AB 1437: Gambling: Internet Fantasy Sports Game Protection Act.
- Session Year: 2015-2016
- House: Assembly
- Latest Version Date: 2016-06-21
Existing law, the Gambling Control Act, provides for the licensure and regulation of various legalized gambling activities and establishments by the California Gambling Control Commission and the investigation and enforcement of those activities and establishments by the Department of Justice. Existing law 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.
This bill 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 prior to offering an Internet fantasy sports game for play in California. The bill would require the department 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. The bill would also 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. The bill would prohibit 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.
The bill would require a licensed operator, among other things, to ensure that a registered player is eligible to play on an authorized Internet Web site, and to implement appropriate data security standards to prevent access by a person whose age and location have not been verified. The bill would authorize the department to assess a civil penalty against a licensed operator that violates these provisions according to a specified schedule depending on the number of violations. The bill would require the department to develop an online self-exclusion form 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. The bill would also require a licensed operator to, among other things, hold the funds in a registered players account in trust for that registered player . player. The bill would prohibit a licensed operator from engaging in certain activities, including, among other things, from allowing a registered player to establish more than one account or user name on its authorized Internet Web site, from issuing credit to a registered player, from advertising in publications or other media that are aimed exclusively or primarily at persons under 21 years of age, and from depicting persons under 21 years of age, students, or school or college settings in its advertisements. The bill would also prohibit an officer, director, principal, employee, or contractor of a licensed operator from engaging in certain activities, including, among other things, from playing an Internet fantasy sports game offered by a licensed operator.
The bill would require a licensed operator to pay an annual regulatory fee, for deposit into the Fantasy Sports Fund, which the bill would establish in the State Treasury. The bill would continuously appropriate the Fantasy Sports Fund to the department for the reasonable costs of license oversight, consumer protection, state regulation, and other purposes related to the bill. The bill 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 operators gross income that is attributable to the operation of an authorized Internet Web site in California.
The bill 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 bills provisions, and would make conforming changes.
Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.
This bill would make legislative findings to that effect.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIIIA of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.
This bill would declare that it is to take effect immediately as an urgency statute.
Existing law, the Gambling Control Act, provides for the licensure and regulation of various legalized gambling activities and establishments by the California Gambling Control Commission and the investigation and enforcement of those activities and establishments by the Department of Justice. Existing law 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.
This bill 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 prior to offering an Internet fantasy sports game for play in California. The bill would require the department 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. The bill would also 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.
The bill would require a licensed operator, among other things, to ensure that a registered player is eligible to play on an authorized Internet Web site, and to implement appropriate data security standards to prevent access by a person whose age and location have not been verified. The bill would authorize the department to assess a civil penalty against a licensed operator that violates these provisions according to a specified schedule depending on the number of violations. The bill would require the department to develop an online self-exclusion form 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. The bill would also require a licensed operator to, among other things, hold the funds in a registered players account in trust for that registered player . The bill would prohibit a licensed operator from engaging in certain activities, including, among other things, from allowing a registered player to establish more than one account or user name on its authorized Internet Web site, from issuing credit to a registered player, from advertising in publications or other media that are aimed exclusively or primarily at persons under 21 years of age, and from depicting persons under 21 years of age, students, or school or college settings in its advertisements. The bill would also prohibit an officer, director, principal, employee, or contractor of a licensed operator from engaging in certain activities, including, among other things, from playing an Internet fantasy sports game offered by a licensed operator.
The bill would require a licensed operator to pay an annual regulatory fee, for deposit into the Fantasy Sports Fund, which the bill would establish in the State Treasury. The bill would continuously appropriate the Fantasy Sports Fund to the department for the reasonable costs of license oversight, consumer protection, state regulation, and other purposes related to the bill. The bill 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 operators gross income that is attributable to the operation of an authorized Internet Web site in California.
The bill 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 bills provisions, and would make conforming changes.
Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.
This bill would make legislative findings to that effect.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIIIA of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.
Existing law, the Gambling Control Act, provides for the licensure and regulation of various legalized gambling activities and establishments by the California Gambling Control Commission and the investigation and enforcement of those activities and establishments by the Department of Justice. Existing law 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.
This bill 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 prior to offering an Internet fantasy sports game for play in California. The bill would require the department 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. The bill would also 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.
The bill would require a licensed operator, among other things, to ensure that a registered player is eligible to play on an authorized Internet Web site, and to implement appropriate data security standards to prevent access by a person whose age and location have not been verified. The bill would authorize the department to assess a civil penalty against a licensed operator that violates these provisions according to a specified schedule depending on the number of violations. The bill would require the department to develop an online self-exclusion form 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.
The bill would require a licensed operator to pay an annual regulatory fee, for deposit into the Fantasy Sports Fund, which the bill would establish in the State Treasury. The bill would continuously appropriate the Fantasy Sports Fund to the department for the reasonable costs of license oversight, consumer protection, state regulation, and other purposes related to the bill. The bill 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 operators gross income that is attributable to the operation of an authorized Internet Web site in California.
The bill 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 bills provisions, and would make conforming changes.
Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.
This bill would make legislative findings to that effect.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIIIA of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.
Existing law, the Gambling Control Act, provides for the licensure and regulation of various legalized gambling activities and establishments by the California Gambling Control Commission and the investigation and enforcement of those activities and establishments by the Department of Justice. Existing law establishes the Gambling Control Fund within the State Treasury for the receipt and deposit of fees and revenue collected pursuant to the act. Under the act, specified licensing fees are required to be paid for the issuance or renewal of a state gambling license, as specified. Existing law requires each licensee to pay an additional $100 for each table for which it is licensed to the State Department of Public Health for deposit in the Gambling Addiction Program Fund, and requires these funds to be available, upon appropriation by the Legislature, to community-based organizations that directly provide aid and assistance to those persons with a gambling addiction problem.
This bill would instead require each licensee to pay an additional $150 for each table for which it is licensed to the State Department of Public Health for deposit in the Gambling Addiction Program Fund.
This bill would declare that it is to take effect immediately as an urgency statute.
Existing law, the Gambling Control Act, provides for the licensure and regulation of various legalized gambling activities and establishments by the California Gambling Control Commission and the investigation and enforcement of those activities and establishments by the Department of Justice. Existing law establishes the Gambling Control Fund within the State Treasury for the receipt and deposit of fees and revenue collected pursuant to the act. Under the act, specified licensing fees are required to be paid for the issuance or renewal of a state gambling license, as specified. Existing law requires each licensee to pay an additional $100 for each table for which it is licensed to the State Department of Public Health for deposit in the Gambling Addiction Program Fund, and requires these funds to be available, upon appropriation by the Legislature, to community-based organizations that directly provide aid and assistance to those persons with a gambling addiction problem.
This bill would instead require each licensee to pay an additional $150 for each table for which it is licensed to the State Department of Public Health for deposit in the Gambling Addiction Program Fund.
This bill would declare that it is to take effect immediately as an urgency statute.
This chapter shall be known and may be cited as the Internet Fantasy Sports Games Consumer Protection Act.
19752.The Legislature finds and declares all of the following:
(a)The Internet is an integral tool in the everyday lives of Californians. Commerce, communication, and entertainment are just some of the areas in which this technological aid thrives.
(b)Participating in Internet fantasy sports games, including those of the daily variety, is a very popular activity in California, and with the Internet as a technological aid, participation in these games can be conducted in a virtual environment and played from the privacy of ones own computer or mobile device. Despite a lack of regulation, participation in Internet fantasy sports games still remains popular with California residents.
(c)Californians participate in Internet fantasy sports games on a daily basis on unregulated Internet Web sites. Neither federal nor California laws provide any consumer protections for California players. California players assume all risks, any negative social or financial impacts are borne by the citizens of California, and the revenues generated from these games are being realized by unlicensed operators and do not provide any benefits to the citizens of California.
(d)To better protect the people of California from potential risks from, and to maintain oversight of the systems used to carry out, Internet fantasy sports games, the Legislature finds it to be in the interest of the people to establish a regulatory framework by which entities, as authorized by the Department of Justice, may facilitate Internet fantasy sports games to players within California.
(e)State authorization to operate Internet fantasy sports games consistent with federal law, and heightened regulation and enforcement regarding this activity, will provide California with the means to protect its citizens and consumers under certain conditions by providing a framework to ensure that, among other things, the state is not subject to an unnecessary and unprecedented expansion of gambling, minors are prevented from gambling, residents participating in these games are protected, and the state is not deprived of revenues to which it would otherwise be entitled from these activities.
19754.It is the intent of the Legislature to create a licensing and regulatory framework and enforcement mechanisms for Internet fantasy sports games to do all of the following:
(a)Ensure that Internet fantasy sports games of any duration are offered for play only in a manner that is consistent with federal and state law.
(b)Ensure the state possesses sufficient resources to enforce prohibitions of illegal gambling activity, in part, by establishing a regulatory enforcement fund.
(c)Ensure that the state is able to collect income tax revenues from registered players participating in authorized Internet fantasy sports games in the state.
(d)Create systems to protect each registered players private information and prevent fraud and identity theft.
