Legislative / Regulatory | Taxation

Maryland joins the parade of states seeking to regulate online fantasy sports

Montage of fantasy football draft elements which include draft notes, pick number, league information, money, food and beverages.

NFL training camps are set to open later this month, and for football fans from coast to coast, that means one thing: It’s time to burn all of your extra cash playing fantasy football.

With the advent of online fantasy games like DraftKings and FanDuel, more of that extra cash is being burned now than ever before — and more regulators are keeping a close eye on how those games operate to make sure they don’t cross the line from enjoyable pastime to illegal gambling.

The latest regulator to join the fray is Maryland Comptroller Peter Franchot, who has proposed a series of rules that would ensure that online fantasy sports in Maryland are operated fairly and that winners pay their fair share of state taxes.

“These games are being played by a huge number of people in Maryland, but with no regulatory framework to ensure fair games, and no notification of players that if they win, they are potentially subject to Maryland income taxes,” Franchot said. “Lawmakers and law enforcement officials can continue to discuss issues, but we need some rules in place for the benefit of Maryland consumers.”

Franchot’s proposal would enact a number of regulations, including the following:

  • Marylanders younger than 18 would be banned from playing online fantasy games.
  • Professional athletes would be banned from playing online fantasy games related to their sport. Also banned would be employees and other officials of online fantasy sports operators, as well as members of their immediate families.
  • All games based on amateur or college sports would be banned.
  • Operators of online fantasy games would be required to notify Marylanders of their potential tax obligations.
  • Players’ spending would be capped at $1,000 per month. Exceptions could be made for players who (a) request higher limits and (b) have the financial assets to pay more than that.
  • Game operators would be required to identify highly experienced players before other players enter a game.
  • The use of computerized third-party “scripts” — programs that give experienced players a competitive advantage over other players — would be banned.
  • No credit would be extended to any player.

“The regulations would only apply to daily fantasy sports contests, not the traditional, season-long fantasy leagues run by companies like Yahoo and ESPN that attract office co-workers, softball teammates, or church groups,” Franchot said.

Maryland is just the latest state to chime in on the legality of online fantasy sports.

New York set the bar high in late 2015 when state Attorney General Eric Schneiderman determined that DraftKings and FanDuel amounted to illegal gambling and ordered the operators to stop accepting bets from New York residents. After months of wrangling, New York’s legislature in June passed a bill that legalized and regulated the fantasy sports industry in New York, thus allowing FanDuel and DraftKings to operate within the state once again.

Texas also has joined the debate. In January, Texas Attorney General Ken Paxton ruled that daily fantasy sports should be considered prohibited gaming “as long as companies like DraftKings and FanDuel are taking a cut in participants’ bets,” writes Wired’s Davey Alba.

For their part, DraftKings and FanDuel are working closely with regulators to make sure their games are fair, legal, and conform with state and federal tax laws. The Baltimore Sun’s Jeff Barker offers this statement from FanDuel representatives:

FanDuel said the rules strike a balance "between ensuring fans can continue to play, embracing a growing industry that can be an economic engine, and installing firm regulations for fantasy sports companies to protect consumers."

"Comptroller Franchot took a thoughtful approach," the statement continued, "with proposed regulations modeled after some of the best and strongest fantasy regulations installed in states across the country. We are still reviewing the details and look forward to working with the comptroller through the comment period."

The “Is it gambling or entertainment?” debate will likely continue, but the fact that the games’ operators are working closely with regulators to enact reasoned regulations is certainly a good sign.

It also means your office fantasy draft later this summer is still a go.

I’m taking Le'Veon Bell with my top pick.


Bill Sheridan