BILL ANALYSIS Ó
AB 1437
Page 1
Date of Hearing: January 6, 2016
ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
Adam Gray, Chair
AB 1437
(Gray) - As Amended September 10, 2015
SUBJECT: Internet Fantasy Sports Game Protection Act
SUMMARY: Would enact the Internet Fantasy Sports Games Consumer
Protection Act, which would require a person or entity to apply
for, and receive, a license from the Department of Justice (DOJ)
prior to offering an Internet fantasy sports game for play in
California. Specifically, this bill:
1)Defines "Internet fantasy sports game" as a game of any
duration conducted on the Internet in which a registered
player does all of the following: 1) Competes against other
registered players or a target score as the owner or manager
of an imaginary or simulated team of athletes in an imaginary
or simulated game; 2) Uses the statistics accumulated by the
athletes in real-world sporting events to determine the scores
of the imaginary or simulated game; 3) Plays for a
predetermined prize; and 4) Pays a charge to the licensed
operator providing the game in order to participate.
2)Would require the DOJ to issue a license to a person or entity
that applies for a license if the person or entity satisfies
specified requirements, including, among others, that the
applicant is of good character, honesty, and integrity.
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3)Would require a person to register with a "licensed operator"
prior to participating in an "Internet fantasy sports game" on
an "authorized Internet Web site," as those terms are defined.
4)Would require a licensed operator, among other things, to
ensure that a registered player is eligible to play on an
authorized Internet Website, and to implement appropriate data
security standards to prevent access by a person whose age is
under 21 and location has not been verified.
5)Would authorize the DOJ to assess a civil penalty against a
licensed operator that violates these provisions according to
a specified schedule depending on the number of violations.
6)Would require DOJ to develop an online self-exclusion form for
problem gamblers on or before July 1, 2017, and to deliver
that form to each licensed operator, and would require each
licensed operator to make that form available to its
registered players.
7)Would require a licensed operator to facilitate the collection
by the Franchise Tax Board of personal income taxes from
registered players and shall be responsible for providing
current and accurate documentation on a timely basis to all
state agencies.
8)The Fantasy Sports Fund is hereby created in the State
Treasury, to be administered by DOJ, All moneys in the fund
are continuously appropriated to DOJ, without regard to fiscal
years, in the amounts necessary for the department to perform
its duties under this bill.
9)Each licensed operator shall pay an annual regulatory fee, to
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be deposited in the Fantasy Sports Fund, in an amount to be
determined by DOJ, for the reasonable costs of license
oversight, consumer protection, state regulation, problem
gambling programs, and other regulatory purposes related to
this chapter, including, but not limited to, enforcement
efforts related to illegal Internet gambling activities.
10)Would require each licensed operator to pay a one-time
license fee into the General Fund in an unspecified amount.
The license fee would be credited against quarterly fees
equivalent to an unspecified percentage of the licensed
operator's gross income that is attributable to the operation
of an authorized Internet Web site in California.
11)Would make proprietary information provided by a licensed
operator confidential in order to protect the licensed
operator and to protect the security of an authorized Internet
Web site. The bill would also prohibit a city, county, or city
and county from regulating, taxing, or entering into a
contract with respect to any matter governed to the bill's
provisions, and would make conforming changes.
12)Makes various legislative findings.
EXISTING LAW:
1)Prohibits lotteries, with exceptions for the California State
Lottery, bingo for charitable purposes, and charitable raffles
conducted by non-profit, tax-exempt organizations.
2)Defines a lottery as any scheme for the disposal or
distribution of property by chance, among persons who have
paid or promised to pay any valuable consideration for the
chance of obtaining such property or a portion of it, or for
any share or any interest in such property, upon any
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agreement, understanding, or expectation that it is to be
distributed or disposed of by lot or chance, whether called a
lottery, raffle, or gift enterprise, or by whatever name the
same may be known.
