BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Isadore Hall, III
Chair
2015 - 2016 Regular
Bill No: AB 1437 Hearing Date: 6/28/2016
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|Author: |Gray |
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|Version: |6/21/2016 Amended |
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|Urgency: |Yes |Fiscal: |Yes |
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|Consultant:|Felipe Lopez |
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SUBJECT: Gambling: Internet Fantasy Sports Game Protection Act
DIGEST: This bill enacts the Internet Fantasy Sports Game
Consumer Protection Act, which requires 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.
ANALYSIS:
Existing law:
1)Provides, under the Gambling Control Act, for the licensure
and regulation of various legalized gambling activities and
establishments by the California Gambling Control Commission
(CGCC) and the investigation and enforcement of those
activities by DOJ.
2)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 approval.
3)Requires DOJ 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
AB 1437 (Gray) Page 2 of ?
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.
4)Specifies that the Legislature has no power to authorize, and
shall prohibit, casino games of the type currently operating
in Nevada and New Jersey.
5)Prohibits a person, whether or not for gain, hire, or reward,
from making a betting pool or placing a bet or wager on the
result of any contest or event, including a sporting event, as
specified.
6)Prohibits any bet, bets, 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, 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 person, animals, or mechanical
apparatus.
7)Specifies that no person in this state has a right to operate
a gambling enterprise except as may be expressly permitted by
the laws of this state and by local ordinances.
8)Prohibits banking or percentage games played with cards, dice,
or any device, for money, check, credit or other
representative of value.
9)Prohibits bookmaking and pool selling.
10) 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.
11) Prohibits lotteries, with exceptions for the California
State Lottery, bingo for charitable purposes, and charitable
raffles conducted by non-profit, tax-exempt organizations.
12) Defines a lottery as any scheme for the disposal or
distribution of property by chance, among persons who have
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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 is to be
distributed or disposed of by lot or chance, whether called
a lottery, raffle, or gift enterprise, or by whatever name
the game may be known.
13) 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 defined in
California Law.
14) Federal law essentially prohibits online gambling but does
include specific provisions that allow individual states to
offer intrastate internet gaming, provided that state laws
permitting and regulating that activity could impose
reasonable protections against participation by underage
persons or by persons located outside the boundaries of the
state.
This bill:
1)Requires a person or entity to apply for and receive a license
from DOJ prior to offering an Internet fantasy sports game for
play in California.
2)Defines an "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 professional athletes in an imaginary or simulated
game.
b) Uses the statistics accumulated by professional athletes
in real-world sporting events to determine the scores of
the imaginary or simulated game.
c) Plays for a predetermined prize.
d) Pays a fee to the licensed operator providing the game
in order to participate.
3)Requires DOJ to issue a license to a person or entity to
operate an authorized Internet Web site if the applicant
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satisfies all of the following:
a) The applicant is of good character, honesty, and
integrity.
b) The applicant's prior activities, criminal record, if
any, reputation, habits, and associations do not pose a
threat to the public interest of the state, or to the
effective regulation and control of Internet fantasy sports
games, or create or enhance the dangers of unsuitable,
unfair, or illegal practices, methods, and activities in
the conduct of Internet fantasy sports games or in the
carrying on of the business and financial agreements
incidental to those games.
c) The applicant is in all other respects qualified to be
licensed as provided by the provisions of this bill,
including, but not limited to, providing documentation
establishing that the applicant is capable of paying the
one-time license fee through its own net position or
through credit directly available to the applicant.
4)Authorizes DOJ to promulgate regulations to implement the
provisions of this bill.
5)Specifies that in order to ensure the protection of registered
players, an authorized Internet Web site shall identify the
person or entity that is the licensed operator.
