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March 20, 2020

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March 20, 2020

The State of Sports Wagering in Massachusetts

By Katherine Guarino Baker

Introduction

During the almost two-year period since the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act, Massachusetts has taken a cautious approach to legalizing sports wagering. The Massachusetts Legislature has been studying several proposals for legalization, meeting with stakeholders, researching sports wagering laws in other states, and holding public hearings. In the meantime, fifteen states have legalized sports wagering. On February 28, with the release of the Joint Committee on Economic Development and Emerging Technologies’ redraft of the various pending bills, the plan for sports wagering in Massachusetts began to come into focus. Shortly thereafter, the COVID-19 epidemic took hold in the United States, shuttering gaming institutions, cancelling professional and collegiate sporting events, and causing disruptions to normal legislative business at the Massachusetts State House. 

This advisory provides a summary of the new sports wagering legislation and the impact of coronavirus on the timeline for the potential legalization of sports wagering in Massachusetts.

Sports Wagering Licensing

The new legislation, House 4559, “An Act to regulate sports wagering,” officially referred to the House Committee on Ways and Means on March 12, creates a series of “Category S” sports wagering licenses that may be issued by the Massachusetts Gaming Commission (the “Commission”). The Commission is a five-person administrative body that currently regulates the gaming and horse racing industries in the Commonwealth. The legislation allows existing casino and slots licensees to offer sports wagering on premises and online. The S1 license permits Category 1 casino licensees to operate a sports pool at their facilities and up to three sports pools online. The S2 license also permits the Category 2 slots licensee to operate a sports pool at its facility, but the licensee can offer only up to two online sports pools. In addition, live horse racing tracks can seek an SH license to offer live, in-person betting, but not online betting. Finally, up to five SM licenses are available to third party, online sports pool operators.

Sports wagering license applicants are subject to a detailed investigation to determine whether they are their key qualifiers are suitable to hold a gaming license under Chapter 23K, the Expanded Gaming Act. However, the Commission can decide to waive suitability requirements if the applicant already passed suitability review in connection with a prior gaming license. Applicants who currently have or previously have had a contract with any type of illegal offshore betting are not eligible to receive a sports wagering license.

Scope of Legal Sports Wagering

Wagering under H.4559 extends to professional and Division I collegiate sporting events, excluding in-play wagers on the sole performance or nonperformance of an individual collegiate athlete. Notably, there would be no betting allowed on amateur sporting events, Olympic events, electronic sports event, or fantasy contests. 

Among other things, H.4559 prohibits statements or actions intended to unduly or unlawfully influence, manipulate or control the betting outcome of a sporting contest or any individual occurrence or performance in a sporting contest in exchange for financial compensation or to avoid harm, and the use of personal biometric data of an athlete for sports wagering. Prohibited bettors include: those under 21, individuals placing a wager as an agent of or proxy for a prohibited sports bettor, individuals with an ownership interest in, control of, or employed by a Category S licensee, and persons physically located outside the Commonwealth. Sports wagering operators must verify that an individual is not a prohibited sports bettor, not accept placement of wagers by credit card, maintain the security of data, and maintain all hardware and servers in Massachusetts.

Fees and Taxes

S1, S2, and SM licensees must pay a $500,000 application fee and a $500,000 initial licensing fee within thirty days after the award of the license. The renewal fee would also be $500,000 adjusted for inflation. SH (horse racing) licensees pay a $50,000 application fee and a $100,000 initial licensing fee with an annual license renewal fee of $25,000 adjusted for inflation. 

H.4559 imposes a monthly tax of 10 percent on gross sports wagering revenue at in-person betting facilities. There is a monthly tax of 12 percent on gross sports wagering revenue received through electronic means, not on-site. Operators of fantasy contests are required to pay a 12 percent tax on revenue from fantasy contests that is remitted to the Commission at least monthly. Five percent of sports wagering revenue is deposited into a new Collegiate Health, Wellness and Education Fund annually to educate student athletes on relevant regulations, procedures for reporting violations, and protection of student athletes upon reporting violations. The remaining funds are deposited into the Gaming Revenue Fund under Chapter 23K.

The Role of the Commission

The legislation gives the Commission the authority to regulate the sports wagering industry, including by developing rules and regulations. The Commission may consult regulations implemented in other states and adopt a similar framework. During the past couple of years, the Commission has been studying the issue of sports wagering and traveling to states which have legalized it to learn best practices. H.4559 requires the Commission to study certain issues related to problem sports wagering, the impact of sports wagering on youth under the age of 25, and on college athletics and professional sports. The Commission must also set up a confidential integrity helpline to report allegations of potential violations of the law.

The Road Ahead

While the exact contours of the final sports wagering legislation are still unknown, the legislation reported favorably by the Joint Committee appears to be the most likely model. Further work will be done on the legislation in the House Committee on Ways and Means before it has an opportunity to proceed to the full House of Representatives. While the legislation was a collaborative redraft by the committee members, all senators on the Joint Committee declined to take a position on the legislation before it was released and are reserving judgment until the House passes its own bill. One key issue still to be considered is whether to allow for “integrity fees,” i.e. compensation paid to the sports leagues for hosting games. 

Prior to the COVID-19 outbreak, Governor Baker and members of the Joint Committee on Economic Development and Emerging Technologies had forecasted that sports wagering legislation would be enacted by the end of this legislative session, i.e. by July 31, 2020. However, with the suspension of public hearings and disruption of formal business at the State House due to the virus, it is uncertain whether the Legislature will be able to conduct the necessary work to finalize legislation in this area as well as other legislation by the July 31 deadline. An argument could be made that cancellation or postponement of professional and collegiate athletic events will decrease the sense of urgency in moving the legalization of sports wagering through the legislative process. However, due to the reduction in sales and other taxes because of COVID-19, the Legislature may have renewed impetus to pass this legislation in order to be ready to avail itself of a new revenue stream as soon as sporting events resume. The Legislature often passes important legislation during the last days of July and this year, despite the coronavirus, will most likely not be an exception. Sports wagering remains a major priority for stakeholders like the Massachusetts casino and slots licensees, sports leagues, and online sports wagering and fantasy sports operators, who no doubt will continue to put pressure on legislators to move this forward. 

Conclusion

The gaming attorneys and government relations advisors in the Boston office of Nelson Mullins continue to monitor developments in this area. Those with an interest in participating in the sports wagering industry in Massachusetts have a unique opportunity to shape the rules and regulations that will be applied to them in the near future. We recommend that all stakeholders seek legal counsel and government relations representation as soon as possible to ensure that their voices are heard during this pivotal, final stage of the legislative process for sports wagering in Massachusetts. 

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