By James G. Gatto and Mark A. Patrick, of Sheppard Mullin Richter & Hampton LLP
Virginia’s House and Senate have both passed a bill (SB 646) that would legalize, but regulate, fantasy sports in Virginia. All that is needed is for Governor McAuliffe to sign it into law. If passed, the law would create the Fantasy Contests Act, which applies to fantasy contests with an entry fee offered in Virginia.
The bill defines “fantasy contest” as any fantasy or simulated game or contest in which: (i) the value of all prizes and awards offered to winning participants is established and made known to the participants in advance of the contest; (ii) all winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals, including athletes in the case of sports events; and (iii) no winning outcome is based on the score, point spread, or any performance of any single actual team or combination of teams or solely on any single performance of an individual athlete or player in any single actual event.
The bill requires a fantasy contest operator, as a condition for registration, to establish procedures that include ensuring that individuals who are the subject of a fantasy contest (e.g., the athletes themselves) are restricted from entering a fantasy contest that is determined, in whole or in part, on the accumulated statistical results of a team of individuals in the game or contest in which they are a participant. The bill requires operators of fantasy contests to register annually with the Department of Agriculture and Consumer Services, annually contract with a certified public accountant to conduct an independent audit, and to annually contract with a testing laboratory to verify compliance with certain procedures set forth for fantasy contests. The bill also sets forth penalties for violation of the Act and provides that fantasy contests conducted in accordance with these measures are not illegal gambling.
In New York, where the fierce legal battle is being waged between the AG and the leading DFS operators, a bill (S 6793) to legalize, but regulate DFS, has been introduced. This bill includes some of the most stringent regulatory requirements in addition to significant tax burdens. Each registrant would be required to pay a $500,000 fee for a 10-year registration. This registration fee would be applied as an offset against the taxes paid over the first thirty-six months of operation. The tax imposed would be 15% of the interactive fantasy sports gross revenue. In addition, registrants would be required to implement certain standards to protect against fraud and underage or compulsive participation in fantasy sports contests. Some other provisions include: (i) no fantasy sports operator employees can play; (ii) no athletes, coaches or officials can play; (iii) limitations on the number of entries a player can submit; (iv) segregation of players’ funds; (v) a $1,000,000 surety bond; and (vi) additional consumer protections. Significantly, the bill includes a safe harbor for existing operators that states: “if an applicant for an interactive fantasy sports registration was offering interactive fantasy sports contests to New York residents prior to November 10, 2015, they may continue to offer the same contests to New York residents during the pendency of their application.”
In Maryland, two bills have been introduced following the AG’s opinion that the previously passed fantasy sports law should have been submitted to a voters’ referendum. HB0930 would transfer authority to adopt certain regulations relating to fantasy competitions from the Comptroller to the Director of the Lottery and Gaming Control Agency. SB0976 would require the State Lottery and Gaming Control Commission, with the assistance of the State Lottery and Gaming Control Agency, to regulate the operation of Internet fantasy sports games and require: (i) a license to offer Internet fantasy sports games to the public; (ii) that a licensed operator conduct Internet fantasy sports games in a specified manner; and (iii) that Internet fantasy sports players register with a licensed operator and be at least 21 years of age. Other aspects of the bill would require background checks of operators; payment of certain fees; trust accounts for players’ funds; data security measures; technology to ensure players’ location; identification of experienced and inexperienced players; and the collection of taxes from winning players. It would also prohibit DFS employees from playing or disclosing certain information and all players from establishing more than one account.
Pennsylvania also recently passed into law HB 941, which requires the Pennsylvania Gaming Control Board to generate a report on the potential of fantasy sports as a gambling product in the state. The report is to address: (i) a definition of “fantasy sports;” (ii) the structure of the different fantasy sports formats and the underlying activities that may be appropriate for oversight; (iii) fantasy sports entities, including the roles and relationships of ancillary fantasy sports businesses, including host Internet websites, collegiate and professional sports organizations, and persons with a controlling interest in fantasy sports entities; (iv) how regulation of fantasy sports would fit into the Commonwealth’s current gambling laws and policies; (v) compulsive and problem gambling; (vi) protection of minors; (vii) measures to ensure the well-being and safety of players; (viii) safeguards and mechanisms to ensure the reporting of gambling winnings and facilitate the collection of applicable Federal and State taxes; (ix) recommendations for legislative action; and (x) any other information related to the conduct and operation of fantasy sports as the board may deem appropriate.