3)States the Legislature may authorize private, nonprofit, and
other eligible organizations, to conduct raffles as a funding
mechanism to provide support for their own or another private,
nonprofit, eligible organization's beneficial and charitable
works, provided that (1) at least 90 percent of the gross
receipts from the raffle go directly to beneficial or
charitable purposes in California, and (2) any person who
receives compensation in connection with the operation of a
raffle is an employee of the private nonprofit organization
that is conducting the raffle.
4)Prohibits any raffle to be conducted by means of, or otherwise
utilize any gaming machine, apparatus, or device, whether or
not that machine, apparatus, or device meets the definition of
a slot machine as currently define in California law.
5)Defines "bingo" as a game of chance in which prizes are
awarded on the basis of designated numbers or symbols on a
card that conform to numbers or symbols that are selected at
random.
6)States the Legislature has no power to authorize, and shall
prohibit, casino games of the type currently operating in
Nevada and New Jersey.
7)Prohibits games as defined in Penal Code Section 330, or any
banking and/or percentage games.
8)Prohibits any bet, bets, wager, wagers, or betting pool or
pools made between the person and any other person or group of
persons who are not acting for gain, hire, or reward, other
than that at stake under conditions available to every
participant, upon the result of any lawful trial, or purported
trial, or contest, or purported contest, of skill, speed, or
power of endurance of person or animal, or between persons,
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animals, or mechanical apparatus.
9)Prohibits bookmaking and pool selling.
10)Authorizes and defines "Advance Deposit Wagering" as a form
of pari-mutuel horse wagering in which a person "establishes
an account with a board-approved betting system or wagering
hub where the account owner provides 'wagering instructions'
authorizing the entity holding the account to place wagers on
the owner's behalf via the phone or Internet.
11)Prohibits false advertising, unfair competition and unlawful
business practices, specifically prohibiting certain acts or
practices undertaken by a person in the operation of a
contest, including misrepresenting the odds of winning a prize
or failing to award and distribute all prizes, providing for
civil penalties and other remedies.
12)The Gambling Control Act (Act), Business & Professions Code
sections 19800 through 19985 governs the licensing and
operation of California card rooms under the regulation of the
California Gambling Control Commission (CGCC) and the
enforcement of those activities by the Department of Justice
(DOJ).
13)Requires DOJ to investigate the qualifications of applicants
before any license or other approval is issued and, if
necessary, recommends the denial or the limitation,
conditioning, or restriction of any license or other approval.
DOJ is also required to monitor the conduct of all licensees
and other persons having a material involvement, directly or
indirectly, with a gambling operation or its holding company,
for the purpose of ensuring that licenses are not issued or
held by, and that there is no direct or indirect material
involvement with, a gambling operation or holding company by
ineligible, unqualified, disqualified, or unsuitable persons,
or persons whose operations are conducted in a manner that is
adverse to the public health, safety, or welfare. DOJ may
investigate suspected violations of the Act and relevant
provisions of the Penal Code to investigate complaints that
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are lodged against licensees or other persons associated with
a gambling operation, by members of the public, and to
initiate, where appropriate, disciplinary actions as provided
in the Act.
14)Existing federal law, the Unlawful Internet Gaming
Enforcement Act of 2006 (UIGEA), prohibits gambling businesses
from knowingly accepting payments in connection with the
participation of another person in a bet or wager that
involves the use of the Internet and that is unlawful under
any federal or state law." The act specifically excludes
fantasy sports that meet certain criteria, skill-games and
legal intrastate and inter-tribal gaming. The three criteria
are: (1) the value of the prizes is not determined by the
number of participants or the amount of any fees paid by those
participants; (2) all winning outcomes reflect the relative
knowledge and skill of the participants; and (3) the fantasy
game's result is not dependent on the outcome of any
real-world games. Additionally, it allows states to make their
own determinations on whether gaming activity is illegal or
legal based on their own statute.