6)Requires a licensed operator to ensure that an Internet
fantasy sports game on its authorized Internet Web site
complies with all of the following:
a) An imaginary or simulated sports team in the game shall
not be based on the current membership of an actual team
that is a member of a professional sports organization.
b) A prize or award offered to the winning registered
player or players shall be established and made known to
the participating registered players in advance of the
contest.
c) The value of a prize or award offered to the winning
registered player or players shall not be determined by the
number of participating registered players or the amount of
any fees paid by those participating registered players to
the licensed operator.
d) The winning outcome of the game shall not be either of
the following:
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i) Based on the score, point spread, or performance of
any single real-world team or any combination of
real-world teams.
ii) Based solely on the single performance of an
individual athlete in a single real-world sporting event.
7)Prohibits a licensed operator from offering an Internet
fantasy sports game based on a collegiate sports or athletic
event, or any other sports or athletic event in which amateur
athletes participate.
8)Requires a licensed operator to hold the funds of a registered
player in a registered player's account in trust for that
registered player.
9)Requires a licensed operator to implement, and prominently
display on its authorized Internet Web site, procedures that
accomplish all of the following:
a) Prevent unauthorized withdrawals from registered player
accounts, including, but not limited to, withdrawals by the
licensed operator and other individuals.
b) Prevent commingling of funds in a registered player
account with other funds, including, but not limited to,
the licensed operator's funds.
c) Establish procedures for a registered player to report
complaints to the licensed operator regarding whether his
or her account has been misallocated, compromised, or
otherwise mishandled, and a procedure for the licensed
operator to respond to those complaints.
10) Prohibits a licensed operator from issuing credit to a
registered player.
11) Prohibits a licensed operator from allowing a registered
player to establish more than one account or user name on
its authorized Internet Web site.
12) Prohibits a licensed operator from advertising in
publications or other media aimed exclusively or primarily
at persons under 21 years of age and from depicting person's
under 21 years of age, including students, or school or
college settings.
13) Prohibits a licensed operator from advertising an Internet
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fantasy sports game to an individual by phone, email, or any
other form of individually targeted advertisement or
marketing material, if the individual has self-excluded
himself or herself or if the individual is otherwise barred
from participating in that Internet fantasy sports game.
14) Requires a person to register with a licensed operator
prior to participating in an Internet fantasy sports game on
an authorized Internet Web site.
15) Requires a licensed operator to ensure that a registered
player is eligible to play on an authorized Internet Web
site, and implement appropriate data security standards to
prevent access by a person whose age and location has not
been verified.
16) Requires a licensed operator to ensure that a registered
player is physically located within the State of California
at the time of participating in an Internet fantasy sports
game on an authorized Internet Web site.
17) Requires a licensed operator, prior to registering and
permitting a person to participate in an Internet fantasy
sports game, to verify that the person is 21 years of age or
older by doing both of the following:
a) Attempt to match the name, address, and date of birth
provided by the person to information contained in records
in a database of individuals who have been verified to be
21 years of age or older by referencing an appropriate
database of government records.
b) Verify that the name and physical billing address on
the check or credit card offered for payment by the person
seeking to be a registered player matches the name and
address listed in the database.
18) Specifies that if the licensed operator is unable to
verify that the person is 21 years of age or older, the
licensed operator shall require the person to submit
age-verification documents consisting of an attestation
signed by the person that he or she is 21 years of age or
older and a copy of a valid form of government
identification, either electronically or by mail. A valid
form of government identification includes a driver's
license, state identification card, passport, official
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naturalization or immigration document, including an alien
registration receipt card or an immigrant visa, or United
States military identification. The licensed operator shall
verify that the physical billing address on the check or
credit card provided by the person matches the address
listed on his or her government identification.
19) Specifies that a licensed operator is not in violation of
the age prohibition if the operator complies with the age
verification process set forth in this bill, and a person
under 21 years of age participates in an Internet fantasy
sports game on the operator's authorized Internet Web site.
20) Specifies that DOJ may assess a civil penalty against a
licensed operator that violates the provisions of this bill
according to the following schedule:
a) Not less than $1,000 and not more than $2,000 for the
first violation.
b) Not less than $2,500 and not more than $3,500 for the
second violation.
c) Not less than $4,000 and not more than $5,000 for the
third violation.
d) Not less than $5,500 and not more than $6,500 for the
fourth violation.
e) $10,000 for a fifth or subsequent violation.
