State gambling regulators said the fantasy sports industry should have some regulation, but are also wary of stopping the fast-growing sector in its tracks.
“If you came in heavy on this, you could crush an industry like this overnight,” Massachusetts Gaming Commission Chairman Stephen Crosby said at a hearing Thursday.
The commission has started diving into the complicated laws surrounding online fantasy sports, which charge entry fees and offer big cash prizes but are not presently regulated like casino-style games in many states.
That tide is starting to shift as regulators pay new attention to fantasy sports, following heavy advertising campaigns from the sector’s largest companies and questions about fairness for everyday players.
Boston-based DraftKings Inc. is one of the largest companies offering fantasy sports contests online. Its biggest competitor is New York-based FanDuel Inc., which on Thursday said that it welcomes additional government regulation of the sector.
Massachusetts’ five-member commission, which was originally created to help introduce casinos to Massachusetts, was asked by legislative leaders and Governor Charlie Baker to examine the laws that might apply to fantasy sports and submit recommendations for possible regulation.
The commission’s work started after Attorney General Maura Healey, who has opposed casino gambling, said there appeared to be no laws explicitly outlawing fantasy sports in Massachusetts.
The commission’s legal team came to a similar conclusion, telling the agency on Thursday that there are gaps in current Massachusetts gambling laws that seem to leave a space for fantasy sports contests with cash prizes.
Crosby called the collection of statutes and court rulings “a pastiche” and “kind of a mess.” But he echoed the rest of the commission in saying it appeared there needs to be some kind of regulation specifically for the fantasy sports industry.
Just what form that takes is another question. Crosby sounded several cautious notes, pointing out that venture capital-backed fantasy sports companies are generally unprofitable and couldn’t pay the steep taxes that casinos are subject to.
He also questioned whether it might be enough to apply existing consumer protection laws and other safeguards to the industry.
“We don’t necessarily set up a regulatory body for every industry that needs to be regulated,” Crosby said. “I think we just need to think carefully about what is the appropriate level and structure.”
Other commissioners said they were concerned that there wasn’t enough oversight of the money washing through the industry — DraftKings has said it plans to award $1 billion in prizes this year, and FanDuel expects to double that.
“You need to have somebody watching carefully when big sums of money are being transferred from one person to another,” commissioner James McHugh said.
Scrutiny of the industry has intensified in recent weeks, following the disclosure that a DraftKings employee won $350,000 at FanDuel after accidentally posting valuable player data online.
Both companies have said the employee didn’t have access to the data until his entries on FanDuel were locked into place, but they were forced to ban employees from playing public fantasy games anywhere online.
Federal and state officials began probing the companies’ practices after the incident came to light, and regulators around the country also have started to examine the previously obscure industry.
Nevada recently ruled that fantasy companies required a license to operate in the state, prompting DraftKings and FanDuel to suspend operations there.
A DraftKings spokesman said in a-mail Thursday the company was committed to working with “all relevant government authorities” on issues around daily fantasy sports. “We are seeing a number of state regulators and other authorities take a reasoned and measured approach to the daily fantasy sports business and hope that trend continues along with due consideration for the interests of sports fans across the country who love to play these games,” the company said.
In a letter to players on Thursday, FanDuel chief executive Nigel Eccles said that several proposals surfacing in various states could form the basis of a fair regulatory scheme for fantasy sports, including rules for verifying players’ ages and third-party audits of fantasy companies.
“We hope to work with legislative leaders in each state to ensure you, our fans, maintain access to the fun and excitement you have come to love,” Eccles wrote.
Curt Woodward can be reached at curt.woodward@globe.com. Follow him on Twitter @curtwoodward.
