Illinois Representative Introduces ‘Fantasy Contest Act’

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[toc]Illinois State Representative Mike Zalewski formally introduced the “Fantasy Contests Act” to the legislature, the first daily fantasy sports law to be drafted following increased government and industry media scrutiny this month.

Follow the invoice (HB 4323) here, Full Text here.

The bill, in its presented form, falls within the “light touch” category it would not be expensive for DFS operators to meet.

What the DFS Bill Sponsors Said

Zalewski spoke about his bill at a press conference on Tuesday, and in a press release announcing his introduction:

“There’s a reason we see FanDuel and DraftKings advertise so frequently at Sunday football and other major sporting events, and why policymakers here and around the country pay close attention to it,” he said. Zalewski said in a press release announcing the bill. “We need an in-depth debate on how best to provide this popular entertainment and protect players in Illinois, and I hope this is a good framework to reignite this debate as we head into 2016.” We have a chance here to put Illinois first. new and emerging technology and encourage responsible innovation, rather than stifle it.

“Fantasy sports are growing in popularity and we want to be sure that we provide a framework that allows them to continue to succeed and develop while ensuring that they are managed to the right standards to protect players,” said State Senator Kwame Raoul, which will sponsor the legislation in the Senate. “We need to know that fantastic sports organizations are responsible for providing their entertainment, just as we ask all companies doing business in Illinois.”

Key points of the Illinois fantasy bill

The bill was about to be introduced – most recently by the the Wall Street newspaper. Zalewski had introduced a DFS invoice in April which has never contained a language; it was just a placeholder.

One of the key points is that DFS is specifically exempt from the gambling code within the framework of the legislation. This is likely a model that the DFS industry would like to see replicated in other jurisdictions, although the likelihood of this happening is unclear. (For example, the Attorney General and the Nevada Gaming Commission have stated that DFS sites require gaming licenses operate; a california invoice would likely include a license and tax schedule.)

The bill amends the Illinois Criminal Code of 2012 by amending section 28-1, the part of the state code dealing with gambling. It says “Participants in any of the following activities will not be found guilty of gambling” and adds this subsection: “Fantastic contests within the meaning of the Fantastic Contests Act”.

Other high-level takeaways:

  • The bill does not mention any license fees or taxes to be levied on DFS operators.
  • The bill defines a “fantasy contest” much like the Internet Illegal Gambling Law Enforcement Act the fact, including the sentence that the results should “reflect the relative knowledge and skills of the participants”.
  • The bill establishes a general regulatory structure this includes age verification, disqualification of employees from participating in DFS competitions, segregation of player funds and third party audits.
  • Defying the act results in a “civil penalty” of “no more than $ 1,000 for each violation.”

A closer look at the language of the DFS invoice

In a conversation about the bill with Legal Sports Report, Zalewski said the bill would provide “consumer protections”:

“The bill seeks to establish practices for the daily fantasy sports industry,” Zalewski LSR said.

Here is a closer look at what the bill does in particular. The gist of the bill is clause 10, which forces operators to offer fantasy contests in Illinois implement a series of “policies and procedures.”

What DFS Operators Must Do To Comply

Operators must:

  1. Prevent employees from playing DFS on any other operator’s site.
  2. Prevent “sharing of confidential information that could affect the fantasy contest with third parties until the information is made public.”
  3. Establish methods to verify that players are 18 years of age or older.
  4. Prevent real life athletes from participating in some fantastic competitions that they are involved in.
  5. Provide a means for users to restrict their access to the site. (This section is very similar to self-exclusion methods on gambling sites, although it is not called that.)
  6. Disclose the number of entries that a single user can make in a contest.
  7. “Check tax liens and child support obligations” before authorizing withdrawals.
  8. Separate player funds from operational funds and “maintain a reserve in the form of cash, cash equivalents, an irrevocable letter of credit or bond, or a combination of any of these” equals deposits in player accounts.
  9. Have an annual audit carried out by a third party, which must be submitted to the Attorney General.

To what extent or to what extent operators are already complying with many of these policies in the current environment, it is generally not known.

How would DFS operators implement the policies?

The way in which operators implement these policies is not specified. Usually, these details would be left to the discretion of the state gaming commission, but because the law specifically excludes DFS from the game code, it is not an option in the bill as it is currently constructed.

It is at least possible that the third party audit could cover all of the above policies. It is also possible that a self-regulatory plan declared be offered by the Fantastic Sports Trade Association could dovetail with the Illinois bill to clarify how all of these policies are implemented. The regulatory plan was announced on Tuesday afternoon.

How would the DFS law be applied?

The only execution mechanism mentioned is the state attorney general, which can penalize operators $ 1,000 per offense. This could obviously add up if adequate policies are not put in place by the operators.

If the annual audit prescribed is not received by the GA’s office, it seems reasonable to assume that this would trigger an investigation into whether the other measures of the law are being followed.

However, the bill seems volunteer from the state attorney general’s office as the de facto regulator for the DFS industry. There are dozens of DFS operators this would be within the purview of the law, and the state attorney general’s office has yet to weigh in on the bill.

No taxes or fees?

The bill makes no mention of licenses and fees, and Zalewski confirmed to LSR that he intends not to add financial measures to the bill.

DFS sites are on board with the invoice

According to the aforementioned story from the WSJ, it appears that the heavyweights in the industry, DraftKings and FanDuel, support legislation.

FanDuel CEO Nigel Eccles told the WSJ he looked forward to “the opportunity to work with Representative Zalewski and Illinois lawmakers to protect consumers.” DraftKings also supported the legislation through a company representative.

Invoice deadline?

Zalewski notes that Illinois is in the middle of a prolonged budget battle, and that the bill will not be a priority item. He said he does not expect any action on the bill this year and will likely be considered in the spring.

This gives Zalewski and other lawmakers time to work with stakeholders to refine the bill, he said.

Wildcard: Illinois State AG

As mentioned earlier, the State Attorney General – currently Lisa Madigan – will probably play a big role in the bill.

Earlier this month, the Illinois Gambling Council said he “planned to seek legal advice on whether daily fantasy sports websites like those ordered to close in Nevada violate state law,” according to a Associated press article.

Madigan has not yet issued a review. If Madigan thinks that the daily fantastic sports venues have been operating in violation of current state law, this could obviously affect the prospects of this legislation. It could also create a chilling effect on Madigan’s willingness to work with the sites and the legislator.

And, although Madigan finds that DFS sites are operating in accordance with the lawWhether his office is willing to play the active role mandated by the bill is an unanswered question.

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