The answer to this probably isn’t what you expected! Most Bostonians would guess that Massachusetts has this nickname simply because it’s a coastal state and there are a lot of bays; however, it’s not that simple.
According to WiseGeek.com, there are two theories about the nicknames origin. The first is because the Pilgrims settled on Cape Cod Bay. The second theory is a little more interesting. The company that was granted a British Royal Charter to populate the new colonies was called The Massachusetts Bay Company. The Bay Company governed the colonies, now known as New England, from 1629-1684.
So if the second theory is true, it would infer that ‘Bay’ doesn’t have anything to do with bodies of water, but more possessive from a company/charter with the name ‘Bay’ in it.
I’ve lived in Massachusetts for 32 years and had no idea about the second theory; I always assumed it was because there are a lot of bays…hope you found this interesting. Who knows, maybe you’ll be asked this on Jeopardy some day!