Illinois State Representative Mike Zalewski formally introduced the “Fantasy Contests Act” in the legislature, the first piece of daily fantasy sports legislation to be drafted in the wake of increased government and media scrutiny of the industry this month.
Track the bill (HB 4323) here, full text here.
The bill, in its introduced form, falls in the “light touch” category that would not be onerous for DFS operators to meet.
What the DFS bill sponsors said
Zalewski talked about his bill in a press conference on Tuesday, and in a press release announcing its introduction:
“There’s a reason we see FanDuel and DraftKings advertising so frequently during Sunday football and other major sporting events, and why policymakers here and around the country are paying close attention,” Zalewski said in a press release announcing the bill. “We need a thorough debate over how to best provide this popular entertainment and protect players in Illinois, and my hope is this is a good framework to jumpstart that debate as we head into 2016. We have a chance here to put Illinois at the forefront of a new and emerging technology and to encourage responsible innovation, rather than stifle it.”
“Fantasy sports are growing in popularity, and we want to be sure we provide a framework that allows them to continue to succeed and grow while ensuring they are run to the right standards to protect players,” said state Sen. Kwame Raoul, who will sponsor the legislation in the Senate. “We need to know that fantasy sports organizations are providing their entertainment responsibly, just as we ask of all companies doing business in Illinois.”
Key takeaways from the Illinois fantasy bill
The bill had been reported to be on its way — most recently by the Wall Street Journal. Zalewski had introduced a DFS bill in April that never contained any language; it was merely a placeholder.
One of the key points is that DFS is specifically exempted from the gambling code as part of the legislation. This is likely a model that the DFS industry would like to see repeated in other jurisdictions, although it’s unclear how likely that is to occur. (For instance, Nevada’s attorney general and gaming commission have said DFS sites require gaming licenses to operate; a bill in California would likely include a licensing and tax schedule.)
The bill amends the Illinois Criminal Code of 2012 by changing Section 28-1, the part of state code dealing with gambling. It says “Participants in any of the following activities shall not be convicted of gambling” and adds this subsection: “Fantasy contests as defined under the Fantasy Contests Act.”
Other top-level takeaways:
- The bill does not mention any licensing fees or taxes to be levied on DFS operators.
- The bill defines a “fantasy contest” much like the federal Unlawful Internet Gambling Enforcement Act does, including the phrase that outcomes must “reflect the relative knowledge and skill of the participants.”
- The bill sets up a general structure for regulation that includes age verification, preventing employees from playing DFS contests, player fund segregation and third-party audits.
- Defying the act results in a “civil penalty” of “not more than $1,000 for each violation.”
A closer look at the DFS bill’s language
In a conversation about the bill with Legal Sports Report, Zalewski said the bill would provide “consumer protections”:
“The bill seeks to put in place practices for the daily fantasy sports industry,” Zalewski LSR said.
Here’s a closer look what the bill does, specifically. The meat of the bill is Section 10, which requires operators offering fantasy contests in Illinois to implement a series of “policies and procedures.”
What DFS operators have to do to comply
- Prevent employees from playing DFS at any other operator’s site.
- Prevent “sharing of confidential information that could affect fantasy contest play with third parties until the information is made publicly available.”
- Put in a place methods to verify players are 18 or older.
- Prevent real-life athletes from taking part in fantasy contests in which they are involved.
- Provide a way for users to restrict their access to the site. (This section appears to be much like self-exclusion methods on gambling sites, although it’s not termed as such.)
- Disclose the number of entries a single user may make in any contest.
- “Check for tax liens and child support obligations” before allowing withdrawals.
- Segregate player funds from operational funds and “maintain a reserve in the form of cash, cash equivalents, an irrevocable letter of credit, or a bond, or a combination of any of these types” equal to deposits in player accounts.
- Have a third party conduct an annual audit, which must be submitted to the attorney general.
How well or to what extent operators already comply with many of these policies in the current environment, is generally unknown.
How would DFS operators implement the policies?
How operators implement these policies is not spelled out. Usually, such details would be left up to the gaming commission in a state, but because the act specifically carves DFS out from the gambling code, that is not an option in the bill as currently constructed.
It’s at least feasible that the third party audit could cover all of the above policies. It is also possible that a reported self-regulatory plan to be offered by the Fantasy Sports Trade Association could dovetail with the Illinois bill to provide clarity on how all these policies are implemented. The regulatory plan was announced Tuesday afternoon.
How would the DFS law be enforced?
The only enforcement mechanism mentioned is the state attorney general, who can penalize operators $1,000 per violation. That could obviously add up if adequate policies are not put in place by operators.
If the prescribed annual audit is not received by the AG’s office, it seems safe to assume that would trigger an investigation of whether the other measures in the act are being followed.
However, the bill appears to volunteer the state attorney general’s office as the de facto regulatory body for the DFS industry. There are dozens of DFS operators that would fall under the purview of the act, and the state attorney general’s office has not yet weighed in on the bill.
No taxes or fees?
The bill makes no mention of any licensing and fees, and Zalewski confirmed to LSR that it was his intent to not add any financial measures to the bill.
DFS sites are on board with the bill
According to the aforementioned WSJ story, it appears the industry’s heavyweights, DraftKings and FanDuel, support the legislation.
FanDuel CEO Nigel Eccles told the WSJ that he welcomes “the opportunity to work with Rep. Zalewski and lawmakers in Illinois to safeguard consumers.” DraftKings also supported the legislation through a company representative.
Timeframe of the bill?
Zalewski notes that Illinois is in the midst of a prolonged budget battle, and that the bill is not going to be a front-burner item. He said he expects no action on the bill this year, and that it will likely be considered in the spring.
That gives Zalewski and other lawmakers time to work with stakeholders on fine-tuning the bill, he said.
Wild card: Illinois State AG
As mentioned earlier, the state attorney general — currently Lisa Madigan — will likely play a big role in the bill.
Earlier this month, the Illinois Gaming Board said it “plans to seek a legal opinion on whether daily fantasy sports websites like those ordered shut down in Nevada violate state law,” according to an Associated Press story.
Madigan has not yet issued an opinion. If Madigan believes daily fantasy sports sites have been operating in violation of current state law, that could obviously affect the prospects of this legislation. It might also create a chilling effect on Madigan’s willingness to work with the sites and the legislature.
And, even if Madigan finds DFS sites are operating within the law, whether her office is willing to take the active role prescribed by the bill is an unanswered question.