21) Requires DOJ to develop an online self-exclusion form on
or before July 1, 2017 and deliver the form to each licensed
operator.
22) Requires a licensed operator to prominently display a link
to DOJ's Responsible Gambling Internet Web page and the
online self-exclusion form when either of the following
occurs:
a) A person registers as a registered player.
b) Each time a registered player accesses the authorized
Internet Web site prior to playing.
23) Requires a licensed operator to retain each online
self-exclusion form submitted to it by a registered player
to identify persons who want to be excluded from play. A
licensed operator shall exclude those persons from play. A
licensed operator that has made commercially reasonable
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efforts to comply with this subdivision is not in violation
of this section if a person who has filled out an online
self-exclusion form thereafter participates in an Internet
fantasy sports game on the operator's authorized Internet
Web site.
24) Prohibits an officer, director, principal, employee, or
contractor of a licensed operator from doing any of the
following:
a) Playing on an Internet fantasy sports game by a
licensed operator.
b) Playing an Internet fantasy sports game offered by a
licensed operator through another person or proxy.
c) Disclosing proprietary or nonpublic information that
may affect the play of an Internet fantasy sports game to
any individual authorized to play that Internet fantasy
sports game.
25) Requires a licensed operator to make the prohibitions
known to all affected individuals and corporate entities.
26) Requires a licensed operator to identify a highly
experienced registered player using a symbol attached to
that registered player's account or username or by other
means easily identifiable by other registered players.
27) Requires a licensed operator to develop and offer at least
one Internet fantasy sports game in which a highly
experienced player cannot participate either directly or
through another person as a proxy.
28) Requires a licensed operator to facilitate the collection
by the Franchise Tax Board of personal income taxes from
registered players and be responsible for providing current
and accurate documentation on a timely basis to all state
agencies. State entities shall treat the proprietary
information provided by a licensed operator as confidential
in order to protect the licensed operator and to protect the
security of an authorized Internet Web site.
29) Exempts proprietary information supplied by a licensed
operator to a state agency from public disclosure.
30) Creates the Fantasy Sports Fund (Fund) in the State
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Treasury, to be administered by DOJ. All the moneys in the
fund are continuously appropriated to DOJ, without regard to
fiscal years, in the amounts necessary for DOJ to perform
its duties under the provisions of this bill.
31) Requires each licensed operator to pay an annual
regulatory fee, to be deposited in the 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 bill, including, but not limited to, enforcement
efforts related to illegal Internet gambling activities.
32) Specifies that prior to operating its authorized Internet
Web site, a licensed operator shall remit to the State
Treasurer a one-time license fee in an unspecified amount to
be deposited into the General Fund and credited against the
annual regulatory fee. Upon depletion of the license fee
balance, DOJ shall notify the licensed operator to commence
quarterly payments to the state.
33) Specifies that in consideration of the substantial value
of each license, a licensed operator shall remit to the
State Treasurer on a quarterly basis for deposit in the
General Fund an amount equal to an unspecified percentage of
its gross income that is attributable to the operation of an
authorized Internet Web site in California.
34) Specifies that each quarterly payment shall be due on the
10th day of the month following the end of each quarter.
35) Requires a licensed operator to make all electronic and
written financial records available to the State Treasurer
and DOJ on an electronic basis.
36) Prohibits a city, county, or city and county to regulate,
tax, or enter into a contract with respect to any matter
governed by the provisions of this chapter. This section
does not prohibit or limit the investigation and prosecution
of any violation.
37) Makes various legislative findings.
38) Includes an urgency statute to take effect immediately.
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Background
Author's statement. According to the author, AB 1437 will
establish a framework to license and regulate Daily Fantasy
Sports (DFS) in California to ensure consumers are playing on
websites that provide comprehensive consumer protections.
Currently, Californians participate in DFS games on a daily
basis on unregulated Internet websites. Despite a lack of
regulation, participation in DFS remains very popular. AB 1437
will bring more transparency, accountability and protections to
this rapidly growing industry.