(e)Ensure that a registered player is able to have his or her financial transactions processed in a secure, timely, and transparent fashion.
(f)Require that each licensed operators Internet Web site contains information relating to problem gambling, including a telephone number that an individual may call to seek information and assistance for a potential gambling addiction.
(g)Ensure that each licensed operator maintains responsibility for the Internet fantasy sports games business and is not serving as a facade for an entity not eligible to be a licensed operator, and that each Internet fantasy sports games Web site identifies who is the actual licensed operator to ensure protection of players.
(h)Deposit regulatory fees collected by the state from each licensed operator into the Fantasy Sports Fund, as established in Section 19780.
2.Definitions19760.For purposes of this chapter, all of the following definitions apply:
(a)Authorized Internet Web site means an Internet Web site operated by a licensed operator.
(b)Department means the Department of Justice.
(c)Fund means the Fantasy Sports Fund established by Section 19780.
(d)Internet fantasy sports game means 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 professional athletes in an imaginary or simulated game.
(2)Uses the statistics accumulated by the professional athletes in real-world professional sporting events to determine the scores of the imaginary or simulated game.
(3)Plays for a predetermined prize.
(4)Pays a charge to the licensed operator providing the game in order to participate.
(e)Licensed operator means a person or entity licensed pursuant to this chapter to offer Internet fantasy sports games for play on an authorized Internet Web site.
(f)Registered player means a person registered pursuant to this chapter to participate in an Internet fantasy sports game on an authorized Internet Web site.
3.Licensed Operators and Registered Players19770.(a)A person or entity shall apply for and receive a license from the department prior to offering an Internet fantasy sports game for play in California.
(b)The department shall issue a license to a person or entity to operate an authorized Internet Web site if the applicant satisfies all of the following:
(1)The applicant is of good character, honesty, and integrity.
(2)The applicants 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 arrangements incidental to those games.
(3)The applicant is in all other respects qualified to be licensed as provided in this chapter, including, but not limited to, providing documentation establishing that the applicant is capable of paying the one-time license fee described in Section 19782 through its own net position or through credit directly available to the applicant.
(c)The department may promulgate regulations to implement this section.
19772.(a)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.
(b)A licensed operator shall ensure that an Internet fantasy sports game on its authorized Internet Web site complies with all of the following:
(1)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 an amateur or a professional sports organization.
(2)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.
(3)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 charges paid by those participating registered players to the licensed operator.
(4)The winning outcome of the game shall not be either of the following:
(A)Based on the score, point spread, or performance of any single real-world team or any combination of real-world teams.
(B)Based solely on the single performance of an individual athlete in a single real-world sporting event.
(c)A licensed operator shall not offer 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.
(c)
(d)(1)A licensed operator shall hold the funds of a registered player in a registered players account in trust for that registered player.
(2)A licensed operator shall 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 players account with other funds, including, but not limited to, the licensed operators 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.
(d)
(e)A licensed operator shall not issue credit to a registered player.
(e)
(f)A licensed operator shall not allow a registered player to establish more than one account or user name on its authorized Internet Web site.
(f)
(g)(1)A licensed operator shall not advertise in publications or other media that are aimed exclusively or primarily at persons under 21 years of age. A licensed operators advertisement shall not depict persons under 21 years of age, students, or school or college settings.
(2)A licensed operator shall not advertise an Internet 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 pursuant to Section 19774 or if the individual is otherwise barred from participating in that Internet fantasy sports game.
19774.(a)A person shall register with a licensed operator prior to participating in an Internet fantasy sports game on an authorized Internet Web site.
(b)A licensed operator shall 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 have not been verified in accordance with this chapter.
(c)A licensed operator shall 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.
(d)A licensed operator shall ensure that a registered player is at least 21 years of age.
(e)(1)Each licensed operator shall, prior to registering and permitting a person to participate in an Internet fantasy sports game on an authorized Internet Web site, verify that the person is 21 years of age or older by doing both of the following:
(A)Attempting 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 reference to an appropriate database of government records.
(B)Verifying 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 described in subparagraph (A).
(2)If the licensed operator is unable to verify that the person is 21 years of age or older pursuant to paragraph (1), 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. For the purposes of this paragraph, a valid form of government identification includes a drivers license, state identification card, passport, official 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.
(3)A licensed operator is not in violation of this section if the operator complies with the requirements of paragraphs (1) and (2), and a person under 21 years of age participates in an Internet fantasy sports game on the operators authorized Internet Web site.
(f)The department may assess a civil penalty against a licensed operator that violates this section according to the following schedule:
(1)Not less than one thousand dollars ($1,000), and not more than two thousand dollars ($2,000), for the first violation.
(2)Not less than two thousand five hundred dollars ($2,500), and not more than three thousand five hundred dollars ($3,500), for the second violation.
(3)Not less than four thousand dollars ($4,000), and not more than five thousand dollars ($5,000), for the third violation.
(4)Not less than five thousand five hundred dollars ($5,500), and not more than six thousand five hundred dollars ($6,500), for the fourth violation.
(5)Ten thousand dollars ($10,000) for a fifth or subsequent violation.
(g)(1)The department shall, by regulation, provide a process for a licensed operator to exclude from play any person who has filled out an online self-exclusion form.
(2)The department shall develop an online self-exclusion form on or before July 1, 2017.
(3)The department shall deliver the form described in paragraph (2) to each licensed operator.
(4)A licensed operator shall prominently display a link to the departments Responsible Gambling Internet Web page and the online self-exclusion form described in paragraph (2) 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.
(5)A licensed operator shall 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.
(6)A licensed operator that has made commercially reasonable 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 operators authorized Internet Web site.
19776.(a)(1)This subdivision applies to all of the following persons:
(A)An officer of a licensed operator.
(B)A director of a licensed operator.
(C)A principal of a licensed operator.
(D)An employee of a licensed operator.
(E)A contractor of a licensed operator.
(2)A person listed in paragraph (1) shall not play an Internet fantasy sports game offered by a licensed operator.
(3)A person listed in paragraph (1) shall not play an Internet fantasy sports game offered by a licensed operator through another person as a proxy.
(4)A person listed in paragraph (1) shall not disclose 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.
(5)A licensed operator shall make the prohibitions in this subdivision known to all affected individuals and corporate entities.
(b)(1)A licensed operator shall identify a highly experienced registered player using a symbol attached to that registered players account or username, user name, or by other means easily identifiable by other registered players.
(2)A licensed operator shall 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.
19778.(a)A licensed operator shall 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.
(b)The state and its agencies 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.
(c)Proprietary information supplied by a licensed operator to a state agency is exempt from public disclosure, consistent with subdivision (b) of Section 6253 of the Government Code.
4.Fees and Financial Provisions19780.(a)The Fantasy Sports Fund is hereby created in the State Treasury, to be administered by the department. Notwithstanding Section 13340 of the Government Code, all moneys in the fund are continuously appropriated to the department, without regard to fiscal years, in the amounts necessary for the department to perform its duties under this chapter.
(b)Each licensed operator shall pay an annual regulatory fee, to be deposited in the Fantasy Sports Fund, in an amount to be determined by the department, 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.
19782.(a)Prior to operating its authorized Internet Web site, a licensed operator shall remit to the Treasurer a one-time license fee in the amount of ____ ($____), to be deposited into the General Fund and credited against charges imposed pursuant to subdivision (b). Upon depletion of the license fee balance, the department shall notify the licensed operator to commence quarterly payments to the state in accordance with subdivision (b).
(b)In consideration of the substantial value of each license, a licensed operator shall remit to the Treasurer on a quarterly basis for deposit in the General Fund an amount equal to ____ percent of its gross income that is attributable to the operation of an authorized Internet Web site in California.
(1)Each quarterly payment shall be due on the 10th day of the month following the end of each quarter.
(2)A licensed operator shall make all electronic and written financial records available to the Treasurer and the department on an electronic basis.
5.Preemption of Local Regulation19790.A city, county, or city and county shall not regulate, tax, or enter into a contract with respect to any matter governed by this chapter. This section does not prohibit or limit the investigation and prosecution of any violation of this chapter.
SEC. 2.Section 337a of the Penal Code is amended to read:337a.(a)Except as provided in Section 336.9 and as authorized pursuant to Chapter 4.7 (commencing with Section 19750) of Division 8 of the Business and Professions Code, every person who engages in one of the following offenses shall be punished for a first offense by imprisonment in a county jail for a period of not more than one year or in the state prison, or by a fine not to exceed five thousand dollars ($5,000), or by both imprisonment and fine:
(1)Pool selling or bookmaking, with or without writing, at any time or place.
(2)Whether for gain, hire, reward, or gratuitously, or otherwise, keeps or occupies, for any period of time whatsoever, any room, shed, tenement, tent, booth, building, float, vessel, place, stand or enclosure, of any kind, or any part thereof, with a book or books, paper or papers, apparatus, device or paraphernalia, for the purpose of recording or registering any bet or bets, any purported bet or bets, wager or wagers, any purported wager or wagers, selling pools, or purported pools, upon the result, or purported result, of any trial, purported trial, contest, or purported contest, of skill, speed or power of endurance of person or animal, or between persons, animals, or mechanical apparatus, or upon the result, or purported result, of any lot, chance, casualty, unknown or contingent event whatsoever.
