Online Gaming and Fantasy Sports Report
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The Report of the Special Commission to conduct a comprehensive study relative to the regulation of online gaming, fantasy sports gaming and daily fantasy sports July 31, 2017 1 Acknowledgements The Special Commission to conduct a comprehensive study relative to the regulation of online gaming, fantasy sports gaming and daily fantasy sports would like to acknowledge the following individuals for their assistance in preparing this Report: Emiley Lockhart, General Counsel and Policy Director for Senator Eileen Donoghue, Chair of the Senate Committee on Steering and Policy and Joint Committee on Export Development; Rory O’Hanlon, Research Director to the Joint Committee on Economic Development and Emerging Technologies; Matthew Young, Legal Counsel to the Joint Committee on Economic Development and Emerging Technologies; Malia Allen, Research Analyst to the Joint Committee on Economic Development and Emerging Technologies; Garrett Casey, Legislative Director for Senator Eileen Donoghue; Frank Munro, Aide to Senator Eileen Donoghue; Justin Stempeck, Staff Attorney, Massachusetts Gaming Commission; and Dan Krockmalnic, Assistant Attorney General at the Massachusetts Attorney General’s Office. The Special Commission would also like to extend appreciation to all individuals who provided testimony to the panel. 2 I. EXECUTIVE SUMMARY ................................................................................. 4 II. STRUCTURE OF THE SPECIAL COMMISSION ........................................... 7 III. PURPOSE AND METHODS OF THE SPECIAL COMMISSION ................... 8 IV. SPECIAL COMMISSION FINDINGS ............................................................... 9 1. Existing Legal and Regulatory Framework of Gaming ................................. 9 2. Current Gaming Landscape in Massachusetts ..............................................15 3. Daily Fantasy Sports .....................................................................................19 4. Massachusetts Attorney General’s DFS Regulations ...................................24 5. Online Gaming Beyond DFS ........................................................................27 6. eSports ..........................................................................................................36 7. The Benefits and Burdens of Legalized Online Gaming .............................41 V. SPECIAL COMMISSION RECOMMENDATIONS .......................................45 Approach .......................................................................................................45 Defining Online Gaming ..............................................................................45 Balancing Regulation and Innovation ..........................................................47 Recommended Legislative Path for Legalization .........................................50 Recommended eSports Economic Development Considerations ................51 APPENDIX A – SPECIAL COMMISSION MEETINGS AND TESTIMONY ....53 APPENDIX B – SPECIAL COMMISSION MEETING MINUTES .....................54 3 I. EXECUTIVE SUMMARY PURPOSE OF THE SPECIAL COMMISSION The special commission to investigate, study, and make recommendations on the issue of online gaming and daily fantasy sports (“Special Commission”) was established by Section 137 of Chapter 219 of the Acts of 2016, and passed by the Legislature on July 31, 2016. The purpose of the Special Commission is “to conduct a comprehensive study relative to the regulation of online gaming, fantasy sports gaming and daily fantasy sports.” The legislative charge directed the Special Commission to “review all aspects of online gaming, fantasy sports gaming and daily fantasy sports… [and] submit its final report and its recommendations … not later than July 31, 2017.” PROCESS The bipartisan nine-member Special Commission conducted seven meetings open to the public in the State House from October 2016 through July 2017. The Special Commission invited experts and industry stakeholders from across the country to provide testimony, and also received testimony from the Massachusetts Gaming Commission, the Massachusetts Attorney General’s Office, and others with relevant expertise. SPECIAL COMMISSION FINDINGS Understanding the diversity of issues related to fantasy sports and online gaming, the Legislature called upon the Special Commission to specifically consider the “economic development, consumer protection, taxation, legal and regulatory structures, implications for existing gaming, burdens and benefits to the Commonwealth, and any other factors the commission deems relevant.” In consideration of those directives, the Special Commission finds as follows: The legal and regulatory framework for gaming, both on the state and federal levels, is complex and nuanced. Any effort to legalize online gaming, including daily fantasy sports, must include a thorough analysis of Massachusetts gaming laws (including the criminalization of lotteries and betting pools), and federal gaming laws (including the Wire Act and the Department of Justice’s memorandum interpreting the Wire Act, the Unlawful Internet Gambling Enforcement Act, and the Professional and Amateur Sports Protection Act). Examination of the current gaming landscape in Massachusetts reveals that the Expanded Gaming Act, which passed the Legislature in 2011, contains a number of unique features and central principles which may be applicable for online gaming. While the industry is still emerging in Massachusetts, the licensed casinos themselves are able to offer useful examples of how gaming can be successful for Massachusetts. 4 Investigation of the history and mechanics of Daily Fantasy Sports (“DFS”) shows an evolving yet successful industry that is facing increasing scrutiny and regulatory uncertainty – issues that can and should be resolved in Massachusetts. Under the authority provided by M.G.L. Chapter 93A, the Massachusetts Attorney General commenced a comprehensive review of DFS and carefully crafted consumer protection regulations. These regulations set the benchmark for the country, and the industry, and the Attorney General’s Office continues to monitor the manner by which DFS operators conduct their business. There is an extensive world of online gaming beyond DFS that should be considered in Massachusetts. The Commonwealth would be well served to review the legalized online versions of traditional casino games available in Nevada, New Jersey, and Delaware, and to consider the viewpoints of the state’s licensed casino operators as they relate to expanding casino games online. Moreover, other online games – including online sports betting, social gaming, and online prediction market gaming – are prevalent, growing in popularity, and should be deliberated upon as the state moves forward. An analysis of the background and operation, including non-gaming aspects, of the emerging field of eSports, a related but unique part of online gaming where video game players compete with one another in leagues and tournaments, reveals that there are numerous commercial and economic development opportunities potentially available to the state. The benefits and burdens of legalized online gaming, including tax revenue, jobs, reduction in illegal activity, transparency, safety of online operations, underage gaming, problem gaming, and cannibalization of existing gaming, will necessarily fluctuate with any change to the status quo and will require ongoing analysis depending on how the Commonwealth proceeds. SPECIAL COMMISSION RECOMMENDATIONS The Special Commission received strong advocacy for different approaches to online gaming, and appreciates the need to balance an efficient omnibus approach with the desire to proceed carefully and with caution. The Special Commission recommends: (1) that “online gaming” be defined broadly to encompass all manner of online games (including, but not limited to, DFS); (2) that the Legislature work to balance regulation with innovation and develop a robust framework as to how all online gaming should be governed, taxed, and regulated generally; and (3) that, rather than legalizing all online gaming at once, the Legislature retain oversight over which parts of online gaming should be legalized. Defining Online Gaming: The Special Commission heard from many experts and interested parties about the necessity of defining “online gaming,” and views this charge as one the most important to carry out. Because Massachusetts already enjoys such a broad reading of what constitutes gaming, the Special Commission recommends a correspondingly comprehensive definition of what is considered “online gaming.” 5 Balancing Regulation and Innovation: The Special Commission recommends the following best practices be considered in any regulatory scheme for online gaming in order to protect consumers, ensure fair play, and encourage this emerging industry: (i) clearly defined terms; (ii) legal gaming age; (iii) geolocation; (iv) suitability and registration/licensure; (v) responsible gaming/preventing compulsive gaming; (vi) fairness in game play; (vii) truth in advertising; (viii) controlling for any apparent conflict of interest; (ix) data/network security; and (x) fund processing/segregation/protection. In addition, the Special Commission suggests the Massachusetts Gaming Commission as the appropriate body to administer the day-to-day governing of online gaming, but further recommends that the authority for deciding whether and to what extent online gaming should be legalized should remain with