15)Existing federal law, The Professional and Amateur Sports
Protection Act of 1992 (PASPA), defines the legal status of
sports betting throughout the United States and outlaws sports
betting nationwide, excluding four states (Nevada, Oregon,
Delaware, and Montana).
16)Existing federal law, The Interstate Wire Act of 1964 (Wire
Act), prohibits individuals and entities from engaging in the
business of betting or wagering through the knowing use of "a
wire communication for the transmission in interstate and
foreign commerce."
FISCAL EFFECT: Unknown
COMMENTS:
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Purpose of the bill : According to the author, AB 1437 will
establish a first in the nation framework to license and
regulate Daily Fantasy Sports in California to ensure consumers
are playing on websites which provide comprehensive consumer
protections. Currently, Californians participate in Daily
Fantasy Sports (DFS) games on a daily basis on unregulated
Internet Websites. Despite a lack of regulation, participation
in DFS still remains very popular. AB 1437 will bring more
transparency, accountability and protections to this rapidly
growing industry.
Neither federal nor California laws provide any protections for
DFS consumers causing California players to assume all the risk.
Any negative social or financial impacts are borne by the
citizens of California, while the revenues generated from these
games are being realized by unlicensed operators and do not
provide any benefits to the citizens of California. In
California, every legal gaming industry, whether it is card
clubs, horse racing or Indian casinos are subject to licensing
requirements, regulatory oversight, and enforcement under the
Department of Justice, California Gaming Commission, or the
California Horse Racing Board. Even church fundraisers are
subject to regulation when conducting a charitable raffle or
bingo night.
The author states, it is not his intent to stifle or ban this
growing industry as other states have done, but to protect its
consumers, which the California Legislature has a responsibility
to do. AB 1437 would replace an unregulated online industry with
a safe and responsible entertainment option for adults, which
include safeguards against compulsive and underage play, money
laundering, fraud, and identity theft.
General Background : "Fantasy Sports" has been around for about
30 years, since the creation of a competition called "Rotisserie
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Baseball", in which friends bid on players to build a
roster/team, then spend the season seeing which fan's players
are the most successful. Fantasy football soon followed, often
in a format where competitors draft players one by one rather
than selecting them in an auction format. Participants assemble
imaginary or virtual teams of real players of a professional
sport. Teams compete based on the statistical performance of
those players in actual games. This performance is converted
into points that are compiled and totaled according to a roster
selected by each fantasy team's manager. Traditional online
fantasy sports are a multibillion-dollar industry with an
estimated 56.8 million users in North America alone.
DFS, which AB 1437 seeks to regulate, are a subset of
traditional fantasy sport games. As with traditional fantasy
sports games, DFS players compete against others by building a
team of professional athletes from a particular league (NFL,
NBA, MLB, NHL, etc.) or competition, and earn points based on
the actual statistical performance of the players in real-world
competitions. However, DFS are an accelerated variant of
traditional fantasy sports that are conducted over short-term
periods, such as a week (NFL) or single day (MLB, NBA, NHL) of
competition, as opposed to those that are played across an
entire season. DFS games are structured in the form of
competitions; users pay an entry fee in order to participate,
and build a team of players in a certain sport while complying
with a salary cap. The best players - i.e. Tom Brady or Adrian
Peterson- are most likely to produce superior statistics, but
they also are the most expensive. The most successful
competitors assemble rosters that mix high-profile players with
less celebrated athletes who cost less but still are capable of
standout performances. Depending on their overall performance,
players may win a share of a pre-determined pot. Entry fees help
fund prizes, while a portion (10%-15%) of the entry fee goes to
the provider (i.e. Draft Kings, FanDuel, Yahoo). A player is
also able to play in head-to-head games against another player.
FanDuel reports that 62 percent of its entries each night are
for $1 or $2 tournaments. FanDuel has reported that the average
initial deposit is $25. Fees can range from a dollar to
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thousands of dollars, while fans with the best-performing
rosters have won as much as $1 million in events that include
tens of thousands of entries.
