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In this Oct. 25 photo, workers set up a DraftKings promotions tent in the parking lot of Gillette Stadium, in Foxborough, Mass., before an NFL football game between the New England Patriots and New York Jets. (AP Photo/Charles Krupa, File)

Md. state officials call for scrutiny of fantasy sports league sites

Maryland is on track to join the growing number of states that are looking at potentially regulating short-term or one-day fantasy football games, with a growing number of officials calling for an in-depth review of the industry and whether it operates legally in the state.

The concerns in Maryland come as New York has declared FanDuel and DraftKings —  the most widely used sites — illegal gambling operations. Officials here say they have a number of questions, noting that a 2012 law meant to make season-long leagues legal never contemplated the advent of these sites.

“These sites have changed the rules of the entire industry,” said Len Foxwell, a spokesman for Comptroller Peter Franchot. “Three years ago, these were friendly leagues that existed within the realm of office pools and finished-basement drafts between friends over beers and Fritos.”

Comptroller Peter V.R. Franchot called on Gov. Larry Hogan and the General Assembly to refrain from major changes to state taxes or regulations for at least the next three years. (File photo)

Comptroller Peter V.R. Franchot called on Gov. Larry Hogan and the General Assembly to refrain from major changes to state taxes or regulations for at least the next three years. (File photo)

Franchot, in October, called the sites “just completely blatant wholesale gambling operations” and said the industry is “metastasizing.”

The passage of the 2012 legislation authorized the comptroller to impose regulations regarding fantasy sports leagues. None have been drafted in the three years since the law went into effect.

Foxwell said nothing done since 2012 would have made a difference when it comes to the sudden emergence of online, one-day gaming.

“This time a year ago, we wouldn’t even be having this conversation,” Foxwell said. “We didn’t know what FanDuel and DraftKings was. This is a fast-moving train.”

Foxwell said the comptroller remains concerned about protecting consumers from bad industry practices and ensuring that gaming operations are legal as well as withholding taxes, as is done with casino and the state lottery winnings.

This year, as many as 57 million people will be involved in some sort of fantasy sports league, according to the Fantasy Sports Trade Association.

It’s a rapidly growing industry that a number of officials in Maryland want to understand better and possibly regulate, if it is even determined to be legal.

“There’s a real question of, is it chance or is it skill?” said Del. Eric G. Luedtke, D-Montgomery and co-chair of the Joint Committee on Gaming Oversight. “That’s something that may have to be determined in the courts or at the federal level.”

Luedtke said he expects the oversight committee will likely hold hearings on the issue with state gaming officials as well as discussions with Franchot and Attorney General Brian E. Frosh.

“I don’t think we expected this to grow into the industry that it did,” Luedtke said. “This is a clear case of the state not being able to keep up with changes in technology.”

Former Del. John A. Olszewski Jr, a Baltimore County Democrat, said the explosion of the short-term fantasy league industry was never contemplated in the 2012 law he sponsored that legalized such leagues in Maryland.

Olszewski said a number of questions will have to be answered regarding the legality of the industry, many of them at the federal level because of laws regulating sports betting in the United States.

“It wasn’t the spirit or intent of what we passed,” Olszewski said. “Those leagues are very different from the friendly, season-long approach.”

Olszewski, who was inducted into the Fantasy Football Hall of Fame for his work on the Maryland law, said that while his bill gave authority to the comptroller to regulate the industry “there really wasn’t any need because it was self-regulating.”

The former delegate compared the one-day leagues to day-trading stocks. While fantasy sports leagues might be in “creative compliance with the law,” the 2012 effort was never contemplated those the industry, he said.

But the industry is increasingly coming under scrutiny, including a federal investigation and accusations of close connections to online sports betting.

On Tuesday, New York Attorney General Eric T. Schneiderman issued a cease-and-desist order to the two fantasy websites.

“Our investigation has found that, unlike traditional fantasy sports, daily fantasy sports companies are engaged in illegal gambling under New York law, causing the same kinds of social and economic harms as other forms of illegal gambling, and misleading New York consumers,” Attorney General Schneiderman said in a statement. “Daily fantasy sports is neither victimless nor harmless, and it is clear that DraftKings and FanDuel are the leaders of a massive, multibillion-dollar scheme intended to evade the law and fleece sports fans across the country.”

One of the sites said late Wednesday that it plans to mount a legal challenge to Schneiderman’s order.

Last month, the Nevada gaming regulators said both sites are a form of gambling rather than a skill-based game, and he ordered FanDuel and DraftKings to cease operations there until the companies obtain gaming licenses.

Maryland Attorney General Brian E. Frosh said he is also monitoring national developments regarding the industry.

Frosh, who was chairman of the Senate Judicial Proceedings Committee prior to becoming attorney general, was the only senator to vote against Olszewski’s bill, citing gambling concerns.

“As a legislator I voted against the bill to allow expansion of gambling to betting on fantasy teams,” Frosh said. “But the General Assembly approved it. The revelations about FanDuel and DraftKings demonstrate that there are major questions about this huge industry that policymakers need to address.”

The head of the agency that oversees gambling in Maryland has also expressed concerns about the sites.

In a statement Wednesday, Gordon Medenica, director of the Maryland Lottery and Gaming Control Agency, said: “We are closely monitoring developments and will follow the comptroller’s lead on this issue.”

The gaming agency currently has no role in regulating fantasy leagues, but Medenica, speaking to the Board of Public Works in October, said there are questions about the industry, which has walked through a door opened in 2006 when the federal government first addressed the issue of fantasy sports leagues.

“But at the time fantasy sports were a fairly innocent, low-key activity,” Medenica told the three-member board that includes Franchot.

“I think it’s really just a work-around some of the gaming restrictions on sports betting. And I think it’s a, it’s a clever attempt to get around the need for regulation and integrity,” Medenica said.

Lt. Gov. Boyd Rutherford raised questions about the industry at the same meeting.

“I’ve had that same thought,” Rutherford said in October. “And I think we talked about it with some of the staff, in terms of it does appear to be just gambling. I know they tried to shut down a lot of the offshore Internet gambling sites. And this, there is some loophole, I don’t know if it’s because they are saying it’s a game of skill versus chance, and there is something else involved. But it basically just advertises gambling.”

But the Hogan administration will likely think hard about suggesting additional regulations given the governor’s repeated opposition to the creation of what he views as onerous government rules on businesses.

Douglass Mayer, a Hogan spokesman, said the governor is looking to Franchot for direction on the issue.

“It’s our understanding that these entities are regulated by the comptroller’s office and that the comptroller will be putting together a committee to review these issues,” Mayer said. “We look forward to seeing the results.”

For Luedtke, the gaming oversight co-chairman, any regulations regarding the controversial sites will have to be done in a way that doesn’t undo the original intent of the 2012 law.

“The question is, do we want to allow these sites or not, and if we do, how do we regulate it?” Luedtke said, adding that the current laws governing the more familiar season-long leagues should left alone. “We want to keep it legal for the guys in the basement playing over beer and Fritos.”