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Maryland warily eyes fantasy sports boom

Three years after Maryland enacted a law allowing fans to play seasonlong fantasy sports contests, the industry has changed — and grown — so substantially that lawmakers and regulators are questioning whether reforms are needed.

Comptroller Peter Franchot, who wants to assess whether consumers are being protected from "potentially detrimental industry practices," is establishing a panel to consider possible trouble spots. The state legislature's Joint Committee on Gaming Oversight is planning a hearing on the issue next month. And a number of state legislators are weighing whether the 2012 law needs a revision.

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Their concerns follow dramatic change in fantasy sports operations, once known mainly as platforms for friends and relatives to compete over the course of weeks or months. Today, it is an intensely competitive, multibillion-dollar industry supported not only by consumers but by substantial investments from media companies and professional sports leagues. Industry leaders FanDuel and DraftKings, which operate daily games, say they have more than 5 million and about 2.5 million users, respectively.

"You still want people to have the independence and ability to participate, but we need to make sure it's safe and that it's fair," said John Olszewski Jr., a former state delegate who was the principal sponsor of Maryland's law. "I don't think anyone even back in 2012 envisioned the evolution we've seen. We're not talking about friends and family leagues anymore."

His concerns are shared by some current legislators.

"I have no problem with a bunch of guys playing in the basement," said Eric Luedtke, a Montgomery County Democrat and the House chair of the joint gaming committee. Luedtke, who was involved in shaping the law in 2012, said "massive advertising" by FanDuel and DraftKings has helped shift the landscape.

The two companies face a legal challenge from New York Attorney General Eric Schneiderman, who has ordered them to stop taking what he says are illegal wagers under that state's law.

Both companies maintain that their operations are legal.

Other states are taking action, too. Massachusetts Attorney General Maura Healey has proposed regulations banning anyone under 21 from playing and limiting most players' deposits. Nevada has limited daily fantasy sports to operators with gambling licenses.

In fantasy games, participants select or "draft" actual players in football and other sports, accumulating points based on the players' statistical performances. The game-within-a-game has become an integral part of the baseball and football seasons for an increasing number of area fans.

"Honestly, my friends love it," said Olszewski, a Dundalk Democrat and devoted Ravens fan who said he plays low-wager online fantasy games against a dozen or so friends. "It does sort of make the games a lot more interesting."

Another NFL fan, Chris Suite of Edgewater Beach, said he and 10 friends put in $100 apiece for a competition on a CBS Sports site. "It's just something to look forward to during the games. You just play with a bunch of friends," said Suite, who recently won a trip in the state lottery to see the Ravens play the Dolphins in Miami on Dec. 6.

While most traditional fantasy competitions cover an entire season, sites such as FanDuel and DraftKings allow customers to pick new rosters after a day's play, playing multiple games in a year. The potential to win — or lose — money is maximized.

It is the explosion of daily fantasy sites that has sparked concerns in Maryland and elsewhere.

"You're getting precariously close to it being about one game," Olszewski said. The shorter the competition, the further it seems to stray from the original concept — which Olszewski was comfortable with — of picking players and sticking with them for the season. Proponents of traditional fantasy leagues say it requires more skill than daily play because participants must factor in players' long-term potential and durability.

The stakes have also grown exponentially — FanDuel says in ads that it will pay out an "expected $2 billion in real cash prizes this year," while DraftKings advertises "More than $1 billion guaranteed."

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According to court filings, DraftKings has partnered financially with Fox Sports, Major League Baseball, and the owners of the NFL's New England Patriots and Dallas Cowboys, among others. FanDuel investors include the NBA, NBC Sports Ventures and Comcast Ventures. The NFL has not partnered with either company.

Franchot plans to soon convene a meeting on fantasy sports that is expected to include representatives of Gov. Larry Hogan, Attorney General Brian E. Frosh and the Maryland Lottery and Gaming Control Agency. Franchot "wants to make certain that these gaming companies are operating legally, that taxes are being properly collected and that Maryland consumers are protected from any potentially detrimental industry practices," his office said in a written statement.

Maryland law grants regulatory authority over fantasy sports to the comptroller. Luedtke said there has been informal discussion among lawmakers about whether to transfer that authority to the Maryland Lottery and Gaming Control Agency.

Asked about that possibility, agency director Gordon Medenica said in an email, "It's premature to speculate how policy makers may decide to handle daily fantasy sports. We'll continue to track developments closely and will follow the Comptroller's lead on the issue."

Erin Montgomery, a spokeswoman for Hogan, said in an email that his administration "looks forward to the findings" of Franchot's work group.

A spokesman for Frosh's office said, "We've had some internal discussions but this is not an area of interest of the Office of the Attorney General."

The Joint Committee on Gaming Oversight, meanwhile, will hold a hearing in mid-December, although no date has been set, Luedtke said.

In "cease and desist" letters to the companies on Nov. 10, Schneiderman wrote that daily fantasy competition "is designed for instant gratification, stressing easy game play and no long-term strategy."

Schneiderman says the operations of FanDuel and DraftKings are games of chance rather than skill — an assertion disputed by the companies. It's an important distinction because Congress in 2006 exempted fantasy sports from its online gambling ban on the grounds that they required skill.

While the companies market the games as contests that anyone can win, Schneiderman said, "roughly 1 percent" of the players claim the bulk of winnings.

FanDuel disputed the 1 percent figure, while acknowledging "that the most highly skilled players win a higher percentage of the prizes — as in any contest of skill."

"Has it crossed a line from being a game of skill to a game of chance?" Luedtke asked. "I don't think I have the answer to that."

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Asked about Maryland's concerns, FanDuel referred to a recent open letter to users in which CEO Nigel Eccles endorsed "a number of smart, but tough proposals in various state legislatures" to regulate fantasy sports.

A DraftKings spokesperson said in a statement that it has "always operated on the understanding that all of our games are legal in the states in which we operate. We remain committed to working with all relevant authorities to ensure that our industry operates in a manner that is transparent and fair for all consumers."

Earlier this football season, a DraftKings employee won $350,000 on FanDuel, prompting concern about the sites' fairness. DraftKings said an investigation showed that the employee could not have used what some have called "inside information" to select his lineup. The companies said in a joint statement on Oct. 5 that they "have strong policies in place to ensure that employees do not misuse any information at their disposal and strictly limit access to company data to only those employees who require it to do their jobs."

Gambling on the outcome of games themselves remains illegal nationwide, with exceptions for Nevada and a few other states. Still there are plenty of wagering options — the American Gaming Association estimated before last season's Super Bowl that fans would spend more than $3.8 billion on a dizzying array of illegal wagers, from the final score to the length of time it took Idina Menzel to sing the national anthem.

In 2012, Maryland modeled its fantasy sports law after the federal legislation. The state law, which exempts fantasy competitions from other gambling prohibitions, says fantasy games reflect "the relative skill of the participants."

Before his bill was enacted, Olszewski participated in a seasonlong fantasy football league. "The league may have been $20 or $25 for the entire season," he said.

But he believes Marylanders in other leagues were wagering far more — perhaps $100 or $1,000. Because Maryland didn't explicitly permit fantasy payouts, those players could have been accused of violating the law. "Maryland residents had to do it sort of internally, I guess, with a wink and a nod," he said.

A 2006 opinion by the state attorney general on poker tournaments presented a fairly strong argument that cash prizes would be barred in Maryland, so Olszewski pushed for legislation that he said was needed "to open the same opportunity for Marylanders as the rest of the country had."

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