Substantial sales and marketing budgets from major DFS operators
have helped drive overall awareness in the last 12-months.
Although DFS websites had been operating since 2009, the two
largest operators-DraftKings and FanDuel-became household names
through a large media blitz that began just prior to the
commencement of the 2015 NFL season. According to Nomura analyst
Anthony DiClemente, DraftKings and FanDuel likely spent a
combined $150 million on TV and internet advertising in the
third quarter, which ended September 30, 2015 and included the
beginning of the NFL season. DFS websites experienced one
million new customers signing up during the NFL's opening week.
DraftKings alone reported registering 220,000 new players that
week. By 2016, according to industry experts, Daily Fantasy
Sports players are projected to wager more on Daily Fantasy
websites (i.e. FanDuel, DraftKings and Yahoo!) than the total
amount wagered annually on legal sports wagering sports in
Nevada. Daily fantasy games are expected to generate roughly
$3.72 billion in entry fees and $370 million in revenue this
year, according to industry consultant Eilers Research. By 2020,
they are expected to reach about $17.7 billion and $1.77
billion, respectively. Industry experts have estimated that
California accounts for approximately 10%-15% of the overall
national DFS market.
Many companies have invested in DFS websites, including:
Professional sports teams and leagues, media conglomerates
(Google Capital, Time Warner, NBC Sports Ventures, Comcast
Ventures) and venture capitalists. The NBA has a four year
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agreement with FanDuel that includes a percentage in the
company, and Major League Baseball and the NHL own equity in
DraftKings. The NFL does not own equity in either, but has an
advertising partnership with one. New England Patriots owner,
Robert Kraft, and Dallas Cowboys owner, Jerry Jones, also own
equity in DraftKings. DraftKings has entered into an
arrangement with the Patriots, Cowboys and Chiefs under which
there is a DraftKings fantasy area in each of the three teams'
home stadiums.
On October 5, 2015, The New York Times reported that an employee
of DraftKings was placing bets on rival site, FanDuel, using
information not generally available to the public, calling it
insider trading. The DraftKings employee, a midlevel content
manager, won $350,000 that same week. DraftKings admitted to
inadvertently releasing data before the start of the third week
of NFL games. However, the company denied insider trading or any
accusations the employee won any contest due to inside
information, because the data was released after all
lineups/rosters for the contest that week were locked. Shortly
after, the FBI launched an investigation into allegations of
insider trading. To date, they have not stated the results of
their investigation, or whether it even continues. A law firm
hired by DraftKings determined that there was no evidence of
wrongdoing, but the issue called attention to the fact that DFS
- unlike most businesses - faced no regulation and little
government oversight. Since the incident, FanDuel and DraftKings
responded by permanently banning employees from playing in daily
contests for money. Shortly after the insider trading story hit
the news, regulators across the nation began to take action,
beginning with Nevada and New York. AB 1437 was introduced in
September, almost an entire month prior to the data leak.
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Federal Gaming Laws :
UIEGA (2006): The Unlawful Internet Gambling Enforcement Act of
2006 (UIGEA) is United States legislation regulating online
gambling. It was added as Title VIII to the SAFE Port Act (found
at 31 U.S.C. §§ 5361-5367) which otherwise regulated port
security. The UIGEA "prohibits gambling businesses from
knowingly accepting payments in connection with the
participation of another person in a bet or wager that involves
the use of the Internet and that is unlawful under any federal
or state law." The act specifically excludes fantasy sports that
meet certain criteria, skill-games and legal intrastate and
inter-tribal gaming. The three criteria related to DFS are: (1)
the value of the prizes is not determined by the number of
participants or the amount of any fees paid by those
participants; (2) all winning outcomes reflect the relative
knowledge and skill of the participants; and (3) the fantasy
game's result is not dependent on the outcome of any real-world
games. Additionally, it allows states to make their own
determinations on whether gaming activity is illegal or legal
based on their own statute. In the "Congressional Findings and
Purpose" section of the statute, the "Rule of Construction"
notes that: "No provision of this subchapter shall be construed
as altering, limiting, or extending any Federal or State law or
Tribal-State compact prohibiting, permitting, or regulating
gambling within the United States."