The author states that, 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. The games do not provide any benefits to
the citizens of California. In California, every legal gaming
industry (card clubs, horse racing, and Indian casinos) is
subject to licensing requirements, regulatory oversight, and
enforcement under DOJ, CGCC, 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
California consumers, which the Legislature has a responsibility
to do. AB 1437 would replace an unregulated online industry
with a safe and responsible entertainment option for adults,
which includes safeguards against compulsive and underage play,
money laundering, fraud, and identity theft.
Daily fantasy sports (DFS). DFS are a subset of traditional
season long fantasy sports games, which have been around to some
extent for more than 40 years. However, unlike traditional
fantasy sports, DFS began around 2009 and are conducted over a
short-term period, such as a single day-MLB, NBA, NHL-or on a
weekly basis-NFL or NCAA Football.
DFS players compete against others by building a team of
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real-world athletes from a particular league or competition, and
earn points based on the actual statistical performance of the
players in real-world competition. For example, in football,
DFS players are generally required to choose a team that
includes a real life quarterback, two running backs, two to
three wide receivers, a tight end, a kicker and a team defense.
Each real world athlete is assigned a specified price by DFS
operators, with the best players, who are more likely to produce
superior statistics, having the highest price. DFS players must
decide whether a highly valued athlete is worth the higher price
or if a less expensive athlete is a better bargain. The salary
cap ensures that a DFS player's team is not composed entirely of
the highest priced real-world athletes.
A DFS player earns points based on how real-world athletes
perform in their respective games. For instance, running backs
earn points based on how many touchdowns they score-generally
six points per touchdown-and how many rushing/receiving yards
they produce-generally one point per every 10 yards. To
illustrate, if professional football player Adrian Peterson ends
a game with one touchdown, 90 rushing yards, and 20 receiving
yards, a DFS player would receive a total of 17 points for
having Adrian Peterson in his or her team. This includes six
points for the touchdown, nine points for the 90 rushing yards,
and two points for the 20 receiving yards. The DFS player's
team who accumulates the most total points is declared the
winner.
Depending on their overall performance, DFS players win a share
of a pre-determined payout. Generally in larger contests, more
than one DFS player will earn a portion of the payout-depending
on what position the DFS player finishes in that contest. For
example, an operator might hold a 1,000 entry contest where the
top 100 players receive a payout. The player, who finishes in
100th place, while still receiving a payout, will receive less
of a payout than the 20th place player, who in turn will receive
less of a payout than the 1st place player-who receives the
largest payout.
DFS players pay an entry fee in order to participate.
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Generally, 90 percent of the player's entry fee will go toward a
pot, and the remaining 10 percent is paid to the DFS operator.
Entry fees can range from as low as a single dollar to as high
as thousands of dollars. There are various types of games, from
head-to-head contests, where two players face off against each
other, to larger contests with thousands of entries and payouts
of up to millions of dollars.
Nationwide, DFS 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, DFS
operators could reach $17.7 billion and $1.77 billion,
respectively. Industry experts have estimated that California
accounts for approximately 10 to 15 percent of the overall
national DFS market. It is estimated that there are
approximately 57 million DFS players in the United States and
Canada.
DraftKings/FanDuel. Although DFS operators have been operating
since 2009, the two largest operators, DraftKings and FanDuel,
became household names through a large media blitz that began
prior to the start of the 2015 NFL season. It has been reported
that both DraftKings and FanDuel spent a combined $150 million
on television and Internet advertising during that period. Not
only were the advertisements prominent on television and the
Internet, they were front and center at professional and
collegiate sporting events.
Though there are various DFS operators, DraftKings and FanDuel
constitute approximately 90 to 95 percent of the DFS market.
According to financial consultants, it is estimated that each
company has a valuation of more than $1 billion. Various news
agencies, including ESPN, have recently reported that DraftKings
and FanDuel have been in discussions about a possible merger.
