Business

Skill or luck? Panel is reviewing whether fantasy sports are really gambling

NEW YORK, NY - NOVEMBER 12: The New York Rangers and St. Louis Blues skate in front of a dasher board advertising the betting website DraftKings at Madison Square Garden on November 12, 2015 in New York City. (Photo by )
Bruce Bennett/Getty Images/file 2015
A dasher board advertising the betting website DraftKings at Madison Square Garden.

Daily fantasy sports companies have long held fast to the position that their customers, who put money on the performance of real-life athletes, are not gambling because they are playing a game of skill, not luck.

Now, members of a state commission set to vote Monday on a key report about the young industry say that distinction might not matter. So long as the game has money on the line, they say, it’s gambling under Massachusetts law.

The highly charged designation is a crucial one to DraftKings Inc., the Boston-based industry leader, which argues that such a move could imperil relationships with business partners, bring tax headaches, and potentially lead to conflicts over its status under federal law and in other states.

Advertisement

Chief executive Jason Robins said in a letter to the commission studying online gaming and fantasy sports that the panel’s draft report rests on shaky legal reasoning.

Get Talking Points in your inbox:
An afternoon recap of the day’s most important business news, delivered weekdays.
Thank you for signing up! Sign up for more newsletters here

“The draft report’s conclusion that all games played for money are ‘illegal gaming’ leads to impractical and absurd results,” he said. “Because the Boston Marathon requires an entry fee, involves an event and offers prizes, it would be considered ‘illegal gaming.’ ”

For now, daily fantasy sports are regulated in Massachusetts under a set of consumer-protection rules imposed in 2016 by Attorney General Maura Healey that include prohibiting players under age 21, banning contests based on college sports, and limiting advertising.

And the Legislature passed a temporary measure last year that allowed those paid contests to continue while a commission develops recommendations that clarify the legal standing of daily fantasy sports. In its draft report, the commission suggested the Legislature enact a law that expressly legalizes the games and give the Massachusetts Gaming Commission additional oversight.

It leaves other specifics, such as taxes and governance, to lawmakers.

Advertisement

Senator Eileen M. Donoghue, the commission’s cochair, said the proposal is good for the daily fantasy sports business, in which participants can pay to enter competitions and win cash prizes, based on the performance of the players they select.

“The recommendation is designed to obviously give a clear path for the industry to operate,” the Lowell Democrat said. “It not only legalizes but legitimizes them under state law.”

Stephen Crosby, chairman of the Massachusetts Gaming Commission, said defining daily fantasy sports as gaming “doesn’t make it bad.”

“It just makes it what it is, in that it needs not just the consumer protection regulations that the attorney general has put out there, but it needs other sets of protections,’ said Crosby, citing issues including digital security, the handling of money, and support for problem gamblers.

But in his letter to the commission, Robins argued that the “skill vs. chance distinction” has long been used in Massachusetts to determine if an activity is gambling, and how it should be regulated. Moreover, he expressed concern that having Massachusetts define daily fantasy sports as gambling would give ammunition to opponents of daily fantasy sports in other states.

Advertisement

The commission broadly reviewed other emerging elements of online gaming and said some additional legalization is “inevitable.” But the draft report does not recommend immediate action on those.

The draft report also said eSports, or competitive video game playing, “could be a unique and well-timed opportunity to form partnerships that would benefit economic development in Massachusetts.”

DraftKings declined to comment on what it would do if the change becomes law. The proposal, however, could touch off another round of expensive government affairs work for a company just off a significant defeat. DraftKings and its chief rival, FanDuel Inc., this month dropped their plan to merge, amid objections by federal antitrust regulators.

Andy Rosen can be reached at andrew.rosen@globe.com. Follow him on Twitter at @andyrosen.