New Regulatory Bills for DFS in Texas

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Lawmakers in Texas have entered into the second month of this year with a trilogy of gaming bills that are aimed at the Daily Fantasy Sports (DFS) industry. The three bills collectively look to legalise and regulate DFS in the state of Texas; bringing much needed consumer protection to the field.

Last year, Daily Fantasy Sport (DFS) companies were busy lobbying for their businesses while legislators from across the country clamoured to introduce and implement new laws. The ambiguous legal nature of the sport has had many government officials in a state of confusion. While a handful of states have managed to successfully implement new DFS laws, other are still trying to establish such bills for the legalisation and regulation of DFS within their jurisdiction.

The Trio of Texas DFS Bills

Lawmakers in the state of Texas are starting an effort to explicitly legalise and regulate paid- entry fantasy sports contests with a series of bills. The lead author for all three bills happens to be Texas State Representative, Richard Peña Raymond (D- Laredo).

Raymond introduced the bills into the Texas legislature, earlier this month, on the 1st of February 2017. The bills pointedly disagreed with a legal opinion that was issued by the State Attorney General, Ken Paxton, earlier last year. State Rep. Raymond proposed that fantasy sports be classified as legal and skill- based games.

All three house bills, HB 1418, HB 1422 and HB 1457 relate to the legalisation, reclassification and regulation of fantasy games. In short, they detail that from now on all DFS operators in Texas will require a registration for a fee of USD 5,000. Each company will also need to annually renew that permit for another USD 5,000. The bills mentioned that steps need to be taken to prevent insider information trading. Finally, the authorities will be able to charge civil penalties of USD 1,000 for each and any violations with regards to the new laws. House Bill, HB 1457 includes additional provision regarding insider trading. It states that the State Attorney General will have the power to ban DFS operators that do not follow these new laws.

In Texas, more than four million players are known to regularly take part in fantasy sports each year. Texas Rep. Raymond mentioned that the government should not deprive these people of their love for fantasy sports. He also highlighted that those who enjoy the games know that a lot of skill is needed to take part in fantasy sports contests.

“If you don’t think fantasy football is a game of skill, then you haven’t played it,” Raymond said.

“This is something that government shouldn’t stick its nose into. A government shouldn’t take away our right to play fantasy football.”

Texas House Bill, HB 1457: An Act Relating to Fantasy Sports Contests

House Bill, HB 1457: An Act Relating to Fantasy Sports Contests, was introduced on Wednesday, the 1st of February 2017. The bill’s main author State Representative Richard Peña Raymond (D- Laredo) aims to legalise fantasy sports in the state of Texas. Together with the co- authors of the bill, State Representative John Kuempel (R- Seguin), State Representative Rodney Anderson (R- Grand Prairie), State Representative James White (R- Hillister) and State Representative Abel Herrero (D- Robstown), he aims to classify fantasy sports as skill- based activity in Texas.

House Bill, HB 1457, firstly looked to define daily fantasy sports. It mentioned that in DFS, the outcome of every fantasy competition should reflect the real life performances of the chosen athletes. Their wins much also reflect their relative knowledge and skill. The bill mentioned that no win should be determined by the performance of a single player or event. Under Texas law, contests may not be offered on live pari- mutuel racing events either.

House Bill, HB 1457, outlined that all DFS operators would need to implement certain consumer protection policies. Firstly, they must ensure that all real cash players are above the legal age of 18. Under the bill, all employees and their family members will be banned from taking part in the site’s fantasy competitions. Employees will also be barred from sharing confidential information with third parties that may affect the outcome of a contest. No professional or amateur players, whose real life athletic performance can skew the outcome of a fantasy contest, will be allowed to enter into these competitions. Lastly, the operators themselves will not be allowed to enter any of the contests they offer on their sites.

It has been mentioned in the bill’s language that the State Attorney General will be granted authority to ban operators that are in violation of any of these rules mentioned in the document. The Attorney General’s office will also be well within their rights to issue fines on such DFS operators, mainly to retrieve costs of any legal proceedings. They will also be able to place injunctions to prevent future violations of the same nature.

Texas House Bill, HB 1422: An Act Relating to the Regulation of Fantasy Games; Authorising a Civil Penalty; Requiring a Fee

House Bill, HB 1422: An Act Relating to the Regulation of Fantasy Games; Authorising a Civil Penalty; Requiring a Fee, was also introduced on Wednesday, the 1st of February 2017 by Texas State representative, Richard Peña Raymond. The bill aims to legalise and regulate the DFS industry as well as implement licensing fees and penalty amounts for DFS operators. No co-authors have been named on this House Bill.

