Industry Updates

Introducing Maryland’s New Fantasy Sports Regulations

Daily fantasy sites in Maryland will be operating under new rules in 2017 courtesy of regulations that went into effect earlier this week. A series of regulations first proposed by Maryland Comptroller Peter Franchot this past July are now in effect as of Monday, January 2nd, 2017.

Peter Franchot originally proposed these regulations in an effort to ensure the daily fantasy industry is run fairly for players and that winners are pay taxes in Maryland. In an announcement published on the Maryland Comptroller website, Peter Franchot explains:

“Daily online fantasy sports games have a significant presence in Maryland. 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 cover a range of issues all related to consumer protection. From here on out, fantasy operators will be required to:

  • Establish a minimum age of 18 for all participants
  • Prohibit professional athletes from participating in games involving their sport
  • Prohibit employees of fantasy sports sites and their family members from participating
  • Prohibit games based on amateur and college sports
  • Identify and clearly label “highly experienced” players
  • Prohibit the use of third-party scripts used by advanced players to gain an advantage
  • Enforce a maximum monthly deposit limit of $1,000 unless players proactively request increased deposit limits and can prove that they have the financial capability to withstand significant losses
  • Refrain from extending credit to customers
  • Segregate player funds from fantasy sites’ operating funds
  • Notify customers from Maryland of their tax obligations
  • Comply with state and federal data security laws

Noticeably absent from these regulations is any sort of registration process or licensing fee for DFS operators. As Marc Edelman of Forbes notes, the lack of expensive licensing fees is a boon for free competition as it will not price out smaller operators from doing business in Maryland. In some other states, high licensing fees make it difficult for all but the biggest of fantasy sites to operate legally.

Apart from the lack of a registration fee for fantasy sites, the regulations unveiled in Maryland look similar to what has come out in other states over the past two years except all rolled into one package. It seems as if the Maryland Comptroller observed regulation efforts in other states and implemented all of the most effective regulations in one go.

The prohibition of DFS employees and professional athletes will serve to minimize opportunities for corruption and game-rigging while the deposit limits and prohibition of credit will serve to minimize the risks of addiction and other social ills typically associated with “gambling.”

Segregation of player funds is another important one as it will strongly discourage operators from taking risks with players’ funds. As history shows, not all fantasy sites end up being viable long term businesses. Requiring operators to store player funds in a segregated bank account will go a long way to ensure customers do not lose their money if a site goes under.

The Comptroller’s announcement also specifies that these new regulations apply specifically to daily fantasy sports contests, not traditional season-long leagues such as those that attract “office coworkers, softball teammates or church groups.”

Maryland effectively legalized fantasy sports in 2012 when the General Assembly passed legislation declaring that DFS contests are not subject to state laws against gambling. That same legislation delegated the Comptroller as the body responsible for issuing regulations applying to daily fantasy contests.

In 2016, Maryland lawmakers introduced a pair of bills with one seeking to regulate the industry and the other seeking to transfer the authority to regulate DFS contests from the Comptroller to the Lottery and Gaming Control Agency. Neither of those ever made it to law as one died in committee and the other died in chamber.

With both of those bills dead, that left the power to regulate daily fantasy sports in the hands of the Comptroller. Although the lawmakers who introduced those bills failed to get them passed, the Comptroller’s new regulations provide everything those bills sought short of establishing a licensing process for DFS sites.

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