The Unlawful Internet Gaming Enforcement Act of 2006 (UIEGA).
The UIEGA 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
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requirements, skill-games and legal intrastate and intertribal
gaming.
However, UIGEA also contains language that states "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." Thus, UIGEA defers to any other federal or
state law that prohibits or regulates gambling, including DFS.
Despite the fact that UIEGA did not expressly legalize DFS and
deferred to applicable federal law and state law concerning
gambling matters, supporters of DFS have pointed to the carve
out in UIGEA in discussing the legality of DFS.
The Professional and Amateur Sports Protection Act of 1992
(PASPA). PASPA makes it unlawful, except in four states, for a
person or governmental entity to sponsor, operate, advertise,
promote, license, or authorize wagering or gambling based,
directly or indirectly, on one or more competitive games in
which amateur or professional athletes participate, or on one or
more performances of such athletes in such games. PASPA
originally provided a one-year window opportunity, from its
effective date for states to pass laws permitting sports
wagering. California passed no such law.
The Wire Act of 1961. The Wire Act prohibits individuals and
entities from engaging in the business of betting or wagering
through the use of a "wire communication for the transmission in
interstate and foreign commerce." The Wire Act was recommended
by U.S. Attorney General Robert Kennedy "to crack down on
organized crime members using the telegraph to get results on
horse races." The U.S. Department of Justice has on occasion
used the Wire 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."
Legality of DFS in California. It is unclear whether DFS is
currently legal in the State of California as there are no
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statutes or legal decisions that directly address the topic. As
of today, there has been no determination by California's
Attorney General as to whether DFS violates any California law.
Several legislators have requested a formal opinion from the
Attorney General as to the legality of DFS in California.
However, the Attorney General has yet to respond to such
request. Supporters of DFS argue that "because there is no
statute or legal decision that explicitly makes DFS illegal,
until it is deemed otherwise, DFS is legal under California
law."
Article IV, Section 19 of the California Constitution states
that the Legislature has no power to authorize, and shall
prohibit casinos of the type currently operating in Nevada and
New Jersey. In addition, the Governor is authorized to
negotiate tribal compacts, for the operation of slot machines
and for the conduct of lottery games and banking and percentage
games by federally recognized Indian tribes.
Opponents of this bill argue that "pursuant to the California
Constitution, banked games fall within the exclusive purview of
California's gaming tribes, and if DFS violates the
Constitution's prohibition against gaming of the sort found in
Nevada casinos, it can be authorized only through a
constitutional amendment approved by the state's voters."
In addition, opponents to this bill argue that, "the California
State Legislature long ago determined that sports pools and
percentage games are illegal gambling activities in California.
In addition, because online DFS operators charge bettors a rake
that is a percentage of the wager, DFS is an illegal percentage
game."
Gambling regulation/enforcement in California. The Gambling
Control Act creates a comprehensive scheme for statewide
regulation of legal gambling under a bifurcated system involving
DOJ and the five-member CGCC. The CGCC is authorized to
establish minimum regulatory standards for the gambling industry
and to ensure that state gambling licenses are not issued to or
held by unsuitable or unqualified individuals.
DOJ monitors the conduct of gaming operations to ensure
compliance with state gambling laws and conducts extensive
background investigations of applicants seeking a state gambling
license. DOJ also conducts background checks for all key
employees and state gambling licensees and vendor applications.
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In addition, DOJ inspects premises where gambling is conducted,
examines gambling equipment, audits papers, books, and records
of the gambling establishment, investigates suspected violations
of gambling laws, and is ultimately responsible for enforcing
compliance with all state laws pertaining to gambling.
"Lottery" and "Skill vs. Chance". 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 California law. 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 status of DFS in other States. Many states have begun to
take regulatory actions or propose legislation regarding DFS.
Several states, specifically Nevada and Illinois, have
determined DFS to be illegal gambling. In Texas, the state's
attorney general declared that DFS would likely be considered
gambling if the issue came up in the courts.
