A divided state commission Monday voted to recommend classifying daily fantasy sports contests as gambling, a setback for DraftKings Inc., which may now have to fight in its home state against a designation it says could threaten its business.
The panel, set up under a law that gave temporary legal status to the emerging industry, called on the Legislature to permanently legalize the games and consider additional oversight of their operations. But in its report on regulating online gaming, the commission also said the games should be subject to gambling rules.
DraftKings and others in the industry have fought to avoid that term, arguing that the games are based on skill, rather than luck. Players can pay to enter contests in which they select teams of athletes whose real-life performances determine the outcome.
The report, approved by a vote of 5-3 by the Legislature’s Special Commission on Online Gaming, Fantasy Sports Gaming, and Daily Fantasy Sports, said the distinction between luck and skill does not matter, and that any game with money on the line is gambling.
DraftKings and other industry executives argued the gambling label is more than semantics. Being treated as a gambling company could create tax liabilities for operators and raise concerns among their payment processors. They said it would also likely embolden the industry’s opponents in other states and at the federal level.
“The commission’s actions today, as we and our partners in the fantasy sports industry pointed out time and time again, could restrain our company’s ability to thrive and create jobs here in Massachusetts,” DraftKings director of public affairs James Chisholm said in a statement.
His argument was echoed by a commission member who voted against accepting the report, Mark J. Cusack, a state representative from Braintree. Noting that DraftKings is a successful tech company from Boston, Cusack worried about the signal the vote would send to other startups.
“If we’re willing to do this to one of our home-grown companies, why would anyone want to come here?” Cusack said.
Among the five voting to accept the report was Eileen M. Donoghue, a Lowell Democrat and the panel’s cochairwoman. She said the commission recommendations are fair because they will make clear that DraftKings and other companies are safe to operate in the state.
Daily fantasy sports have been regulated in Massachusetts since last year under consumer-protection rules imposed by Attorney General Maura Healey. Those prohibit players under age 21, ban contests based on college sports, and limit advertising.
Healey’s appointee to the commission, Assistant Attorney General Dan Krockmalnic, abstained from the vote over concerns about the further legalization of online gambling.
The report recommended that only daily fantasy be made legal for now, but concluded that “legalization of additional online gaming is inevitable.”
The state law authorizing daily fantasy sports expires at the end of July 2018. The panel’s recommendations will go to the full Legislature as it debates crafting a longer-term measure.