Mass. AG ‘reviewing’ daily fantasy sports as lawmakers look into lottery expansion

The DraftKings lounge at Gillette Stadium.
The DraftKings lounge at Gillette Stadium.

It looks like state regulators have noticed those inescapable DraftKings ads, too.

Massachusetts Attorney General Maura Healey said her agency is looking into any possible legal issues surrounding daily fantasy sports, which have quickly risen to prominence by raising big bucks from investors and doling out millions of dollars in cash prizes.

“This is a new industry. It’s something that we’re reviewing, and we’ll learn more about it,” Healey told State House News Service on Wednesday.

Healey, a vocal opponent of casino gambling, declined BetaBoston’s request for additional comment. But her statements are another example of government officials’ increasing scrutiny of daily fantasy sports, a fast-growing entertainment niche led by Boston-based DraftKings and New York’s FanDuel.

On Monday, US Representative Frank Pallone asked Republican leaders for a committee hearing on the legality of daily fantasy sports like DraftKings and FanDuel. Pallone, a New Jersey Democrat who has advocated for legalized sports betting in his home state, wrote that the close involvement of professional sports teams and leagues “leaves many questioning whether fantasy sports are distinguishable from sports betting and other forms of gambling.”

DraftKings and FanDuel have staunchly defended their legality, pointing to a special status for fantasy sports under federal law. “We’re happy to work with the attorney general to answer any questions she may have about our industry,” DraftKings spokeswoman Sabrina Macias said Thursday. FanDuel declined to comment.

The core idea behind DraftKings and FanDuel’s games are familiar to anyone who’s played a casual game of fantasy sports among friends: Players draft imaginary teams of real-life athletes and compete in “games” with others, amassing points based on the athlete’s actual statistical performance.

Daily fantasy providers speed up the action considerably by offering a huge number of new games every day or week, rather than waiting an entire season for the winners to emerge. That means more players can enter more contests, spend more money on entry fees, and win bigger prizes.

Most forms of online gambling are illegal in the United States, but fantasy sports have a specific exemption from that ban under a 2006 federal law, provided they “reflect the relative knowledge and skill of the participants” rather than random chance. DraftKings and FanDuel have relied on that carve-out to help create a lucrative new slice of the industry, although both companies also ban paid games in five states where they have deemed the local laws too restrictive.

DraftKings and FanDuel have lined up major names in sports, entertainment, and media as investors and are spending heavily to advertise their products to potential players around the country, especially during the beginning of the NFL season.

In July, DraftKings raised a $300 million investment led by Fox Sports, with other investors including the Kraft Group, owners of the New England Patriots, and Boston financial giant Wellington Management. In a separate deal, DraftKings also agreed to spend $250 million on advertising over the next three years on Fox’s media properties. FanDuel, which has been the largest company in the sector, raised $275 million from KKR & Co., Google Capital, and Time Warner Investments.

Both companies have close ties to major sports leagues: DraftKings counts Major League Baseball and the NHL as investors, and FanDuel is backed by the NBA. They also have sponsorship deals with individual teams, including DraftKings’ “Fantasy Sports Zone” lounge at the Patriots’ Gillette Stadium.

DraftKings has said it plans to pay $1 billion in prizes this year, while FanDuel is advertising a $2 billion prize pool. The companies generally return most of the fees paid by players as prize money, keeping around 10 percent of the revenue.

The big money surging into daily fantasy has also turned heads among state legislators who want to find new sources of money for state programs. This week, a state legislative committee examined a bill from state Senator Michael Rush of West Roxbury that would allow the state lottery “to implement online games of skill, including, but not limited to, fantasy sports.”

Updated 6:20 p.m. to correct time element of Healey comment.