California became the first jurisdiction in the United States to pass a daily fantasy sports regulation bill out of a committee hearing, after a vote on Wednesday afternoon.
The bill sponsored by Assemblymember Adam Gray — AB 1437 — passed through the Governmental Organization Committee nearly unanimously. Assemblymember Marc Levine, who has been an outspoken critic of the DFS industry, was the only “no” vote.
Important first step for DFS regulation
While DFS bills have been introduced in a variety of states around the country, California was the first one to move a piece of legislation forward.
The bill still faces a number of steps to become law. It still will not be considered by the full Assembly; it must first also pass through the Appropriations Committee.
The tone of the committee members was that they were in favor of moving the bill forward, while acknowledging that it is not a finished product, and needs more work down the road.
Regardless, it was a victory for those who want DFS to continue to be legal in the state moving forward, and regulated in the future.
Fantasy Sports Trade Association Chairman Peter Schoenke appeared briefly in front of the committee, saying the organization was officially “neutral” on the bill.
Gray’s argument for the DFS bill
Gray, the committee chairman, left his chair to advocate for the bill, while assemblymembers would later offer their takes — and largely their support — for the bill.
Gray stressed to the committee that the daily fantasy sports industry — as it stands now — is unregulated, and that not advancing legislation would simply keep the status quo. In that status quo, Californians are playing and will continue to play DFS, whether the legislature acts or not.
Gray said his bill would “ensure consumers are playing on websites that provide comprehensive consumer protections” in his opening comments.
That argument is likely why the bill was moved along, to be worked on at a later date.
He also noted that he was offering amendments on the bill — which can be seen in a bill analysis here — that included provisions for:
- Segregation of player funds by DFS operators
- Truth in advertising for DFS sites
- Problem gambling
- Ensuring fairness in DFS contests
What the committee members said
Almost every member wanted the bill to progress to the next step, but nearly all had some sort of concerns they wanted to see addressed at some point:
- Jim Cooper expressed concerns with the Department of Justice being the oversight body for DFS as outlined in the bill. He noted that a backlog of gaming cases with cardrooms — some 2,000 — were already on the DOJ’s docket. “While DOJ is being afforded more money by fantasy sports, there are no increased numbers of investigators. This has been going on for years and years and years.” He wondered if DFS should be under the purview of another department. He, like many who followed him, said he supported the bill.
- Ken Cooley wondered aloud if DFS constitutes a lottery under state law, and wondered if the language from the Unlawful Internet Gambling Enforcement Act — which was used in the legislation — is the best model. He also wanted to make sure a level playing field was being created by the legislation. Despite those concerns, Cooley still was supportive of the bill in broad strokes.
- Scott Wilk applauded Gray for being proactive on the matter of DFS. He said legality of DFS is “for others to decide,” and it was the legislature’s job to move forward with regulations. He said he was usually not a fan of bills that are “not fully cooked” — a nod to the idea that the bill is not finished — but still supported it.
- Frank Bigelow said that there are concerns for DFS beyond the state level, citing possible issues under federal law. He worried about the idea that the bill allows for interstate play — not just intrastate. But he said he supported working on the bill moving forward.
- Cristina Garcia asked where the other gaming interests in the state — tribes, cardrooms and race tracks (more on that below) — fell on the issue, and framed the bill in terms of also wanting to work on online poker. Gray said the bill makes DFS available to all gaming interests in the state.
- Vice chair Eric Linder summed up the opinions of many of his colleagues in his comments. “I think there’s a lot we need to get right moving forward, and I am prepared to support this bill. I think we do need to be incredibly thoughtful, making sure it meets the constitutional requirements” — referring to Levine’s comments (see below). He also alluded to wanting to hear from the AG on whether DFS is a game of skill or gambling under state law.
Only one true voice of DFS dissent
Levine was the only member to speak out against the bill. For several months, Levine has been an opponent of the DFS industry, although he would still like to see the industry regulated as an endgame. He earlier asked Attorney General Kamala Harris to offer a legal opinion.
Levine said he believes that the state constitution must be amended to make it possible to regulate DFS.
From his testimony: “This is gambling. There is no doubt about it. Let’s not fool ourselves. An entry fee is a wager. Cash prizes are gambling winnings. DFS companies are bookies. Playing these games is sports betting.”
Levine has not succeeded in swaying any of his fellow committee members to pull back on DFS regulation, so far. The status of his request for the opinion of the AG’s office is unknown.
There are also questions about whether the Professional and Amateur Sports Protection Act could be a potential problem for DFS regulation, an issue that was not addressed.
The Indian tribes are not on board
One possible major stumbling block for the bill could be tribal gaming interests in the state.
On Tuesday, the California Nations Indian Gaming Association made a statement saying it did not want to see the DFS bill move forward before online poker. (Originally, the hearing was set to consider iPoker and sports betting, before it was pared down to DFS only.)
“We realize there are two other bills dealing with sports betting (AB 1441) and daily fantasy sports (DFS) (AB 1437) sharing the agenda with the I-Poker bill, AB 167. Introduced by Representative Reginald Jones-Sawyer, AB 167 represents one of the last in a series of I-Poker bills, which, unlike AB 1441 and AB 1437, were thoroughly vetted, debated, altered, massaged, and continually passed over with the hope of a political miracle of consensus in the next year,” stated Chairman Steve Stallings.
“The regulation of fantasy sports is well intended. However, the state needs to prove it can deal with one online game–I-Poker–before it takes on others.”
Online poker legislation has had difficulty gaining traction in part because of tribal concerns in the state; it’s unclear if opposition from the tribes could scuttle DFS regulation in the short term.
Other items of note from the ‘bill analysis’
The analysis of the bill posted on Tuesday, in addition to containing amendments to the legislation, had some other interesting items in it:
- The licensing fee for daily fantasy sports — which is left as “to be determined” in the original bill — was cleared up a bit. The fee will be determined by the DOJ, as written:
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.
- The bill cited some of the relevant statutory concerns in California, but it did not come to a conclusion about the current legality of DFS under state law.