In Massachusetts, the Attorney General laid out regulations in
late march that would govern the DFS industry from a consumer
protection standpoint. While lawmakers have expressed interest
in licensing and taxing DFS operators, Massachusetts has yet to
officially license DFS. Recently, the New York Legislature
passed a bill to legalize and regulate DFS-Governor Cuomo has
not yet acted on that bill.
Staff comments and policy considerations.
Current operators - The bill does not specify whether current
operators would be allowed to continue to operate prior to being
officially licensed in California. Should current operators be
allowed to operate during this time frame?
License fees - The bill currently does not specify the annual
AB 1437 (Gray) Page 16 of ?
licensing fee or the percentage of gross revenue that should be
remitted to the state. Without knowing the fee or the
percentage that the state will receive, it is hard to determine
what the benefit is to the state. In addition, without specific
numbers it is difficult to determine the impact that such a fee
would have on competition. What should be the license fee and
the percentage of the gross income that is remitted to the
state?
Role of California Gambling Control Commission (CGCC) - The CGCC
is responsible for determining 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 control gaming activities in the state of California. The
bill currently does not specify a role for CGCC in regulating
DFS in California. Should the CGCC play a role in licensing DFS
in California?
Highly experienced players - The bill currently specifies that
licensed operators must identify a highly experienced registered
player using a symbol attached to that registered player's
account or username or by other means easily identifiable by
other registered players. However the bill does not define a
"highly experienced player." Should a highly experienced player
be defined?
Computer scripts - Computer scripts are a list of commands that
a computer can execute without the user's interaction. For
example, a player could use a script to convert data from a
spreadsheet into hundreds of unique lineups almost instantly,
rather than entering them manually on the site. Computer
scripts could also be used to adjust lineups quickly on late
breaking news. In the past, some DFS players have complained
that computer scripts are unfair for players that do not use
them and are against the DFS' core idea of players playing
against other human players. Should computer scripts be
prohibited?
Athlete prohibitions - Should real world athletes, staff,
coaches, or game officials be prohibited from participating in
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DFS games?
Complaint process - Should a licensed operator be required to
establish a player complaint process, in consultation with DOJ?
Geolocation - The bill currently requires a licensed operator to
ensure that a registered player is physically located within the
State of California at the time of participating in an Internet
Fantasy sports game. This language suggests that California
players would be prohibited from playing with DFS players in
other states. If California players are allowed to play with
DFS players in other states, it is unclear how the requirements
in this bill-if found to be contradictory with requirements in
other states-would be fulfilled. Furthermore, because some DFS
contests occur over a period of days, it is unclear if this
prohibition means that a player's entry would be invalid if that
player travels out of state during the duration of the contest.
Current language also suggests that a DFS player would be
prohibited from changing their entry if they travel
out-of-state. Should California provide for pool liquidity?
DOJ/CGCC regulations - The bill only specifies that DOJ may
promulgate regulations. Should DOJ be required to promulgate
regulations? Should the CGCC play a role in developing those
regulations?
Background investigations - Should DOJ be required to perform
background checks on officers, owners, investors or corporate
affiliates of a licensed operator?
License renewal - Should a licensed operator be subject to a
biennial license renewal process?
Parental controls - Should a licensed operator be required to
establish parental control procedures?
Advertising prohibitions - Should a licensed operator be
prohibited from advertising misleading claims including odds of
AB 1437 (Gray) Page 18 of ?
winning DFS contests?
Tournament format - Some states that have introduced and/or
passed DFS legislation include provisions to require licensed
operators to disclose the maximum number of entries allowed by a
single DFS player for each contest and/or to require licensed
operators to provide single entry tournaments. Should a
licensed operator be required to disclose the maximum number of
entries allowed by a registered player in each contest and
should they be required to provide single entry tournaments?
Self-exclusion - The bill specifies that DOJ shall develop a
self-exclusion form by July 1, 2017. Should the self-exclusion
form be available as soon an operator is licensed? Should a
licensed operator be required to provide DFS players the option
to self-exclude from individual DFS contests, for any period of
time including a lifetime ban across all platforms and across
different licensed operators?
