, the timing of the regulation could happen in two very distinct phases. Healey, using her power as attorney general, could regulate DraftKings immediately if she chose to, though by all accounts she will probably take her time in deliberating exactly what to do.
A piece of legislation, which would potentially carry stiffer regulations, may take far longer to enact. Even in its harshest form, it doesn’t appear at this point that the local powers that be wish to see DraftKings closed down.
For those attempting to foresee the Massachusetts timeline for daily fantasy legislation, expect action from the attorney general with more to come from the legislature down the road. As Healey has said previously, it’s unlikely she’s going to shut down DraftKings if local authorities are left to decide its fate, though the fantasy sports business could face large-scale change sooner rather than later.
