Maryland Comptroller Peter Franchot (D) on Thursday unveiled rules for the state’s daily fantasy sports industry that he said would protect consumers while ensuring that the game operators — and winners — pay taxes.
The regulations would ban individuals younger than 18 from joining commercial fantasy leagues, limit participants to $1,000 in monthly deposits to their player accounts, bar game operators from extending credit to members and require the companies to comply with tax laws and notify participants of their potential tax obligations, among other measures.
The rules would not affect noncommercial fantasy-sports leagues such as those run by Yahoo and ESPN, which take place over an entire season and typically involve casual competition between friends and co-workers. Instead, they would apply to daily fantasy sports leagues, which involve frequent payouts.
“Lawmakers and law enforcement officials can continue to discuss issues, but We need some rules in place for the benefit of Maryland consumers,” Franchot said.
The rules will take effect sometime this fall, after a public comment period and review by the state legislature’s Joint Committee on Administrative, Executive and Legislative Review, which could ask for some revisions.
They would prohibit companies from mixing participants’ funds with their business operating funds; ban games that involve amateur or college sports; bar individuals from using computer programs that could provide an unfair advantage by analyzing player-performance data and picking rosters; forbid company employees from playing; and require operators to establish reserve funds to ensure they can pay all prizes offered to winners.
The initial reaction from the fantasy-sports industry was positive. FanDuel, which runs one of the most popular fantasy-sports sites, said the proposed rules would strike “a balance between ensuring fans can continue to play, embracing a growing industry that can be an economic engine and installing firm regulations . . . to protect customers.”
Fantasy sports allow participants to draft professional athletes onto imaginary teams to compete against other squads based on the number of points players earn for their real-life performances.
Industry groups say about 200,000 Marylanders participate in the games online.
The activity is allowed in the state through a 2012 law that exempts fantasy sports from gambling regulations as long as they are tailored to small groups and reflect the knowledge of participants, rather than involving a heavy element of chance. The law authorizes the state comptroller to regulate the industry.
Questions have emerged about whether daily games are more aligned with gambling than traditional fantasy sports, because they involve frequent payouts. An expansion of commercial gambling would require a voter referendum under Maryland’s constitution.
The state attorney general’s office this year called on the legislature to weigh in on the lawfulness of daily fantasy sports. Two bills to address the issue passed the state Senate, but died in the House.
The rapid growth of daily fantasy sports games has prompted states across the country to examine whether the activity is legal in their jurisdictions.
In March, Virginia became the first state to approve legislation regulating the industry.
Attorneys general in Alabama, Florida, Hawaii, Illinois, New York, Texas and Vermont have said the daily versions are illegal, while other states such as Arizona, Iowa and Nevada have laws that prohibit the activity or require licensure as a form of gaming, according to an ESPN report this month.
Maryland is one of 11 states that allow daily fantasy sports, including Colorado, Massachusetts, Mississippi and Tennessee.
Franchot said his office reviewed the regulations in each of the states where the games are legal before developing his own proposals.
“I think we have the strongest set of pro-consumer regulations in the country,” he said.