(3)Whether for gain, hire, reward, or gratuitously, or otherwise, receives, holds, or forwards, or purports or pretends to receive, hold, or forward, in any manner whatsoever, any money, thing or consideration of value, or the equivalent or memorandum thereof, staked, pledged, bet or wagered, or to be staked, pledged, bet or wagered, or offered for the purpose of being staked, pledged, bet or wagered, upon the result, or purported result, of any 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, or upon the result, or purported result, of any lot, chance, casualty, unknown or contingent event whatsoever.
(4)Whether for gain, hire, reward, or gratuitously, or otherwise, at any time or place, records, or registers any bet or bets, wager or wagers, upon the result, or purported result, of any 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, or upon the result, or purported result, of any lot, chance, casualty, unknown or contingent event whatsoever.
(5)Being the owner, lessee or occupant of any room, shed, tenement, tent, booth, building, float, vessel, place, stand, enclosure or grounds, or any part thereof, whether for gain, hire, reward, or gratuitously, or otherwise, permits that space to be used or occupied for any purpose, or in any manner prohibited by paragraph (1), (2), (3), or (4).
(6)Lays, makes, offers or accepts any bet or bets, or wager or wagers, upon the result, or purported result, of any 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.
(b)In any accusatory pleading charging a violation of this section, if the defendant has been once previously convicted of a violation of any subdivision of this section, the previous conviction shall be charged in the accusatory pleading, and, if the previous conviction is found to be true by the jury, upon a jury trial, or by the court, upon a court trial, or is admitted by the defendant, the defendant shall, if he or she is not imprisoned in the state prison, be imprisoned in the county jail for a period of not more than one year and pay a fine of not less than one thousand dollars ($1,000) and not to exceed ten thousand dollars ($10,000). Nothing in this paragraph shall prohibit a court from placing a person subject to this subdivision on probation. However, that person shall be required to pay a fine of not less than one thousand dollars ($1,000) nor more than ten thousand dollars ($10,000) or be imprisoned in the county jail for a period of not more than one year, as a condition thereof. In no event does the court have the power to absolve a person convicted pursuant to this subdivision from either being imprisoned or from paying a fine of not less than one thousand dollars ($1,000) and not more than ten thousand dollars ($10,000).
(c)In any accusatory pleading charging a violation of this section, if the defendant has been previously convicted two or more times of a violation of any subdivision of this section, each previous conviction shall be charged in the accusatory pleadings. If two or more of the previous convictions are found to be true by the jury, upon a jury trial, or by the court, upon a court trial, or are admitted by the defendant, the defendant shall, if he or she is not imprisoned in the state prison, be imprisoned in the county jail for a period of not more than one year or pay a fine of not less than one thousand dollars ($1,000) nor more than fifteen thousand dollars ($15,000), or be punished by both imprisonment and fine. Nothing in this paragraph shall prohibit a court from placing a person subject to this subdivision on probation. However, that person shall be required to pay a fine of not less than one thousand dollars ($1,000) nor more than fifteen thousand dollars ($15,000), or be imprisoned in the county jail for a period of not more than one year as a condition thereof. In no event does the court have the power to absolve a person convicted and subject to this subdivision from either being imprisoned or from paying a fine of not more than fifteen thousand dollars ($15,000).
(d)Except where the existence of a previous conviction of any subdivision of this section was not admitted or not found to be true pursuant to this section, or the court finds that a prior conviction was invalid, the court shall not strike or dismiss any prior convictions alleged in the information or indictment.
(e)This section applies not only to persons who commit any of the acts designated in paragraphs (1) to (6), inclusive, of subdivision (a), as a business or occupation, but also applies to every person who in a single instance engages in any one of the acts specified in paragraphs (1) to (6), inclusive, of subdivision (a).
SEC. 3.The Legislature finds and declares that Section 1 of this act, which adds Section 19776 to the Business and Professions Code, imposes a limitation on the publics right of access to the meetings of public bodies or the writings of public officials and agencies within the meaning of Section 3 of Article I of the California Constitution. Pursuant to that constitutional provision, the Legislature makes the following findings to demonstrate the interest protected by this limitation and the need for protecting that interest:
The limitations on the peoples right of access set forth in this act are necessary to protect the privacy and integrity of information submitted by registered players as well as the proprietary information of the license applicants and licensed operators.
SEC. 4.This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are:
In order to protect the interests of Californians who play Internet fantasy sports games and to ensure that people play fair games, that the state realizes the revenues, and that suitable persons operate Internet fantasy sports games on authorized Internet Web sites, it is necessary that this act take effect immediately.
This chapter shall be known and may be cited as the Internet Fantasy Sports Games Consumer Protection Act.
19752.The Legislature finds and declares all of the following:
(a)The Internet is an integral tool in the everyday lives of Californians. Commerce, communication, and entertainment are just some of the areas in which this technological aid thrives.
(b)Participating in Internet fantasy sports games, including those of the daily variety, is a very popular activity in California, and with the Internet as a technological aid, participation in these games can be conducted in a virtual environment and played from the privacy of ones own computer or mobile device. Despite a lack of regulation, participation in Internet fantasy sports games still remains popular with California residents.
(c)Californians participate in Internet fantasy sports games on a daily basis on unregulated Internet Web sites. Neither federal nor California laws provide any consumer protections for California players. California players assume all risks, any negative social or financial impacts are borne by the citizens of California, and the revenues generated from these games are being realized by unlicensed operators and do not provide any benefits to the citizens of California.
(d)To better protect the people of California from potential risks from, and to maintain oversight of the systems used to carry out, Internet fantasy sports games, the Legislature finds it to be in the interest of the people to establish a regulatory framework by which entities, as authorized by the Department of Justice, may facilitate Internet fantasy sports games to players within California.
(e)State authorization to operate Internet fantasy sports games consistent with federal law, and heightened regulation and enforcement regarding this activity, will provide California with the means to protect its citizens and consumers under certain conditions by providing a framework to ensure that, among other things, the state is not subject to an unnecessary and unprecedented expansion of gambling, minors are prevented from gambling, residents participating in these games are protected, and the state is not deprived of revenues to which it would otherwise be entitled from these activities.
19754.It is the intent of the Legislature to create a licensing and regulatory framework and enforcement mechanisms for Internet fantasy sports games to do all of the following:
(a)Ensure that Internet fantasy sports games of any duration are offered for play only in a manner that is consistent with federal and state law.
(b)Ensure the state possesses sufficient resources to enforce prohibitions of illegal gambling activity, in part, by establishing a regulatory enforcement fund.
(c)Ensure that the state is able to collect income tax revenues from registered players participating in authorized Internet fantasy sports games in the state.
(d)Create systems to protect each registered players private information and prevent fraud and identity theft.
(e)Ensure that a registered player is able to have his or her financial transactions processed in a secure, timely, and transparent fashion.
(f)Require that each licensed operators Internet Web site contains information relating to problem gambling, including a telephone number that an individual may call to seek information and assistance for a potential gambling addiction.
(g)Ensure that each licensed operator maintains responsibility for the Internet fantasy sports games business and is not serving as a facade for an entity not eligible to be a licensed operator, and that each Internet fantasy sports games Web site identifies who is the actual licensed operator to ensure protection of players.
(h)Deposit regulatory fees collected by the state from each licensed operator into the Fantasy Sports Fund, as established in Section 19780.
2.Definitions19760.For purposes of this chapter, all of the following definitions apply:
(a)Authorized Internet Web site means an Internet Web site operated by a licensed operator.
(b)Department means the Department of Justice.
(c)Fund means the Fantasy Sports Fund established by Section 19780.
(d)Internet fantasy sports game means 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.
(4)Pays a charge to the licensed operator providing the game in order to participate.
(e)Licensed operator means a person or entity licensed pursuant to this chapter to offer Internet fantasy sports games for play on an authorized Internet Web site.
(f)Registered player means a person registered pursuant to this chapter to participate in an Internet fantasy sports game on an authorized Internet Web site.
3.Licensed Operators and Registered Players19770.(a)A person or entity shall apply for and receive a license from the department prior to offering an Internet fantasy sports game for play in California.
(b)The department shall issue a license to a person or entity to operate an authorized Internet Web site if the applicant satisfies all of the following:
(1)The applicant is of good character, honesty, and integrity.
(2)The applicants 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 arrangements incidental to those games.
(3)The applicant is in all other respects qualified to be licensed as provided in this chapter, including, but not limited to, providing documentation establishing that the applicant is capable of paying the one-time license fee described in Section 19782 through its own net position or through credit directly available to the applicant.
(c)The department may promulgate regulations to implement this section.
19772.(a)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.
(b)A licensed operator shall ensure that an Internet fantasy sports game on its authorized Internet Web site complies with all of the following:
(1)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 an amateur or professional sports organization.
(2)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.
(3)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 charges paid by those participating registered players to the licensed operator.
