Massachusetts Attorney General Maura Healey Thursday proposed rules for daily fantasy sports businesses that would ban players younger than 21, seek to prevent sophisticated contestants from dominating games, prohibit contests on college sports, and force the companies to change their advertising practices.
The proposed regulations would make Massachusetts the first state to establish specific conditions that would allow the daily fantasy sports business to operate, in sharp contrast to New York, where that state’s attorney general is trying to block his residents from playing because he insists the companies are running illegal gambling operations.
Healey has said Massachusetts law doesn’t explicitly address the legality of the games. Nonetheless, she said, they need a set of clear rules and limitations to ensure the newly emerging industry is run fairly.
“These are games that you carry around with you in your pocket and lose money at the touch of a button,” Healey said Thursday morning. “This is an industry . . . that cries out for transparency and robust consumer protections.”
The industry’s two main players, DraftKings Inc. of Boston and FanDuel Inc. of New York, each issued tentative support of Healey’s proposal, though DraftKings expressed “concerns.”
Healey’s action is in the form of proposed regulations that she can implement in early 2016 after a public comment period. They would not need approval from the state Legislature. A public hearing is scheduled for Jan. 12.
Much of Healey’s focus is on protecting casual players, who make up the majority of contestants, from the small number of professionals who win the lion’s share of the prizes offered by the companies. A now widely quoted study of fantasy baseball contests earlier this year by McKinsey & Co. found that 80 percent of players on average lost money, while the top 1.3 percent commandeered nearly all of the profits.
In any contests open to Massachusetts residents, DraftKings and other companies would have to clearly identify professional players by putting a symbol next to their names, so casual players can see who they’re competing against. Importantly, companies would be ordered to prohibit those pros from using automated computer programs that allow them to submit hundreds of entries at once, as well as limit the number of entries from any one player in each contest. Companies would also have to create more contests reserved for beginners.
The companies would be required to disclose in advertisements they run in Massachusetts how much money the average player wins or loses. They could not run ads aimed at minors and on college campuses, nor allow state residents under the age of 21 to play; locals would also not be allowed to enter college sports contests.
Moreover, professional athletes in Massachusetts and others affiliated with them, such as agents or team employees, could not enter contests in their respective sports.
Other proposals echo the safeguards against problem gambling common in the casino industry, including a $1,000-per-month deposit limit for all players, unless the companies can verify that the player can sustain higher losses, and self-exclusion options that allow customers to set spending limits.
DraftKings said it generally supported Healey’s approach, though it disagrees with some proposed rules.
“The Massachusetts attorney general has taken a thoughtful and comprehensive approach,” the company wrote in a statement. “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.”
The company declined to comment specifically on its concerns, but an official with knowledge of the negotiations with Healey’s office said DraftKings was most concerned about the under-21 ban and prohibition against college sports.
FanDuel, meanwhile, cheered the proposal.
“Attorney General Healey’s approach toward 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,” the company said in a statement.
David O. Klein, a lawyer who represents daily fantasy companies, said Healey’s rules such as limiting younger players would require costly and difficult steps for fantasy sports operators. Nonetheless, Klein said, he expects them to be copied by other states.
“This is very well thought-out,” Klein said. “It allows the industry to survive but requires that they do a lot of things that they should have been doing anyway.”
The Massachusetts proposal is also something of a respite for the companies as they battle for survival in New York, one of the largest and most lucrative markets for fantasy sports in the nation. State Attorney General Eric Schneiderman has sued DraftKings and FanDuel to force them to stop accepting players from New York, while the companies have countered with legal actions to block him.
A judge in Manhattan has scheduled a hearing for next Wednesday.
With New York staking out a more strident position, the daily fantasy industry ought to embrace Healey’s approach, said Jeff Ifrah, a Washington, DC-based lawyer who represents about a dozen smaller daily fantasy companies. Under his reading of Massachusetts law, Ifrah said, Healey could have ruled the games were illegal and tried to ban them.
“I don’t see an alternative, legitimate reaction to this other than a super positive one,” Ifrah said of the proposed rules. “For an attorney general to stand up in the face of a statute — which clearly could be read to prohibit this industry — and just simply sidestep that, and in the name of consumer protection talk about regulations? That is unprecedented.”
Some players, meanwhile, had mixed reactions to Healey’s proposal. Many wondered how the companies would be able to impose the restrictions. Others lamented the loss of college sports contests, while still some slammed the rules for being overbearing and punishing top players for their success.
But mostly, players said they were just happy that Massachusetts didn’t go the way of New York.
“Much respect to [Healey] for taking the time to read about it, think about it, and learn a new subject,” said Odie Hoover, a frequent player from Chicago. “She can rule over daily fantasy with some authority by treating it like an emerging industry, unlike the guy in New York who’s calling people names and treating it like a criminal enterprise.”
Scrutiny of daily fantasy companies escalated in September, when a DraftKings employee prematurely published internal data that sophisticated players could use to their advantage. That weekend, the same employee won $350,000 in a FanDuel contest.
An internal investigation cleared the employee of wrongdoing, but the incident raised questions about what data employees had access to, and prompted both companies to ban their employees from playing daily fantasy contests on other sites. Healey’s rules would enshrine that policy as a state requirement.
Massachusetts Attorney General Maura Healey says daily fantasy sports contests need rules and limitations to ensure they are run fairly. Her proposal would:
► Institute a $1,000-per-month deposit limit for Massachusetts players, unless the daily fantasy operator verifies the player can sustain losses at a higher limit. Companies also cannot extend credit to players.
► Prevent Massachusetts residents from playing college sports contests.
► Require daily fantasy companies to clearly identify sophisticated players who win the vast majority of contests.
► Prohibit players from using computer programs to automate the work of entering contests.
► Require players from Massachusetts to be at least 21 years old.
► Prohibit daily fantasy companies from running promotional activities on local college campuses or at amateur or student sporting events, or publishing ads that portray minors.
► Prohibit professional athletes, agents, and team employees in Massachusetts from playing games in their sport.
► Require daily fantasy companies to establish “beginner- only” contests.
► Require advertising for daily fantasy contests to include information on problem gambling assistance.
► Require daily fantasy companies to give customers options to set a spending limit or ban themselves entirely from participating in the contests.
► Require advertising that mentions possible winnings to also disclose average net winnings.
► Ban employees of daily fantasy companies from playing public contests with cash prizes.