PASPA/Bradley Act (1992) : The Professional and Amateur Sports
Protection Act of 1992 (Pub.L. 102-559), also known as the
"Bradley Act," attempts to define the legal status of sports
betting throughout the United States. This act effectively
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outlawed sports betting nationwide, excluding a few states. The
sports lotteries conducted in Oregon, Delaware, and Montana were
exempt, as well as the licensed sports pools in Nevada. In
addition, Congress provided a one-year window of opportunity
from the effective date of PASPA (January 1, 1993) for states
which operated licensed casino gaming for the previous ten-year
period to pass laws permitting sports wagering-California did
not take advantage of this window, thus sports betting is
illegal in CA.
The Wire Act of 1961: The Interstate Wire Act of 1964 (Wire Act)
prohibits individuals and entities from engaging in the business
of betting or wagering through the knowing use of "a wire
communication for the transmission in interstate and foreign
commerce." The Wire Act was recommended as law by U.S. Attorney
General Robert Kennedy "to crack down on organized crime members
using the telegraph to get results on horse races." However,
the U.S. Department of Justice also on occasion has used this
act to prosecute professional gamblers.
Under the Wire Act, the legal definition of a "wire
communication" includes any communication made through an
"instrumentality used or useful in the transmission of writings,
signs, pictures, and sounds ? by aid of wire, cable, or other
like connection between the points of origin and reception."
Although Congress' passing of the Wire Act predated the advent
of the Internet, several court decisions have held that the Wire
Act's scope includes Internet communications based on the clear
meaning of "wire communications" set forth in the act. For
instance, the U.S. Court of the Appeals for the First Circuit
held in United States v. Lyons that online sports betting
violated the Wire Act because" [a]nyone ? would readily agree
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that the internet is used and useful in the transmission of
writings." The court further noted that even though the Wire
Act predated the Internet, its definition of wire communications
"so accurately describes it]."
In 2011, the United States Department of Justice made available
its legal opinion on the Wire Act, 18 U.S.C. § 1084, which
concluded that "interstate transmissions of wire communications
that do not relate to a 'sporting event of contest' fall outside
the reach of the Wire Act." In essence, the opinion stated that
the Act applies only to sports betting and has no application to
casino games or other forms of gambling. Among other things,
that opinion opened the door for states to permit and regulate
gambling over the Internet. Thus far, Delaware, Nevada and New
Jersey have done so.
Illegal Gambling Business Act of 1970 : In 1970, as part of the
Organized Crime Control Act, Congress passed the Illegal
Gambling Business Act (IGBA). The statute was aimed at
syndicated gambling. Congress determined that large-scale,
illegal gambling operations, like casino-type activities,
including games such as blackjack, financed organized crime,
which, in turn, has a significant impact on interstate commerce.
In order to determine if a defendant violated IGBA the
government must show:
(1) A gambling business described in the indictment was
conducted which violated the laws of the state in which
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it was conducted;
(2) Five or more persons including the defendant, knowingly
and deliberately conducted, financed, managed,
supervised, directed or owned all or part of that
gambling business; and
(3) The gambling business was either in substantially
continuous operation for more than thirty days, or,
alternatively, the gambling business, on at least one
day, had gross revenues of two thousand dollars or more.
Regulatory Enforcement in CA : There are two main entities that
handle regulatory enforcement of gaming issues in California. It
is a common misconception that the California Gambling Control
Commission (Commission) and the California Bureau of Gambling
Control (Bureau) are the same entity. The Commission works in
the regulatory and adjudicatory arena while the Bureau deals
with investigatory and enforcement issues.