(4)The winning outcome of the game shall not be either of the following:
(A)Based on the score, point spread, or performance of any single real-world team or any combination of real-world teams.
(B)Based solely on the single performance of an individual athlete in a single real-world sporting event.
(c)(1)A licensed operator shall hold the funds of a registered player in a registered players account in trust for that registered player.
(2)A licensed operator shall 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 players account with other funds, including, but not limited to, the licensed operators 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.
(d)A licensed operator shall not issue credit to a registered player.
(e)A licensed operator shall not allow a registered player to establish more than one account or user name on its authorized Internet Web site.
(f)(1)A licensed operator shall not advertise in publications or other media that are aimed exclusively or primarily at persons under 21 years of age. A licensed operators advertisement shall not depict persons under 21 years of age, students, or school or college settings.
(2)A licensed operator shall not advertise an Internet 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 pursuant to Section 19774 or if the individual is otherwise barred from participating in that Internet fantasy sports game.
19774.(a)A person shall register with a licensed operator prior to participating in an Internet fantasy sports game on an authorized Internet Web site.
(b)A licensed operator shall 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 have not been verified in accordance with this chapter.
(c)A licensed operator shall 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.
(d)A licensed operator shall ensure that a registered player is at least 21 years of age.
(e)(1)Each licensed operator shall, prior to registering and permitting a person to participate in an Internet fantasy sports game on an authorized Internet Web site, verify that the person is 21 years of age or older by doing both of the following:
(A)Attempting 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 reference to an appropriate database of government records.
(B)Verifying 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 described in subparagraph (A).
(2)If the licensed operator is unable to verify that the person is 21 years of age or older pursuant to paragraph (1), 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. For the purposes of this paragraph, a valid form of government identification includes a drivers license, state identification card, passport, official 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.
(3)A licensed operator is not in violation of this section if the operator complies with the requirements of paragraphs (1) and (2), and a person under 21 years of age participates in an Internet fantasy sports game on the operators authorized Internet Web site.
(f)The department may assess a civil penalty against a licensed operator that violates this section according to the following schedule:
(1)Not less than one thousand dollars ($1,000), and not more than two thousand dollars ($2,000), for the first violation.
(2)Not less than two thousand five hundred dollars ($2,500), and not more than three thousand five hundred dollars ($3,500), for the second violation.
(3)Not less than four thousand dollars ($4,000), and not more than five thousand dollars ($5,000), for the third violation.
(4)Not less than five thousand five hundred dollars ($5,500), and not more than six thousand five hundred dollars ($6,500), for the fourth violation.
(5)Ten thousand dollars ($10,000) for a fifth or subsequent violation.
(g)(1)The department shall, by regulation, provide a process for a licensed operator to exclude from play any person who has filled out an online self-exclusion form.
(2)The department shall develop an online self-exclusion form on or before July 1, 2017.
(3)The department shall deliver the form described in paragraph (2) to each licensed operator.
(4)A licensed operator shall prominently display a link to the departments Responsible Gambling Internet Web page and the online self-exclusion form described in paragraph (2) 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.
(5)A licensed operator shall 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.
(6)A licensed operator that has made commercially reasonable 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 operators authorized Internet Web site.
19776.(a)(1)This subdivision applies to all of the following persons:
(A)An officer of a licensed operator.
(B)A director of a licensed operator.
(C)A principal of a licensed operator.
(D)An employee of a licensed operator.
(E)A contractor of a licensed operator.
(2)A person listed in paragraph (1) shall not play an Internet fantasy sports game offered by a licensed operator.
(3)A person listed in paragraph (1) shall not play an Internet fantasy sports game offered by a licensed operator through another person as a proxy.
(4)A person listed in paragraph (1) shall not disclose 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.
(5)A licensed operator shall make the prohibitions in this subdivision known to all affected individuals and corporate entities.
(b)(1)A licensed operator shall identify a highly experienced registered player using a symbol attached to that registered players account or username, or by other means easily identifiable by other registered players.
(2)A licensed operator shall 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.
19776.19778.(a)A licensed operator shall 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.
(b)The state and its agencies 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.
(c)Proprietary information supplied by a licensed operator to a state agency is exempt from public disclosure, consistent with subdivision (b) of Section 6253 of the Government Code.
4.Fees and Financial Provisions19780.(a)The Fantasy Sports Fund is hereby created in the State Treasury, to be administered by the department. Notwithstanding Section 13340 of the Government Code, all moneys in the fund are continuously appropriated to the department, without regard to fiscal years, in the amounts necessary for the department to perform its duties under this chapter.
(b)Each licensed operator shall pay an annual regulatory fee, to be deposited in the Fantasy Sports Fund, in an amount to be determined by the department, 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.
19782.(a)Prior to operating its authorized Internet Web site, a licensed operator shall remit to the Treasurer a one-time license fee in the amount of ____ ($____), to be deposited into the General Fund and credited against charges imposed pursuant to subdivision (b). Upon depletion of the license fee balance, the department shall notify the licensed operator to commence quarterly payments to the state in accordance with subdivision (b).
(b)In consideration of the substantial value of each license, a licensed operator shall remit to the Treasurer on a quarterly basis for deposit in the General Fund an amount equal to ____ percent of its gross income that is attributable to the operation of an authorized Internet Web site in California.
(1)Each quarterly payment shall be due on the 10th day of the month following the end of each quarter.
(2)A licensed operator shall make all electronic and written financial records available to the Treasurer and the department on an electronic basis.
5.Preemption of Local Regulation19790.A city, county, or city and county shall not regulate, tax, or enter into a contract with respect to any matter governed by this chapter. This section does not prohibit or limit the investigation and prosecution of any violation of this chapter.
SEC. 2.Section 337a of the Penal Code is amended to read:337a.(a)Except as provided in Section 336.9 and as authorized pursuant to Chapter 4.7 (commencing with Section 19750) of Division 8 of the Business and Professions Code, every person who engages in one of the following offenses shall be punished for a first offense by imprisonment in a county jail for a period of not more than one year or in the state prison, or by a fine not to exceed five thousand dollars ($5,000), or by both imprisonment and fine:
(1)Pool selling or bookmaking, with or without writing, at any time or place.
(2)Whether for gain, hire, reward, or gratuitously, or otherwise, keeps or occupies, for any period of time whatsoever, any room, shed, tenement, tent, booth, building, float, vessel, place, stand or enclosure, of any kind, or any part thereof, with a book or books, paper or papers, apparatus, device or paraphernalia, for the purpose of recording or registering any bet or bets, any purported bet or bets, wager or wagers, any purported wager or wagers, selling pools, or purported pools, upon the result, or purported result, of any trial, purported trial, contest, or purported contest, of skill, speed or power of endurance of person or animal, or between persons, animals, or mechanical apparatus, or upon the result, or purported result, of any lot, chance, casualty, unknown or contingent event whatsoever.
(3)Whether for gain, hire, reward, or gratuitously, or otherwise, receives, holds, or forwards, or purports or pretends to receive, hold, or forward, in any manner whatsoever, any money, thing or consideration of value, or the equivalent or memorandum thereof, staked, pledged, bet or wagered, or to be staked, pledged, bet or wagered, or offered for the purpose of being staked, pledged, bet or wagered, upon the result, or purported result, of any 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, or upon the result, or purported result, of any lot, chance, casualty, unknown or contingent event whatsoever.
(4)Whether for gain, hire, reward, or gratuitously, or otherwise, at any time or place, records, or registers any bet or bets, wager or wagers, upon the result, or purported result, of any 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, or upon the result, or purported result, of any lot, chance, casualty, unknown or contingent event whatsoever.
(5)Being the owner, lessee or occupant of any room, shed, tenement, tent, booth, building, float, vessel, place, stand, enclosure or grounds, or any part thereof, whether for gain, hire, reward, or gratuitously, or otherwise, permits that space to be used or occupied for any purpose, or in any manner prohibited by paragraph (1), (2), (3), or (4).
(6)Lays, makes, offers or accepts any bet or bets, or wager or wagers, upon the result, or purported result, of any 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.
(b)In any accusatory pleading charging a violation of this section, if the defendant has been once previously convicted of a violation of any subdivision of this section, the previous conviction shall be charged in the accusatory pleading, and, if the previous conviction is found to be true by the jury, upon a jury trial, or by the court, upon a court trial, or is admitted by the defendant, the defendant shall, if he or she is not imprisoned in the state prison, be imprisoned in the county jail for a period of not more than one year and pay a fine of not less than one thousand dollars ($1,000) and not to exceed ten thousand dollars ($10,000). Nothing in this paragraph shall prohibit a court from placing a person subject to this subdivision on probation. However, that person shall be required to pay a fine of not less than one thousand dollars ($1,000) nor more than ten thousand dollars ($10,000) or be imprisoned in the county jail for a period of not more than one year, as a condition thereof. In no event does the court have the power to absolve a person convicted pursuant to this subdivision from either being imprisoned or from paying a fine of not less than one thousand dollars ($1,000) and not more than ten thousand dollars ($10,000).
