Fantasy sports lottery games appear to gain traction in State House

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BOSTON – Rocked by scandal, declared a form of gambling in Nevada, scrutinized by lawmakers and reportedly under state and federal investigation, popular fantasy sports websites like DraftKings and FanDuel might soon face another challenge: a state-run competitor.

Massachusetts Treasurer Deborah Goldberg, who also heads the state Lottery, said last week that the agency plans to get in on the burgeoning market, according to the State House News Service. She said the popularity of DraftKings and FanDuel, which have flooded the airwaves with advertisements since the start of football season, prompted the move. “You don’t want to be 20 years from now and say, ‘Gee we missed the market,’” Goldberg told the Boston Herald. “There is clearly an appetite for this kind of game play.”

DraftKings and FanDuel were dealt another blow Thursday when Nevada regulators determined daily fantasy sports to be a form of gambling and shut them down in the gaming capital of the U.S. The state Gaming Commission said the companies that offer such games need licenses to “operate a sports pool” in Nevada. Both sites have insisted they aren’t gambling and ceased operating in the state by Thursday evening.

Setting a new game format at the Lottery likely will require legislation, Goldberg said. One proposal could provide that authority. Senate Bill 191 would let the Lottery “implement online games of skill, including, but not limited to, fantasy sports.” Sponsor Michael Rush (D-West Roxbury) didn’t respond to requests for comment on the measure.

“The future of gaming is before us,” he told State House News in September. “It’s important that we as the commonwealth grasp it, enhance the technology and move with it.”

His bill would permit the sale of pre-paid, reloadable cards by Lottery ticket agents while also letting the Lottery set up an online site for sales directly to players. It would require a system to ensure that those who play online live in Massachusetts.

If passed and signed by Gov. Charlie Baker, a Republican who has expressed reservation about the idea, Massachusetts would be blazing a trail for other states, said Chris Grove, editor of Legal Sports Report in Las Vegas. Grove’s website is tracking fantasy sports-related legislation pending in 12 states.

“I think there’s a lot of uncertainty regarding how states should handle daily fantasy,” Grove said in an interview. “So if Massachusetts stakes out a definitive approach, there’s certainly a chance that other states will look to that example to inform their own approach.”

In Indiana, for example, lawmakers are eyeing making daily fantasy sports legal at so-called “racinos,” or racetrack with some casino gambling. Meanwhile, officials in Kansas, Louisiana and Montana are considering exempting fantasy sports from state gambling codes.

Though fantasy sports leagues have been around for decades, the sudden emergence of DraftKings and FanDuel – whose investors that reportedly include 21st Century Fox and Time Warner as well as major sports organizations – and their big-money prizes, have lawmakers and law enforcement officials across the country scrambling. Whether or not winning money based on the performance of real athletes equates gambling is at the heart of the question. In Nevada, Gaming Commission Chairman A.G. Burnett said that after examining the operations of daily fantasy sports sites, he and he commission’s staff concluded they were offering gambling to customers.

Fantasy sports leagues and games typically let players assemble imaginary teams with rosters drawn from the ranks of actual professional or college athletes competing in sports such as baseball, basketball and football. Points are awarded to fantasy teams based on statistics compiled by real players in actual games, for touchdowns or rushing yards in football, for example.

Companies that offer the fantasy sports say that it is a game of skill, requiring knowledge and expertise, rather than chance, like a lottery. So far it appears that federal regulators have accepted this classification, which provides an exemption from bans on online betting. Skeptics see fantasy games as just another form of wagering on athletes at the collegiate and professional levels. Burnett in Nevada said that because the games are decided in part by the collective performance of real individuals, they are a form of sports betting that is regulated in his state.

Two Democratic lawmakers from New Jersey, U.S. Sen. Bob Menendez and U.S. Rep. Frank Pallone, recently asked the Federal Trade Commission to examine fantasy sports websites and develop regulations to ensure consumers who use them are protected. They asked the agency to recommend legislative measures that may be needed so that it can comply with their request.

Pallone previously raised questions about DraftKings and FanDuel. The concerns he raised gained attention after reports of employees from both websites suggested they may have drawn on inside knowledge of game participants’ choices to win money on each other’s websites.

That incident prompted New York Attorney General Eric Schneiderman, a Democrat, to launch an inquiry into the matter.

Recently, federal agents have reportedly been contacting customers of Boston-based DraftKings to ask about their experiences using the site. The Wall Street Journal said that Federal Bureau of Investigation and Justice Department investigators are conducting the inquiries as part of a preliminary probe into the legality of the business of daily fantasy sports games.

The Journal also said that a person familiar with the matter says Massachusetts Attorney General Maura Healey is working with both FanDuel and DraftKings to put in place procedures to protect consumers. Healey earlier declared that DraftKings business is legal, after the company asked her to review its operation.

Bay State legislative leaders have spoken favorably about Lottery involvement in fantasy sports games. In the House of Representatives, Speaker Robert DeLeo (D-Winthrop) has said he was interested in ensuring the commonwealth got “its fair share” of the industry’s profits, in an appearance on WCVB-TV’s “On the Record” show.

Senate President Stanley Rosenberg (D-Amherst) went further, calling for state regulation of the industry and equating it with racetrack betting, according to Herald reports.

The federal Professional and Amateur Sports Protection Act could present an obstacle to state-run fantasy sports games, Grove said. If state officials define the concept as gambling while launching an in-house version, it could trigger a violation of that law, he said.

On the other hand, a state-managed system could bring transparency to the industry and “bring additional costs and overhead that will put pressure on the underlying business model for daily fantasy sports,” he said.