DraftKings and FanDuel, two pioneers in online fantasy sports betting who are facing the prospect of more state regulation and taxation, have urged a commission reviewing the industry to leave well enough alone.
The two companies, one of which – DraftKings – is based in Boston, believe the current temporary rules imposed on the industry by Attorney General Maura Healey have created a market structure that has worked well over the past year and allowed both to grow.
The two market leaders also said they would be open to “reasonable taxes and fees,” but cautioned against setting a tax rate that was too high and might discourage job growth.
“In short, the Massachusetts regulatory model is already working well for consumers and for the state’s innovation economy. We urge the commission not to change the basic tenets of that regulatory framework simply because it is also moving to address other unique and emerging industries,” DraftKings and FanDuel wrote in a letter last week to the Special Commission on Online Gaming, Fantasy Sports Gaming and Daily Fantasy Sports.
The letter, a copy of which was obtained by the State House News Service, also recommended that the state permanently authorize fantasy sports contests in law and create a mechanism to register and track fantasy sports companies through the Division of Professional Licensure.
The special commission was formed last July when the Legislature voted to make “fantasy contests” legal until July 31, 2018. The commission was tasked with figuring out the way forward for the industry that exploded in popularity in recent years despite falling into a legal gray area.
The commission has a deadline of July 31 to make final recommendations.
According to the two companies, DraftKings and FanDuel have a combined 787,808 registered players from Massachusetts and took in more than $17.6 million in revenue from the state in 2016. Nearly 1,100 Bay State players won $600 or more last year totaling $13.4 million in prizes that were taxed as income in Massachusetts.
Healey established emergency regulations and consumer protections in March 2016 that, among other things, set the minimum age for participation in online fantasy sports contests at 21 and put a minimum $1,000 per month deposit limit on most players.
DraftKings and FanDuel said that to their knowledge there have been zero consumer complaints since the regulations took effect.
In addition to permanently legalizing fantasy sports contests and maintaining the attorney general’s regulations and oversight, the internet companies said they would support a “reasonable registration fee” to cover the cost of reviewing applications.
Seven states have enacted corporate registration fees, according to the letter, ranging from $5,000 to $75,000, and the companies recommended limiting such fees to what is needed to cover the cost of oversight to ensure smaller companies can enter the market.
Additionally, five states tax fantasy sports revenue with a median rate of 8 percent, the letter stated. DraftKings and FanDuel had nearly $18 million in revenue in 2016.
“While each percentage tax rate on that revenue figure may not be a major revenue driver for a state budget of approximately $40 billion, for young companies like ours, each tax percentage raised would have an impact on our ability to grow, innovate and create more jobs,” they wrote in a statement.
The companies also requested that any state tax on revenue be limited to money coming in from payers physically located in Massachusetts at the time they entered a contest.
The special commission, which is co-chaired by Rep. Joseph Wagner and Sen. Eileen Donoghue, has also explored other industries, like the eSports video game market, but is not planning to address the idea of moving Lottery games online in its final report.