(c)In any accusatory pleading charging a violation of this section, if the defendant has been previously convicted two or more times of a violation of any subdivision of this section, each previous conviction shall be charged in the accusatory pleadings. If two or more of the previous convictions are found to be true by the jury, upon a jury trial, or by the court, upon a court trial, or are admitted by the defendant, the defendant shall, if he or she is not imprisoned in the state prison, be imprisoned in the county jail for a period of not more than one year or pay a fine of not less than one thousand dollars ($1,000) nor more than fifteen thousand dollars ($15,000), or be punished by both imprisonment and fine. Nothing in this paragraph shall prohibit a court from placing a person subject to this subdivision on probation. However, that person shall be required to pay a fine of not less than one thousand dollars ($1,000) nor more than fifteen thousand dollars ($15,000), or be imprisoned in the county jail for a period of not more than one year as a condition thereof. In no event does the court have the power to absolve a person convicted and subject to this subdivision from either being imprisoned or from paying a fine of not more than fifteen thousand dollars ($15,000).
(d)Except where the existence of a previous conviction of any subdivision of this section was not admitted or not found to be true pursuant to this section, or the court finds that a prior conviction was invalid, the court shall not strike or dismiss any prior convictions alleged in the information or indictment.
(e)This section applies not only to persons who commit any of the acts designated in paragraphs (1) to (6), inclusive, of subdivision (a), as a business or occupation, but also applies to every person who in a single instance engages in any one of the acts specified in paragraphs (1) to (6), inclusive, of subdivision (a).
SEC. 3.The Legislature finds and declares that Section 1 of this act, which adds Section 19776 to the Business and Professions Code, imposes a limitation on the publics right of access to the meetings of public bodies or the writings of public officials and agencies within the meaning of Section 3 of Article I of the California Constitution. Pursuant to that constitutional provision, the Legislature makes the following findings to demonstrate the interest protected by this limitation and the need for protecting that interest:
The limitations on the peoples right of access set forth in this chapter act are necessary to protect the privacy and integrity of information submitted by registered players as well as the proprietary information of the license applicants and licensed operators.
This chapter shall be known and may be cited as the Internet Fantasy Sports Games Consumer Protection Act.
19752.The Legislature finds and declares all of the following:
(a)The Internet is an integral tool in the everyday lives of Californians. Commerce, communication, and entertainment are just some of the areas in which this technological aid thrives.
(b)Participating in Internet fantasy sports games, including those of the daily variety, is a very popular activity in California, and with the Internet as a technological aid, participation in these games can be conducted in a virtual environment and played from the privacy of ones own computer or mobile device. Despite a lack of regulation, participation in Internet fantasy sports games still remains popular with California residents.
(c)Californians participate in Internet fantasy sports games on a daily basis on unregulated Internet Web sites. Neither federal nor California laws provide any consumer protections for California players. California players assume all risks, any negative social or financial impacts are borne by the citizens of California, and the revenues generated from these games are being realized by unlicensed operators and do not provide any benefits to the citizens of California.
(d)To better protect the people of California from potential risks from, and to maintain oversight of the systems used to carry out, Internet fantasy sports games, the Legislature finds it to be in the interest of the people to establish a regulatory framework by which entities, as authorized by the Department of Justice, may facilitate Internet fantasy sports games to players within California.
(e)State authorization to operate Internet fantasy sports games consistent with federal law, and heightened regulation and enforcement regarding this activity, will provide California with the means to protect its citizens and consumers under certain conditions by providing a framework to ensure that, among other things, the state is not subject to an unnecessary and unprecedented expansion of gambling, minors are prevented from gambling, residents participating in these games are protected, and the state is not deprived of revenues to which it would otherwise be entitled from these activities.
19754.It is the intent of the Legislature to create a licensing and regulatory framework and enforcement mechanisms for Internet fantasy sports games to do all of the following:
(a)Ensure that Internet fantasy sports games of any duration are offered for play only in a manner that is consistent with federal and state law.
(b)Ensure the state possesses sufficient resources to enforce prohibitions of illegal gambling activity, in part, by establishing a regulatory enforcement fund.
(c)Ensure that the state is able to collect income tax revenues from registered players participating in authorized Internet fantasy sports games in the state.
(d)Create systems to protect each registered players private information and prevent fraud and identity theft.
(e)Ensure that a registered player is able to have his or her financial transactions processed in a secure, timely, and transparent fashion.
(f)Require that each licensed operators Internet Web site contains information relating to problem gambling, including a telephone number that an individual may call to seek information and assistance for a potential gambling addiction.
(g)Ensure that each licensed operator maintains responsibility for the Internet fantasy sports games business and is not serving as a facade for an entity not eligible to be a licensed operator, and that each Internet fantasy sports games Web site identifies who is the actual licensed operator to ensure protection of players.
(h)Deposit regulatory fees collected by the state from each licensed operator into the Fantasy Sports Fund, as established in Section 19780.
2.Definitions19760.For purposes of this chapter, all of the following definitions apply:
(a)Authorized Internet Web site means an Internet Web site operated by a licensed operator.
(b)Department means the Department of Justice.
(c)Fund means the Fantasy Sports Fund established by Section 19780.
(d)Internet fantasy sports game means 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.
(4)Pays a charge to the licensed operator providing the game in order to participate.
(e)Licensed operator means a person or entity licensed pursuant to this chapter to offer Internet fantasy sports games for play on an authorized Internet Web site.
(f)Registered player means a person registered pursuant to this chapter to participate in an Internet fantasy sports game on an authorized Internet Web site.
3.Licensed Operators and Registered Players19770.(a)A person or entity shall apply for and receive a license from the department prior to offering an Internet fantasy sports game for play in California.
(b)The department shall issue a license to a person or entity to operate an authorized Internet Web site if the applicant satisfies all of the following:
(1)The applicant is of good character, honesty, and integrity.
(2)The applicants 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 arrangements incidental to those games.
(3)The applicant is in all other respects qualified to be licensed as provided in this chapter, including, but not limited to, providing documentation establishing that the applicant is capable of paying the one-time license fee described in Section 19782 through its own net position or through credit directly available to the applicant.
(c)The department may promulgate regulations to implement this section.
19772.(a)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.
(b)A licensed operator shall ensure that an Internet fantasy sports game on its authorized Internet Web site complies with all of the following:
(1)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 an amateur or professional sports organization.
(2)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.
(3)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 charges paid by those participating registered players to the licensed operator.
(4)The winning outcome of the game shall not be either of the following:
(A)Based on the score, point spread, or performance of any single real-world team or any combination of real-world teams.
(B)Based solely on the single performance of an individual athlete in a single real-world sporting event.
19774.(a)A person shall register with a licensed operator prior to participating in an Internet fantasy sports game on an authorized Internet Web site.
(b)A licensed operator shall 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 have not been verified in accordance with this chapter.
(c)A licensed operator shall 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.
(d)A licensed operator shall ensure that a registered player is at least 21 years of age.
(e)(1)Each licensed operator shall, prior to registering and permitting a person to participate in an Internet fantasy sports game on an authorized Internet Web site, verify that the person is 21 years of age or older by doing both of the following:
(A)Attempting 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 reference to an appropriate database of government records.
(B)Verifying 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 described in subparagraph (A).
(2)If the licensed operator is unable to verify that the person is 21 years of age or older pursuant to paragraph (1), 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. For the purposes of this paragraph, a valid form of government identification includes a drivers license, state identification card, passport, official 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.
(3)A licensed operator is not in violation of this section if the operator complies with the requirements of paragraphs (1) and (2), and a person under 21 years of age participates in an Internet fantasy sports game on the operators authorized Internet Web site.
(f)The department may assess a civil penalty against a licensed operator that violates this section according to the following schedule:
(1)Not less than one thousand dollars ($1,000), and not more than two thousand dollars ($2,000), for the first violation.
(2)Not less than two thousand five hundred dollars ($2,500), and not more than three thousand five hundred dollars ($3,500), for the second violation.
(3)Not less than four thousand dollars ($4,000), and not more than five thousand dollars ($5,000), for the third violation.
(4)Not less than five thousand five hundred dollars ($5,500), and not more than six thousand five hundred dollars ($6,500), for the fourth violation.
(5)Ten thousand dollars ($10,000) for a fifth or subsequent violation.
(g)(1)The department shall, by regulation, provide a process for a licensed operator to exclude from play any person who has filled out an online self-exclusion form.
(2)The department shall develop an online self-exclusion form on or before July 1, 2017.
(3)The department shall deliver the form described in paragraph (2) to each licensed operator.
(4)A licensed operator shall prominently display a link to the departments Responsible Gambling Internet Web page and the online self-exclusion form described in paragraph (2) 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.
(5)A licensed operator shall 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.
(6)A licensed operator that has made commercially reasonable 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 operators authorized Internet Web site.
19776.(a)A licensed operator shall 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.
(b)The state and its agencies 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.
(c)Proprietary information supplied by a licensed operator to a state agency is exempt from public disclosure, consistent with subdivision (b) of Section 6253 of the Government Code.
