BILL ANALYSIS Ó
AB 1437
Page 1
ASSEMBLY THIRD READING
AB
1437 (Gray)
As Amended January 12, 2016
2/3 vote
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Governmental |18-1 |Gray, Linder, Alejo, |Levine |
|Organization | |Bigelow, Campos, | |
| | |Cooley, Cooper, Daly, | |
| | |Cristina Garcia, | |
| | | | |
| | | | |
| | |Eduardo Garcia, | |
| | |Gipson, | |
| | | | |
| | | | |
| | |Roger Hernández, | |
| | | | |
| | | | |
| | |Jones-Sawyer, Lopez, | |
| | |Salas, Steinorth, | |
| | |Waldron, Wilk | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |15-0 |Gomez, Bigelow, | |
| | |Bloom, Bonilla, | |
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| | |Bonta, Calderon, | |
| | |Chang, Daly, Eggman, | |
| | | | |
| | | | |
| | |Eduardo Garcia, | |
| | |Holden, Quirk, | |
| | |Wagner, Weber, Wood | |
| | | | |
| | | | |
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SUMMARY: Enacts 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: a) 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; b) uses the statistics accumulated by the
athletes in real-world sporting events to determine the scores
of the imaginary or simulated game; c) plays for a
predetermined prize; and d) pays a charge to the licensed
operator providing the game in order to participate.
2)Requires 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.
3)Requires a person to register with a "licensed operator" prior
to participating in an "Internet fantasy sports game" on an
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"authorized Internet Web site," as those terms are defined.
4)Requires 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)Authorizes 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)Requires 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)Requires 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)Creates The Fantasy Sports Fund 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
be deposited in the Fantasy Sports Fund, in an amount to be
determined by DOJ, for the reasonable costs of license
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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)Requires 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)Makes 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. This
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 and declarations.
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
agreement, understanding, or expectation that it is to be
distributed or disposed of by lot or chance, whether called a
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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 a) at least 90% of the gross receipts
from the raffle go directly to beneficial or charitable
purposes in California, and b) 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 (PC) 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
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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,
animals, or mechanical apparatus.
9)Prohibits pool selling or bookmaking, with or without writing,
at any time or place. (PC Section 337a)
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 and 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 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.
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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
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: a) the value of the prizes is not determined by the
number of participants or the amount of any fees paid by those
participants; b) all winning outcomes reflect the relative
knowledge and skill of the participants; and c) 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,
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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: According to the Assembly Appropriations
Committee:
1)Unknown ongoing potential increased General Fund revenue
resulting from the unspecified tax and potential penalty
fines.
2)Unknown increased administrative and enforcement costs to DOJ
likely offset by the regulatory licensing fee (special fund).
3)Unknown potential increases in income tax collection from
registered players (General Fund).
COMMENTS:
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 Web sites. Despite a lack of regulation, participation
in DFS still remains very popular. AB 1437 will bring more
transparency, accountability and protections to this rapidly
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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
DOJ, California Gaming Commission, or the California Horse
Racing Board (CHRB). 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
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
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estimated 56.8 million users in North America alone.
DFS, which this bill 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% to 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% 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 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 Web sites 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
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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 Web sites 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 Web
sites (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% to 15% of the overall
national DFS market.
Many companies have invested in DFS Web sites, 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
agreement with FanDuel that includes a percentage in the
company, and MLB 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
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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. This bill
was introduced in September, almost an entire month prior to the
data leak.
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 United States Code (U.S.C.) Sections 5361 to 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
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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
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 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 United States (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.
DOJ 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,
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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
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 U.S. DOJ made available its legal opinion on the
Wire Act, 18 U.S.C. Section 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
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which violated the laws of the state in which 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
$2,000 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 CGCC 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)CGCC: Makes determinations of suitability for the issuance of
licenses, work permits, registrations and Tribal key
employees, vendors and financial sources to ensure that no
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; 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)Bureau: Conducts all financial review inspections, gaming
device testing, investigations and Tribal casino visits;
receives all applications, fees, and deposits; handles
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questions about licensing (background investigations, initial
applications, renewal applications) or compliance matters
(inspections, audits); receives, reviews and investigates
gambling related complaints. Additionally, the Bureau 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 CHRB
regulates pari-mutuel wagering, racing, breeding, and track
standards in the State. The California Lottery Commission is
charged with 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
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under current California law (See PC Section 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, PC Section 330 does not
define "percentage game." The First Appellate California court
construed PC Section 330 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, 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, Texas 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 rulings that are more favorable 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:
1)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
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view, DFS 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 (AG)
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. In January 2016, Governor Brian Sandoval
said he wanted the state's Gaming Policy Committee to look at
possible regulation of the DFS industry.
2)New York: On November 11, 2016, New York AG 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, against FanDuel and DraftKings in November 2015. 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 early January, 2016.
On January 11, 2016, an appellate court upheld the stay,
pending the result of a full trial.
3)Massachusetts: On November 19, 2015, Massachusetts AG 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.
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4)Illinois: On December 23, 2015, Illinois Attorney General
Lisa Madigan declared in an opinion letter that daily fantasy
sports are considered illegal gambling under Illinois law.
"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. Both sites continue to operate in
Illinois, and presumably will until the case is resolved in
court.
5)Texas: On January 19, 2016, Texas' AG issued an advisory
opinion that DFS is prohibited gambling in the state and
suggested a court would find the practice illegal.
Approximately 19 states have introduced legislation that would
authorize and regulate DFS, including Illinois, Florida, New
Jersey, Pennsylvania, Virginia and New York. States have
generally taken one of three legislative approaches to DFS:
1)Regulatory - States which have taken the regulatory approach,
such as this bill, have proposed legislation that would
subject DFS operators to some form of formal oversight.
2)Casino-Partnership - States, such as Indiana, have proposed
legislation that would authorize land-based casinos to partner
with DFS operators.
3)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.
Support: According to Daily Fantasy Sports Players Alliance
AB 1437
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(DFSPA), AB 1437 (Gray) would create a regulatory framework for
DFS Web sites (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: "Fantasy sports
have 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. This bill 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
authorize any game that would constitute banking, gambling pools
or percentage games."
Analysis Prepared by:
Eric Johnson and Kenton Stanhope / G.O. / (916) 319-2531 FN:
0002588
AB 1437
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