(1) California Gambling Control Commission (Commission) :
Makes determinations of suitability for the issuance of
licenses, work permits, registrations and Tribal key
employees, vendors and financial sources to ensure that no
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ineligible, unqualified, disqualified or unsuitable persons
are associated with controlled gaming activities.
Additionally, acts as the decision maker in disciplinary
accusations brought against licensees by the Bureau of
Gambling Control; sets policy, criteria and standards;
serves as the trustee of the Indian Gaming Revenue Sharing
Trust Fund and administrator of the Indian Gaming Special
Distribution Fund; reviewing and ruling body at evidentiary
hearings.
(2) California Bureau of Gambling Control (GBGC) : Conducts
all financial review inspections, gaming device testing,
investigations and Tribal casino visits; receives all
applications, fees, and deposits; handles questions about
licensing (background investigations, initial applications,
renewal applications) or compliance matters (inspections,
audits); receives, reviews and investigates gambling
related complaints. Additionally, the GBGC is the
enforcement for game legality issues; reviews and approves
the rules of games and gaming activities in all California
cardrooms prior to them being offered for play; initiates
disciplinary accusations against licensees; administers
self-exclusion program list for cardrooms; register
non-profit organizations and suppliers of gambling
equipment and/or services to conduct charity fundraising
events using controlled games (charity poker night
fundraisers); processing applications associated with the
Charitable Remote Caller Bingo program. The Attorney
General's Charitable Trust Section regulates charitable
raffles. Nonprofit organizations must register and file
annual financial disclosure reports
(3) Other Areas of California Gaming Regulation : The
California Horse Racing Board regulates pari-mutuel
wagering, racing, breeding, and track standards in the
State. The California Lottery Commission is charged with
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the authority and responsibility to oversee the California
Lottery and ensure its integrity, security and fairness.
Charitable Bingo (non-tribal) - Complaints and questions
should be directed to the local government (city or county
regulator) where the bingo games are conducted. The Office
of Problem Gambling (California Department of Public
Health) offers help and training resources for problem
gambling.
"Lottery" and "Skill vs. Chance" : As stated above, the
Legislature is prohibited from authorizing lotteries. Thus, if
an activity is deemed to be a lottery, then it is considered
illegal gambling. When deciding whether an activity is a
lottery, one factor the State must determine is whether it is a
game of "skill" or "chance". Should an activity meet all the
criteria of a "lottery", which includes the determination that
it is a game of "chance" not "skill", the activity is illegal
under current California law (See CA PC Sections 319). In
determining whether a particular game or scheme is a lottery,
the test in California is whether the game is dominated by
chance, the test is not whether the game contains an element of
chance or an element of skill but rather, as between them, which
is the dominating factor in determining the result of the game-
"The Predominate Factor Test". (See In re Allen (1962) 59 Cal.2d
5; Bell Gardens Bicycle Club v. Department of Justice (1995) 36
Cal.App.4th 717, 748).
"Percentage Games" : As stated above, PC Section 330 prohibits
specific "percentage games", however, Section 330 does not
define "percentage game." The First Appellate California court
construed Section 330 of the Penal Code referring to percentage
game as prohibiting "any game of chance from which the house
collects money calculated as a portion of wagers made or sums
won in play." See Sullivan v. Fox (1987) 189 Cal.App.3d 673,
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679. "The Predominant Factor Test" would also be used in
determining a "percentage game", because, like lotteries, it too
must be a game of chance.
Regulatory and Legislative Actions : Many states have begun to
take regulatory actions or propose legislation on DFS. Several
states, specifically Nevada, New York and Illinois, have
determined-through regulatory bodies-DFS to be illegal gambling,
thus attempting to put a cease and desist on the activity their
respective state. Other states, like Massachusetts, have issued
more favorable rulings to the industry, because they do not
consider DFS to be illegal gambling, but do put in place
regulations on DFS. See notable actions by states below:
Nevada : On October 15, 2015, A. G. Burnett, the Nevada
Gaming Control Board's chair, issued a ruling stating that
fantasy sports betting is prohibited under Nevada law
unless the operators had the appropriate Nevada licenses.