4.Fees and Financial Provisions19780.(a)The Fantasy Sports Fund is hereby created in the State Treasury, to be administered by the department. Notwithstanding Section 13340 of the Government Code, all moneys in the fund are continuously appropriated to the department, without regard to fiscal years, in the amounts necessary for the department to perform its duties under this chapter.
(b)Each licensed operator shall pay an annual regulatory fee, to be deposited in the Fantasy Sports Fund, in an amount to be determined by the department, 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.
19782.(a)Prior to operating its authorized Internet Web site, a licensed operator shall remit to the Treasurer a one-time license fee in the amount of ____ ($____), to be deposited into the General Fund and credited against charges imposed pursuant to subdivision (b). Upon depletion of the license fee balance, the department shall notify the licensed operator to commence quarterly payments to the state in accordance with subdivision (b).
(b)In consideration of the substantial value of each license, a licensed operator shall remit to the Treasurer on a quarterly basis for deposit in the General Fund an amount equal to ____ percent of its gross income that is attributable to the operation of an authorized Internet Web site in California.
(1)Each quarterly payment shall be due on the 10th day of the month following the end of each quarter.
(2)A licensed operator shall make all electronic and written financial records available to the Treasurer and the department on an electronic basis.
5.Preemption of Local Regulation19790.A city, county, or city and county shall not regulate, tax, or enter into a contract with respect to any matter governed by this chapter. This section does not prohibit or limit the investigation and prosecution of any violation of this chapter.
SEC. 2.Section 337a of the Penal Code is amended to read:337a.(a)Except as provided in Section 336.9, 336.9 and as authorized pursuant to Chapter 4.7 (commencing with Section 19750) of Division 8 of the Business and Professions Code, every person who engages in one of the following offenses, offenses shall be punished for a first offense by imprisonment in a county jail for a period of not more than one year or in the state prison, or by a fine not to exceed five thousand dollars ($5,000), or by both imprisonment and fine:
(1)Pool selling or bookmaking, with or without writing, at any time or place.
(2)Whether for gain, hire, reward, or gratuitously, or otherwise, keeps or occupies, for any period of time whatsoever, any room, shed, tenement, tent, booth, building, float, vessel, place, stand or enclosure, of any kind, or any part thereof, with a book or books, paper or papers, apparatus, device or paraphernalia, for the purpose of recording or registering any bet or bets, any purported bet or bets, wager or wagers, any purported wager or wagers, selling pools, or purported pools, upon the result, or purported result, of any trial, purported trial, contest, or purported contest, of skill, speed or power of endurance of person or animal, or between persons, animals, or mechanical apparatus, or upon the result, or purported result, of any lot, chance, casualty, unknown or contingent event whatsoever.
(3)Whether for gain, hire, reward, or gratuitously, or otherwise, receives, holds, or forwards, or purports or pretends to receive, hold, or forward, in any manner whatsoever, any money, thing or consideration of value, or the equivalent or memorandum thereof, staked, pledged, bet or wagered, or to be staked, pledged, bet or wagered, or offered for the purpose of being staked, pledged, bet or wagered, upon the result, or purported result, of any trial, or purported trial, or contest, or purported contest, of skill, speed speed, or power of endurance of person or animal, or between persons, animals, or mechanical apparatus, or upon the result, or purported result, of any lot, chance, casualty, unknown or contingent event whatsoever.
(4)Whether for gain, hire, reward, or gratuitously, or otherwise, at any time or place, records, or registers any bet or bets, wager or wagers, upon the result, or purported result, of any trial, or purported trial, or contest, or purported contest, of skill, speed speed, or power of endurance of person or animal, or between persons, animals, or mechanical apparatus, or upon the result, or purported result, of any lot, chance, casualty, unknown or contingent event whatsoever.
(5)Being the owner, lessee or occupant of any room, shed, tenement, tent, booth, building, float, vessel, place, stand, enclosure or grounds, or any part thereof, whether for gain, hire, reward, or gratuitously, or otherwise, permits that space to be used or occupied for any purpose, or in any manner prohibited by paragraph (1), (2), (3), or (4).
(6)Lays, makes, offers or accepts any bet or bets, or wager or wagers, upon the result, or purported result, of any 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.
(b)In any accusatory pleading charging a violation of this section, if the defendant has been once previously convicted of a violation of any subdivision of this section, the previous conviction shall be charged in the accusatory pleading, and, if the previous conviction is found to be true by the jury, upon a jury trial, or by the court, upon a court trial, or is admitted by the defendant, the defendant shall, if he or she is not imprisoned in the state prison, be imprisoned in the county jail for a period of not more than one year and pay a fine of not less than one thousand dollars ($1,000) and not to exceed ten thousand dollars ($10,000). Nothing in this paragraph shall prohibit a court from placing a person subject to this subdivision on probation. However, that person shall be required to pay a fine of not less than one thousand dollars ($1,000) nor more than ten thousand dollars ($10,000) or be imprisoned in the county jail for a period of not more than one year, as a condition thereof. In no event does the court have the power to absolve a person convicted pursuant to this subdivision from either being imprisoned or from paying a fine of not less than one thousand dollars ($1,000) and not more than ten thousand dollars ($10,000).
(c)In any accusatory pleading charging a violation of this section, if the defendant has been previously convicted two or more times of a violation of any subdivision of this section, each previous conviction shall be charged in the accusatory pleadings. If two or more of the previous convictions are found to be true by the jury, upon a jury trial, or by the court, upon a court trial, or are admitted by the defendant, the defendant shall, if he or she is not imprisoned in the state prison, be imprisoned in the county jail for a period of not more than one year or pay a fine of not less than one thousand dollars ($1,000) nor more than fifteen thousand dollars ($15,000), or be punished by both imprisonment and fine. Nothing in this paragraph shall prohibit a court from placing a person subject to this subdivision on probation. However, that person shall be required to pay a fine of not less than one thousand dollars ($1,000) nor more than fifteen thousand dollars ($15,000), or be imprisoned in the county jail for a period of not more than one year as a condition thereof. In no event does the court have the power to absolve a person convicted and subject to this subdivision from either being imprisoned or from paying a fine of not more than fifteen thousand dollars ($15,000).
(d)Except where the existence of a previous conviction of any subdivision of this section was not admitted or not found to be true pursuant to this section, or the court finds that a prior conviction was invalid, the court shall not strike or dismiss any prior convictions alleged in the information or indictment.
(e)This section applies not only to persons who commit any of the acts designated in paragraphs (1) to (6), inclusive, of subdivision (a), as a business or occupation, but also applies to every person who in a single instance engages in any one of the acts specified in paragraphs (1) to (6), inclusive, of subdivision (a).
SEC. 3.The Legislature finds and declares that Section 1 of this act, which adds Section 19776 to the Business and Professions Code, imposes a limitation on the publics right of access to the meetings of public bodies or the writings of public officials and agencies within the meaning of Section 3 of Article I of the California Constitution. Pursuant to that constitutional provision, the Legislature makes the following findings to demonstrate the interest protected by this limitation and the need for protecting that interest:
The limitations on the peoples right of access set forth in this chapter are necessary to protect the privacy and integrity of information submitted by registered players as well as the proprietary information of the license applicants and licensed operators.
SECTION 1.Section 19954 of the Business and Professions Code is amended to read:19954.In addition to those fees required pursuant to Section 19951, each licensee shall pay an additional one hundred fifty dollars ($150) for each table for which it is licensed to the State Department of Public Health for deposit in the Gambling Addiction Program Fund, which is hereby established to benefit those who have a gambling addiction problem. These funds shall be made available, upon appropriation by the Legislature, to community-based organizations that directly provide aid and assistance to those persons with a gambling addiction problem.
SEC. 2.This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are:
In order to protect, at the earliest possible time, the interests of Californians who have, or whose lives are affected by, a gambling addiction problem, it is necessary that this act take effect immediately.
In addition to those fees required pursuant to Section 19951, each licensee shall pay an additional one hundred fifty dollars ($100) ($150) for each table for which it is licensed to the State Department of Public Health for deposit in the Gambling Addiction Program Fund, which is hereby established to benefit those who have a gambling addiction problem. These funds shall be made available, upon appropriation by the Legislature, to community-based organizations that directly provide aid and assistance to those persons with a gambling addiction problem.