Audit authorization - Should DOJ have the authority to conduct
an audit of any licensed operator, at any time, or at least
annually to ensure compliance with this bill?
Server location - The bill is currently silent on the location
of a licensed operator's server and back-up server. Since both
DraftKings' and FanDuel's servers are located out-of-state,
should California mandate that a licensed operator's server be
located in this state in order to enable quick inspection by DOJ
agents?
Player records - Some states that have introduced and/or passed
DFS legislation include provisions to require licensed operators
to maintain player records for a period of five years. Should a
licensed operator be required to maintain such records?
Approval of games - Should DOJ be required to approve specific
games before a licensed operator is allowed to offer such games?
AB 1437 (Gray) Page 19 of ?
Prior/Related Legislation
AB 2863 (Gray, 2016) establishes the Internet Poker Consumer
Protection Act of 2016 and authorizes the CGCC and the DOJ to
license and regulate internet poker, as specified. (Pending on
the Assembly Floor)
FISCAL EFFECT: Appropriation: Yes Fiscal
Com.: Yes Local: No
SUPPORT:
Anschutz Entertainment Group
California Police Chiefs Association
Daily Fantasy Sports Players Alliance
Los Angeles Clippers
San Diego Chargers
OPPOSITION:
California Coalition Against Gambling Expansion
California Nations Indian Gaming Association
California Tribal Business Alliance
County of Riverside, District Attorney, Michael A. Hestrin
County of San Bernardino, District Attorney, Michael A. Ramos
Morongo Band of Mission Indians
New Sports Economy Institute
Pala Band of Mission Indians
San Manuel Band of Mission Indians
Stand Up for California!
United Auburn Indian Community
ARGUMENTS IN SUPPORT: The California Police Chiefs
Association states that, "DFS websites are visited by millions
of Californians and should continue in a regulated environment
where consumers are protected. AB 1437 will ensure that DFS
websites provide safe and responsible entertainment option for
adults, which include safeguards against compulsive and underage
gambling, money laundering, fraud, and identity theft."
The NBA Los Angeles Clippers state that, "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
AB 1437 (Gray) Page 20 of ?
games. We have found fantasy sports to be an important tool in
this mission. We are supportive of efforts to ensure that our
fans are enjoying fantasy sports in a protected, regulated
environment."
ARGUMENTS IN OPPOSITION: The Morongo Band of Mission Indians
state that, "many attorney generals across the country have
concluded that DFS is in fact gambling. While California
Attorney General Harris has yet to opine on the issue, the
question still remains as to whether or not DFS is illegal in
California. Specifically does DFS violate Article IV, Section
19 of the California Constitution or Penal Code Section 337 (a),
and thus, is the Legislature both prohibited from authorizing it
and mandated to prohibit it? AB 1437 acknowledges that DFS
explicitly violates 337 (a), yet, DFS operators are seemingly
rewarded with the adoption of a new regulatory structure, with
no repercussions for violating state law."
Additionally, the San Manuel Band of Mission Indians argue that,
"any measure that expands gaming in California must also address
how regulatory costs are to be equitably apportioned among
licensed entities and how problem gaming programs are to be
funded. Both the State's regulatory agencies and its efforts to
address problem gambling currently are funded disproportionately
by Indian tribes that conduct gaming activities in California.
In order to operate in California, DFS operators must be
required to pay a proportionate share of the costs associated
with regulation, enforcement and problem gaming."
The California Coalition Against Gambling Expansion argues that,
"like a growing number of states have concluded, we contend that
DFS is an illegal gambling activity that should be banned, not a
legal activity needing to be regulated. Although the actions of
other states may not be definitive, they should at least be
informative. In addition, DraftKings has applied for and
received a gambling license from the United Kingdom. This seems
an acknowledgement from the industry that this is gambling, and
if so, any legislation seeking to authorize a new form of
gambling must first amend our State Constitution."
DUAL REFERRAL: Senate Rules Committee
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