The new year began with good news for fantasy sports operators. On Monday, the 2nd of January 2017, the state of Maryland decided to implement a set of regulations to oversee the daily fantasy sports (DFS) industry. The new law was implemented by the state Comptroller, Peter Franchot. He initially proposed the regulation, earlier last summer, in July 2016.
Maryland’s comptroller on DFS
The regulations are generally similar to those that have been implemented in several states in the country over the course of the past year. Their main focus remains on consumer protection. The state of Maryland does have prohibitions against wagering and have delegated authority in effect. However, in 2012, the Maryland General Assembly passed a new legislation asserting that fantasy sports contests would not be subject to those state prohibitions. The Comptroller would have to outline and adopt regulations to carry out the provisions of the law. As a result, that law gave the comptroller’s office oversight of the industry.
The popularity of the games has grown exponentially in the state since then. Franchot announced on the Tuesday, the 3rd of January 2017, “Daily online fantasy sports games have a significant presence in Maryland.” He added, “It is entirely appropriate that we enforce basic rules to ensure the games are fair, anti-competitive abuses are declared out of bounds, and appropriate taxes are paid.”
The New Regulations
The DFS regulations in Maryland mirror those of other states in the country that allow DFS contests. It is important to note that DFS laws in general are still a fairly new thing. As outlined in the Comptroller’s statement, the regulations in Maryland apply only to DFS contests. They do not alter traditional, season-long fantasy leagues. That includes the kind that are run by companies like Yahoo and ESPN. The traditional fantasy sports options have always and are still likely to attract known communities of people into fantasy competitions. They are still likely to draw in friends or colleagues into fantasy sports competitions. These are played out amongst the likes of office co-workers, softball teammates or church groups. However, the wording of the full regulations appears to apply to a broader spectrum. This includes any fantasy sports operator that deals with real- money entries directly and takes a cut of those entries.
Daily fantasy sports are a subset of internet- based fantasy sports games. It is often played out between strangers on the net. Players enter the site of a DFS operator and build a virtual team of professional athletes. These athletes are chosen from a particular sports league or competition. The players then compete against each other and earn points. These points are awarded based on the actual statistical performance of those athletes in real- world competitions. Players have to pay the DFS operator a fee to enter their virtual teams into these contests. DFS can be seen as an accelerated variety of fantasy sports. Contests are conducted over short- term periods instead of an entire season. In these contests, the winners receive a share of a pre- determined prize fund.
The Maryland legislation defines a Fantasy sports competition as a fantasy competition in which a prize is awarded and where players are subject to an entry fee. At the same time, fantasy sports operators are defined as those that offer compensation in connection with the competition regardless of the outcome.
To begin with, the comptroller’s new regulations mentioned that players below the age of 18 will be restricted from all fantasy sports sites in the state. The games will also be restricted for professional athletes. These sportsmen and women will not be allowed to enter virtual contests for their individual sport. All permanent and contracted employees of DFS firms will also be banned from taking part in these contests. Finally, immediate family members of these employees will also be banned from the DFS sites.
Secondly, in a bid to protect minors, not only will be not be allowed to take part in fantasy contests, the DFS companies have been instructed to observe a ban on games that are based on amateur or college sports. Highly skilled players will have to be clearly identified. The responsibility to do this will lay with the DFS operators. This is to ensure a level playing field in maintained in these DFS contests, especially for newer, inexperienced players.
The operators will also have to ban the use of third- party created anti- competitive “scripts” by players. These are mini- programs, which experienced players are currently using to gain advantages that are unfair to more casual players.
In addition, the DFS companies will also have to ensure that players are limited to spending no more than a maximum of USD 1,000 in deposits each month. This limit can only be lifted if the player proactively asks the operator to raise their limit. In such a situation, the player will have to prove to the operator that they have the financial ability to afford the losses which may result from taking part in the DFS contests at the higher deposit level requested. According to the law, gaming operators will not be allowed to offer any credit to their players. This is to ensure that the USD 1,000 spending limit is not casually bypassed by players who cannot afford to do so.
The game operators will also be required to hold player funds and company operating funds in separate accounts. They also have to establish a reserve of funds that is sufficient to pay all prizes offered to winning Fantasy Sports players. This is to ensure all prizes can be paid out in the instance the company suffers financial losses and cannot otherwise afford to do so. To further protect children and minors, DFS operators must not advertise their product to these youngsters. Under the new rules, they are also prohibited from depicting minors, students and school or college settings in their advertisements.
Finally, the DFS operators will be responsible for notifying Marylanders of their potential tax obligations. They will of course be required to comply with State and Federal data security laws. The rules and regulations do not seem to mention any licensing fees of operational taxes for these companies. However, as the regulations note says that fantasy sports operators “shall comply with all applicable tax laws and regulations,” it would suggest that potential taxes will be implemented to the industry at a later time.
Background of DFS in Maryland
Maryland was the first state in the country that attempted to explicitly legalize DFS within their boundaries. Despite their efforts several years ago, they failed to solve the legal clarity for the DFS industry. About a year ago, the Attorney General of the State raised the question about whether or not daily fantasy sports could be legalized without a change to the constitution in Maryland.
He stated, “We have ultimately concluded that the 2012 law should have been the subject of a referendum, but acknowledge that there are legitimate counter- arguments and that it is unclear how a court would rule if asked to address the matter. As such, we believe that the General Assembly should take up this issue to make legislative intentions known and to clear up ambiguity.” Despite that recommendation, the state legislature failed to pass a bill in time that could have put a referendum on the November ballot. It is still unclear whether or not the state legislature will take the issue up again in the new year.