SEC. 2.This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are:
In order to protect, at the earliest possible time, the interests of Californians who have, or whose lives are affected by, a gambling addiction problem, it is necessary that this act take effect immediately.
|
Date
|
Status
|
|---|---|
| Jan 13, 2016 | Re-referred to Com. on APPR. |
| Jun 28, 2016 | In committee: Set, first hearing. Hearing canceled at the request of author. |
| Jun 21, 2016 | From committee chair, with author's amendments: Amend, and re-refer to committee. Read second time, amended, and re-referred to Com. on G.O. |
| May 12, 2016 | Referred to Coms. on G.O. and RLS. |
| Jan 27, 2016 | Read third time. Passed. Ordered to the Senate. (Ayes 68. Noes 1. Page 3500.) |
| Jan 27, 2016 | In Senate. Read first time. To Com. on RLS. for assignment. |
| Jan 21, 2016 | Read second time. Ordered to third reading. |
| Jan 21, 2016 | In committee: Set, first hearing. Referred to APPR. suspense file. |
| Jan 21, 2016 | From committee: Do pass. (Ayes 15. Noes 0.) (January 21). |
| Feb 27, 2015 | Introduced. To print. |
| Jan 12, 2016 | Read second time and amended. |
| Jan 11, 2016 | From committee: Amend, and do pass as amended and re-refer to Com. on APPR. (Ayes 18. Noes 1.) (January 6). |
| Sep 11, 2015 | Re-referred to Com. on G.O. |
| Sep 10, 2015 | From committee chair, with author's amendments: Amend, and re-refer to Com. on G.O. Read second time and amended. |
| Mar 26, 2015 | Referred to Com. on G.O. |
| Mar 2, 2015 | Read first time. |
| Mar 1, 2015 | From printer. May be heard in committee March 31. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Jan 27, 2016 | AB 1437 GRAY Assembly Third Reading | Assembly Floor |
Passed |
|
| Jan 21, 2016 | Do pass. | Assembly Standing Committee on Appropriations |
Passed |
|
| Jan 6, 2016 | Do pass as amended and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Governmental Organization |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| California Coalition Against Gambling Expansion (Cage) | * Against | Jan 6, 2016 |
| California Police Chiefs Association | ** Support | Jan 6, 2016 |
| Crystal Casino & Hotel | * Indeterminate | Jan 6, 2016 |
| Daily Fantasy Sports Players Alliance | ** Support | Jan 6, 2016 |
| Los Angeles Clippers | ** Support | Jan 6, 2016 |
| Stand up for California! | ** Against | Jan 6, 2016 |
| Various DFS Players in California | ** Support | Jan 6, 2016 |
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Isadore Hall, III
Chair
2015 - 2016 Regular
Bill No: AB 1437 Hearing Date: 6/28/2016
Author: | Gray | ||
Version: | 6/21/2016 Amended | ||
Urgency: | Yes | Fiscal: | Yes |
Consultant: | Felipe Lopez | ||
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:
- 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.
- 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.
- 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 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.
- Specifies that the Legislature has no power to authorize, and shall prohibit, casino games of the type currently operating in Nevada and New Jersey.
- 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.
- 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.
- 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.
- Prohibits banking or percentage games played with cards, dice, or any device, for money, check, credit or other representative of value.
- Prohibits bookmaking and pool selling.
- 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.
- Prohibits lotteries, with exceptions for the California State Lottery, bingo for charitable purposes, and charitable raffles conducted by non-profit, tax-exempt organizations.
- 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 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.
- 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.
- 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:
- 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.
- 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:
- 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.
- Uses the statistics accumulated by professional athletes in real-world sporting events to determine the scores of the imaginary or simulated game.
- Plays for a predetermined prize.
- Pays a fee to the licensed operator providing the game in order to participate.
- Requires DOJ to issue a license to a person or entity to operate an authorized Internet Web site if the applicant satisfies all of the following:
- The applicant is of good character, honesty, and integrity.
- 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.
- 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.
- Authorizes DOJ to promulgate regulations to implement the provisions of this bill.
- 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.
- Requires a licensed operator to ensure that an Internet fantasy sports game on its authorized Internet Web site complies with all of the following:
- 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.
- 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.
- 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.
- The winning outcome of the game shall not be either of the following:
- Based on the score, point spread, or performance of any single real-world team or any combination of real-world teams.
- Based solely on the single performance of an individual athlete in a single real-world sporting event.
- 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.
- Requires a licensed operator to hold the funds of a registered player in a registered player’s account in trust for that registered player.
- Requires a licensed operator to implement, and prominently display on its authorized Internet Web site, procedures that accomplish all of the following:
- Prevent unauthorized withdrawals from registered player accounts, including, but not limited to, withdrawals by the licensed operator and other individuals.
- Prevent commingling of funds in a registered player account with other funds, including, but not limited to, the licensed operator’s funds.
- 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.
- Prohibits a licensed operator from issuing credit to a registered player.
- Prohibits a licensed operator from allowing a registered player to establish more than one account or user name on its authorized Internet Web site.
- 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.
- Prohibits a licensed operator from advertising an Internet 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.
- Requires a person to register with a licensed operator prior to participating in an Internet fantasy sports game on an authorized Internet Web site.
- 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.
- 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.
- 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:
- 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.
- 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.
- 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 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.
- 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.
- Specifies that DOJ may assess a civil penalty against a licensed operator that violates the provisions of this bill according to the following schedule:
- Not less than $1,000 and not more than $2,000 for the first violation.
- Not less than $2,500 and not more than $3,500 for the second violation.
- Not less than $4,000 and not more than $5,000 for the third violation.
- Not less than $5,500 and not more than $6,500 for the fourth violation.
- $10,000 for a fifth or subsequent violation.
- Requires DOJ to develop an online self-exclusion form on or before July 1, 2017 and deliver the form to each licensed operator.
- 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 person registers as a registered player.
- Each time a registered player accesses the authorized Internet Web site prior to playing.
- 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 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.
- Prohibits an officer, director, principal, employee, or contractor of a licensed operator from doing any of the following:
- Playing on an Internet fantasy sports game by a licensed operator.
- Playing an Internet fantasy sports game offered by a licensed operator through another person or proxy.
- 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.
- Requires a licensed operator to make the prohibitions known to all affected individuals and corporate entities.
- 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.
- 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.
- 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.
- Exempts proprietary information supplied by a licensed operator to a state agency from public disclosure.
- Creates the Fantasy Sports Fund (Fund) in the State 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.
- 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.
- 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.
- 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.
- Specifies that each quarterly payment shall be due on the 10th day of the month following the end of each quarter.
- Requires a licensed operator to make all electronic and written financial records available to the State Treasurer and DOJ on an electronic basis.
- 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.
- Makes various legislative findings.
- Includes an urgency statute to take effect immediately.
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 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. 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 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 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. 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 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 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 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?
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 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
ASSEMBLY THIRD READING
ATR Bill Id:AB 1437
Author:(Gray)
As Amended Ver:January 12, 2016
2/3 vote
Committee | Votes | Ayes | Noes |
Governmental Organization | 18-1 | Gray, Linder, Alejo, Bigelow, Campos, Cooley, Cooper, Daly, Cristina Garcia, Eduardo Garcia, Gipson, Roger Hernández, Jones-Sawyer, Lopez, Salas, Steinorth, Waldron, Wilk | Levine |
Appropriations | 15-0 | Gomez, Bigelow, Bloom, Bonilla, Bonta, Calderon, Chang, Daly, Eggman, Eduardo Garcia, Holden, Quirk, Wagner, Weber, Wood |
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:
- 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.
- 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.
- Requires 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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 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.
- 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.
- 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.
- Makes various legislative findings and declarations.
EXISTING LAW:
- Prohibits lotteries, with exceptions for the California State Lottery, bingo for charitable purposes, and charitable raffles conducted by non-profit, tax-exempt organizations.
- 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 lottery, raffle, or gift enterprise, or by whatever name the same may be known.
- 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.
- 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.
- 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.
- States the Legislature has no power to authorize, and shall prohibit, casino games of the type currently operating in Nevada and New Jersey.
- Prohibits games as defined in Penal Code (PC) Section 330, or any banking and/or percentage games.
- 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, animals, or mechanical apparatus.
- Prohibits pool selling or bookmaking, with or without writing, at any time or place. (PC Section 337a)
- 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."
- 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.
- 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.
- 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 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.
- 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.
- 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).
- 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:
- Unknown ongoing potential increased General Fund revenue resulting from the unspecified tax and potential penalty fines.
- Unknown increased administrative and enforcement costs to DOJ likely offset by the regulatory licensing fee (special fund).
- 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 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 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 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 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 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, 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:
- A gambling business described in the indictment was conducted which violated the laws of the state in which it was conducted;
- 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
- 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.
- 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.
- Bureau: 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 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
- 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 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:
- 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, 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.
- 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.
- 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.
- 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.
- 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:
- 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.
- Casino-Partnership — States, such as Indiana, have proposed legislation that would authorize land-based casinos to partner with DFS operators.
- 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 (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
Date of Hearing: January 21, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
ABPCA Bill Id:AB 1437
Author:(Gray) – As Amended Ver:January 12, 2016
Policy Committee: | Governmental Organization | Vote: | 18 - 1 |
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Urgency: No State Mandated Local Program: No Reimbursable: No
SUMMARY:
This bill establishes the Internet Fantasy Sports Game Consumer Protection Act (Act) and requires DOJ to license and regulate internet fantasy sports. Specifically, this bill:
- 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:
- Competes against other players or a target score as the owner or manager of an imaginary or simulated team of in an imaginary or simulated game.
- Uses the statistics accumulated by athletes in real-world sporting events to determine the scores of the imaginary or simulated game.
- Plays for a predetermined prize; and
- Pays a charge to the licensed operator providing the game in order to participate.