In Burnett's view, daily fantasy sports activity
constituted a "game" as defined by Nevada law, thus making
conduct of the "game" a form of "gambling" for which a
license was required. He also stated that daily fantasy
sports activities constituted a "sports pool," which also
required a Nevada license. Nevada Attorney General Adam
Laxalt called the opinion, "well-reasoned, methodical, and
a step-by-step analysis. "Under Nevada law today, this is
both gambling and sports pool betting. "I don't think
anybody wants to shut out a new and lucrative business. But
the way Nevada law is currently written, they didn't fit."
No action has been taken by the AG's office, other than
issuing a legal analysis on DFS.
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New York : In November, New York Attorney General Eric
Schneiderman declared DFS to be illegal gambling and issued
an order for the industry to cease and desist their
operations. An emergency hearing was held to consider
injunctions from the AG, FanDuel and DraftKings in
November. A Supreme Court judge found on the side of the NY
AG on December 11, 2015, but an appeals court put a stay on
the preliminary ruling, reinstating the status quo until
January 4, 2016 when another hearing will take place.
There are four bills pending in the legislature - two that
seek to put DFS under the purview of the gaming commission,
and another that would exempt DFS from the gambling code as
a game of skill using UIGEA language, and another that
seeks to amend the state constitution.
Massachusetts : On November 19, 2015, Massachusetts
Attorney General Maura Healey announced regulations that
would govern the DFS industry from a consumer protection
standpoint. The state Gaming Commission, which is expected
to produce a "white paper" regarding the issues surrounding
regulation of daily fantasy sports. Lawmakers have
expressed interest in licensing and taxing DFS operators,
things that AGs regulations do not do. A court case is
also pending in Massachusetts in which DraftKings is suing
payment processors to continue doing business with them
while they accept customers in New York.
Illinois : On December 23, 2015, Illinois Attorney
General Lisa Madigan declared in an opinion letter that
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daily fantasy sports are considered illegal gambling under
Illinois law. "Participants (in the online fantasy
leagues) must pay an entry fee or buy-in amount in order to
win a prize. State law "clearly declares that all games of
skill or chance, when played for money, are illegal
gambling in Illinois," Madigan's opinion said. "Absent
legislation specifically exempting daily fantasy sports
contests from the gambling provisions, it is my opinion
that daily fantasy sports contests constitute illegal
gambling under Illinois law," Madigan wrote. The AG
examined the legality of daily fantasy sports at the behest
of two state legislators. In response to the AG opinion,
DraftKings and FanDuel filed lawsuits in Illinois asking a
judge to declare their games legal a day after the state's
attorney general outlawed them as gambling. Unlike the
ongoing case in New York, DraftKings' and FanDuel's cases
will not be linked. DraftKings' case will take an
"expedited" schedule, with the AG responding by January 22.
A trial will not take place until June. Meanwhile,
FanDuel is suing jointly with Head2Head Sports - a season
long fantasy sports provider. Both sites continue to
operate in Illinois, and presumably will until the case is
resolved in court
Approximately 16 states have introduced legislation that would
authorize and regulate DFS, including Illinois and New York.
States have generally taken one of three legislative approaches
to DFS:
Regulatory-States which have taken the regulatory
approach, such as AB 1437, have proposed legislation that
would subject DFS operators to some form of formal
oversight.
Casino-Partnership-States, such as Indiana, have
proposed legislation that would authorize land-based
casinos to partner with DFS operators.
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Carve-Out-States which have taken the carve-out
approach, such as Louisiana, have proposed legislation that
would merely exempt DFS competitions from statutory
gambling prohibitions.