- Requires a person or entity to receive a license from DOJ prior to offering an Internet fantasy sports game for play in California.
- Requires DOJ to issue a license if the applicant meets specified eligibility and suitability criteria. Allows DOJ to establish regulations to implement the licensing criteria and process.
- Requires the licensed operator to identify itself on its website and to comply with specified requirements for Internet fantasy sports gaming. Establishes content requirements for websites including notification and links to DOJ's Responsible Gambling Internet Web page.
- Requires the licensed operator to hold funds in the account of a registered player, as defined, in trust. Requires the licensed operator to prevent unauthorized withdrawals, comingling of funds and prohibits the licensed operator from issuing credits to registered players.
- Requires the licensed operator to implement data security standards and ensure players are at least 21 years old and physically located in California. Prohibits a registered player from having more than one account on each website. Authorizes DOJ to assess civil penalties and establishes a graduated civil penalty structure ranging from $1,000 to $10,000 based on prior violations.
- Requires a DOJ to develop and provide an online self-exclusion process to licensed operators by regulation as specified. Prohibits licensed operators from advertising to persons under 21 years of age or who have self-excluded.
- Prohibits licensed operators, officers, contractors, and employees from participating in Internet Fantasy Sports and disclosing proprietary or nonpublic information as specified.
- Requires licensed operators to facilitate the collection of income tax from registered players and requires state agencies to treat proprietary information, including the social security numbers of registered players, as confidential.
- Requires each licensed operator to pay a regulatory fee to be determined by DOJ. Requires fees to be deposited in the Fantasy Sports Fund, established by the bill, and continuously appropriates funds to DOJ in amounts necessary to perform its duties.
- Imposes a one-time tax on licensed operators in an amount yet to be specified to be deposited in the General Fund. Upon depletion of the one-time tax, DOJ is required to notify licensed operators to commence quarterly tax payments in an amount equal to a yet to be determined percentage of gross income.
- Preempts local governments from regulating, taxing, or contracting with respect to anything governed by the Act, but allows investigation and prosecution of violations of the Act. Exempts the Act from fines and punishment associated with pool selling, bookmarking and other forms of illegal gambling.
- Makes various legislative findings and declarations.
FISCAL EFFECT:
- Unknown ongoing potential increased GF revenue resulting from the unspecified tax and potential penalty fines.
- Unknown increased administrative and enforcement costs to DOJ likely offset by the regulatory licensing fee (special fund).
- Unknown potential increases in income tax collection from registered players (GF).
COMMENTS:
- Purpose. According to the author, 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. This bill establishes a framework to license and regulate to ensure consumers are playing on websites with comprehensive consumer protections.
- Background. A fantasy sport is generally a type of online game in which players assemble imaginary or virtual teams of real athletes from amateur or professional sports and compete based on the statistical performance of the individual athletes in actual games. DFS games are played over short-term periods rather than over the entire season as with traditional fantasy sports.
DFS websites have been operating for years but have recently increased in popularity following a major advertising campaign launched by FanDuel and DraftKings prior to the 2015 National Football League (NFL) season. DFS games are typically played as contests subject to an entry fee that funds the advertised prize pool and the operator's cut, also called a raking fee. A raking fee is the amount of commission the operator takes off each entry fee, typically about 10%. DFS raking fee percentages vary, but are usually higher for low entry fee games. Some sites offer no raking games to entice players with bigger awards.
Many companies have invested hundreds of millions of dollars in DFS websites, including professional sports teams/leagues, media conglomerates and venture capitalists. According to the Wallstreet Journal, FanDuel and DraftKings control 95% of the North American market and are each valued at over $1 billion but have not made a profit due to heavy advertising spending to attract customers. In 2014, FanDuel generated $57 million in revenue and awarded $564 million in prizes while DraftKings generated $30 million in revenue and awarded $300 million in prizes.
- Unlawful Internet Gambling Enforcement Act (UIGEA) and DFS beginnings. In 2006, in response to the rampant and corrupt online poker industry, Congress passed UIGEA to ban internet gambling. The federal law includes an exclusion for fantasy sports if the games meet specified skill-based criteria and were not otherwise prohibited by state or federal law. The DFS industry emerged as the online poker industry ceased most operations in the states. The United States Attorney General effectively shut down internet poker on April 15, 2011, a day gamblers refer to as "Black Friday."
In September 2015, an employee at DraftKings inadvertently published information that may have given him an advantage over his competitors. That same day, he won $350,000 on FanDuel. This led to greater scrutiny of the unregulated industry and unproven allegations of insider trading. In response, DraftKings and FanDuel both adopted policies to ban play by company employees and owners.
- Regulatory and Legislative Efforts. In response to the DraftKings information leak, many states are taking action regarding the industry. Regulatory agencies in several states, specifically Nevada, New York and Illinois, have determined DFS to be illegal gambling and are attempting to shut down the activity through cease and desist orders in their respective states. Other states, such as Massachusetts have instead regulated DFS and approximately 16 states are proposing legislation to legalize or regulate DFS.
To date, California's Attorney General has not opined on DFS nor taken any enforcement actions. This analysis does not address the legality of DFS under federal nor state law nor attempts to determine if the Legislature has the Constitutional authority to regulate DFS by statute.
On January 19, 2016, Texas' Attorney General issued an advisory opinion that DFS is prohibited gambling in the state and suggested a court would find the practice illegal.
- FantasyUp Folds. On January 14, 2016, DFS operator FantasyUp ceased operations and legally dissolved its business. According to the Legal Sports Report, the company informed its users by email that it would not be processing any withdrawals due to lack of capital. It is unknown how much or how many players are owed money. In its email, the company stated that numerous legal issues facing the industry have increased the cost of doing business and decreased the ability to attract investors. Others suggest the company became insolvent due its efforts to attract players with no raking fees and 300% bonuses on deposits.
Players began having problems getting their withdrawals processed in a timely fashion last summer with payments sometimes taking weeks or months. While players struggled to get their money, the site continued advertising and taking deposits.
- Discussions Continue. The author indicates he is continuing to work on bill provisions to address the fact that DFS is already operating in California and this bill does not contain a grandfathering clause or temporary DFS license while DOJ is developing regulations. Additionally, the fees and taxes are in unspecified amounts that need to be determined before the bill is enacted.
Further, this bill requires state agencies to protect players' confidential information, but does not place that same requirement on licensed operators or prohibit the sale of customer information to others. The author is working with consumer protection groups to further refine these provisions.
Others have raised concerns regarding whether DOJ is the appropriate regulatory agency and discussions with stakeholders and other interested parties continue.
- Remaining Concerns. The Committee is not recommending amendments at this time, but has identified several issues that may require clarification. The author may wish to consider revisions including but not limited to:
- Tightening up definitions to prevent loopholes, particularly in the definition of "Authorized Internet Website."
- Defining "commercially reasonable effort" as it applies to determining player eligibility.
- Streamlining the civil penalties and considering additional penalties for other violations of the Act.
- Clarifying all funds in the Fantasy Sports Fund are continuously appropriated.
Analysis Prepared by: Jennifer Galehouse / APPR. / (916) 319-2081
Date of Hearing: January 6, 2016
ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
Adam Gray, Chair
ABPCA Bill Id:AB 1437 (
Author:Gray) – As Amended Ver: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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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 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.
- 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.
- 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.
- Makes various legislative findings.
EXISTING LAW:
- Prohibits lotteries, with exceptions for the California State Lottery, bingo for charitable purposes, and charitable raffles conducted by non-profit, tax-exempt organizations.
- 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 lottery, raffle, or gift enterprise, or by whatever name the same may be known.
- 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.
- 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.
- 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.
- States the Legislature has no power to authorize, and shall prohibit, casino games of the type currently operating in Nevada and New Jersey.
- Prohibits games as defined in Penal Code Section 330, or any banking and/or percentage games.
- 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, animals, or mechanical apparatus.
- Prohibits bookmaking and pool selling.
- 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.
- 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.
- 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).
- 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 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.
- 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.
- 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).
- 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:
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 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 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 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.
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 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 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 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.
- 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 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.
- 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
- 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 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, 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.
- 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 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.
- 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:
- Protections for DFS consumer accounts:
- 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:
- Prevent unauthorized withdrawals from DFS consumer accounts by DFSOs or others;
- Prevent commingling of funds in a DFS consumer account with other funds including, without limitation, funds of the DFSO; and
- Establish procedures for responding to and reporting on complaints by DFS consumers that their accounts have been misallocated, compromised or otherwise mishandled.
- Truthful Advertising - Limitations on Advertising Content:
1. DFSO advertisements will not depict minors (under the age of 21), students or school or college settings.
- DFSOs will not advertise in publications or other media that are aimed exclusively or primarily at minors.
- 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.
- 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.
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 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!
Analysis Prepared by: Eric Johnson and Kenton Stanhope / G.O. / (916) 319-2531
Discussed in Hearing
14MIN
Assembly Floor
2MIN
Assembly Standing Committee on Appropriations
10SEC
Assembly Standing Committee on Appropriations
36MIN
Assembly Standing Committee on Governmental Organization
Bill Author