Author's Amendments : The author will offer amendments in
committee that will further strengthen consumer protections for
DFS consumers in California, specifically:
I. Protections for DFS consumer accounts:
1. Funds in DFS consumer accounts will be held in trust
by the Daily Fantasy Sports Operator (DFSO) for the DFS
consumer that establishes the account. DFSOs will
implement and prominently publish procedures that:
a. Prevent unauthorized withdrawals from DFS
consumer accounts by DFSOs or others;
b. Prevent commingling of funds in a DFS consumer
account with other funds including, without limitation,
funds of the DFSO; and
c. Establish procedures for responding to and
reporting on complaints by DFS consumers that their
accounts have been misallocated, compromised or
otherwise mishandled.
I. Truthful Advertising - Limitations on Advertising Content:
1. DFSO advertisements will not depict minors (under the
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age of 21), students or school or college settings.
1. DFSOs will not advertise in publications or other
media that are aimed exclusively or primarily at minors.
I. Protections for Problem Gamers:
1. DFSOs will not market a contest to DFS consumers by
phone, email or in any form of individually targeted
advertisement or marketing material if the player is
self-excluded or otherwise barred from playing in that
contest.
2. DFSOs shall not issue credit to DFS consumers.
II. Fairness of DFS contests:
1. No DFSO employee, DFSO principal, DFSO officer, DFSO
director, or DFSO contractor may play on any DFS contest
platform of any DFSO. Nor may such person play through
another person as a proxy.
2. No DFSO employee, DFSO principal, DFSO officer, DFSO
director, or DFSO contractor may disclose proprietary or
non-public information that may affect DFS gameplay to
any person permitted to engage in DFS gameplay. DFSOs
will make these restrictions known to all affected
individuals and corporate entities.
3. DFSOs will identify highly experienced players by a
symbol attached to their username, or by other easily
visible means, on all DFSO contest platforms.
4. All DFSOs will develop games in which highly
experienced players cannot participate either directly or
through another person as a proxy.
5. DFSOs will not allow a DFS player to establish more
than one username or more than one account.
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Support : According to Daily Fantasy Sports Players Alliance
(DFSPA), AB 1437 (Gray) would create a regulatory framework for
Daily Fantasy Sports (DFS) websites (i.e. Fan Duel, Yahoo, and
Draft Kings) to operate in California. Specifically, it would
establish a regulatory framework by which entities, as
authorized and licensed by DOJ, may facilitate Internet fantasy
sports games to consumers. DFS is enjoyed by millions of
Californians and should continue to in a regulated environment
where consumers are protected.
The Los Angeles Clippers writes in support: "As you know,
fantasy sports has been an important tool used by many sports
teams, including the LA Clippers to deepen connections and
engagement with our fans. Our organization looks for ways to
increase fan enjoyment of our games. We are supportive of your
efforts to ensure that our enjoying fantasy sports in a
protected, regulated environment. AB 1437 is an important
positive step towards protecting Californians who enjoy fantasy
sports, and as such, we support your initiative."
Opposition : Stand Up For California! writes in opposition: "DFS
is a sports pool or percentage game. The California State
Legislature long ago determined that sports pools and percentage
games are illegal gambling. In addition, because online DFS
operators charge bettors a rake that is a percentage of the
wager, DFS is an illegal percentage game. Of great importance,
in 1999, the California Supreme Court ruled in HERE v. Davis
case that: Article 4 Section 19 (e) of the California
Constitution elevated Penal Code Section 330 et. seq. to a
constitutional level. Accordingly, the Legislature may not
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authorize any game that would constitute banking, gambling pools
or percentage games."
REGISTERED SUPPORT / OPPOSITION:
Support
Anschutz Entertainment Group (AEG)
California Police Chiefs Association
Daily Fantasy Sports Players Alliance
Los Angeles Clippers
Various DFS Players in California
Opposition
Stand up for California!
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Analysis Prepared by:Eric Johnson and Kenton Stanhope / G.O. /
(916) 319-2531