Under House Bill, HB 1422, a DFS operator is defined as someone who conducts fantasy games as a professional business and charges their members a fee to enter their virtual teams into contests. It is written that all wins in the sport must reflect the players’ skill and knowledge and no win should be determines by the individual performance of an athlete or a team. Under the bill, it will be the operators’ responsibility to establish and announce the prizes for each of the contests before it starts.

According to this DFS bill, the Secretary of State will be placed in charge of monitoring the industry. Each operator will be required to register to offer their services within Texas; initial registration will be issued for a fee of USD 5,000 apiece. The license will require a yearly renewal; annual renewals too will cost USD 5,000. The secretary of state will be in charge of disciplinary action. He will be allowed to impose civil penalties of up to USD 1,000 for every violation on the part of any DFS operator. He or she will also possess the power to suspend or revoke any DFS permits that have already been issued.

The bill stated that the DFS companies will have to make sure that they segregate player funds from operational funds or maintain a reserve in the form of cash or cash equivalents to pay winners on their sites. The operator must also carry annual independent audits with a certified public accountant to ensure compliance to these rules.

The bill lists a number of consumer protection measures that all DFS operators would have to abide by in the state of Texas. Under the bill, DFS company employees and their family members will not be allowed to take part in any of their own contests. The operators will also have to ensure that their employees do not share confidential information that can affect the outcome of a contest with third party members.

It would also be upon the DFS operators to ensure that their players are authentic and over the age of 18. In a bid to protect minors, the DFS companies will not be allowed to target advertising campaigns towards them either.

The bill looks to address certain problem gambling measures as well. Under HB 1422, all DFS providers will also be expected to deliver tools for responsible gaming. Firstly, players should be able to easily apply self- restrictions. However, it is then the operators’ responsibility to ensure that reasonable steps are taken to prevent their access to further paid contests. Those who have chosen to opt out of paid fantasy contests should not be specifically targeted by DFS advertisements campaigns.

According to the bill, the DFS sites must disclose the maximum number of entries each participant may submit for each fantasy contest and they must also take necessary steps to enforce the rule. Lastly, players must always have access to their own account details. The DFS operators would also have to provide them with access to their own play history and at all times. Finally, the bill explicitly clarified the position of DFS in Texas. It mentioned that fantasy sports should not be considered a gambling activity or a game of chance but rather a skill based sport.

Texas House Bill, HB 1418: An Act Relating to the Regulation of Fantasy Games; Authorising a Civil Penalty; Requiring the Registration of Fantasy Game Operators; Requiring a Fee

House Bill, HB 1418: An Act Relating to the Regulation of Fantasy Games; Authorising a Civil Penalty; Requiring the Registration of Fantasy Game Operators; Requiring a Fee, is the final of the three DFS bills that State Representative Richard Raymond introduced on the 1st of February 2017. The bill has many overlapping agendas to the previous two mentioned and has been co-authored by State Representative John Kuempel, Rodney Anderson  and James White.

Under HB 1418, a fantasy operator will be defined as a professional business that offers contests to members who pay a fee to enter the fantasy matches. The winning outcome of every fantasy contest must reflect the skill of the player and not be based on the performance of a single player or event. All fantasy operators will be expected to declare the prize money amount before the start of each contest.

The operators must also segregate player and operational funds or maintain a reserve in cash or other allowed means. To ensure that all operators are in compliance with the rules, they must carry out an annual financial audit by an independent certified public accountant and submit the report to the state authorities.

The bill also stated that the industry will be watched over by the Secretary of State, who will be in charge of issuing permits for their operations. DFS operators will no longer be allowed to offer contests in Texas without a license. Initial registration will cost USD 5,000; subsequent renewals, which will also need to be done every year, will also cost the operators another USD 5,000.

The Secretary of State in Texas will also be in charge of monitoring violations. He or she will be able to fine operators USD 1,000 in civil penalties for each of their violations. Additionally, the Secretary of State will have the authority to issue non- monitory penalties, which include suspension or revoking of their operating licenses.  Consumer protection provisions, under the bill, will see that employees or their family members are not allowed to take part in their own fantasy contests. They will also be barred from sharing confidential information that might affect the outcome of these contests.

The operator will be in charge of verifying the age and identity of players; they have to make sure that all players are authentic and above the legal age of 18. In a bid to protect the youth, the bill also mentioned that the operators will not be allowed to offer contests based on college or high school sporting events. Neither will they be allowed advertising campaigns that are directed at this demographic.

Lastly, under HB 1418, the DFS operators will be in charge of providing their players with access to information regarding responsible game play. They must allow responsible gaming policies and steps such as self- exclusion. They must also refrain from any of their advertising targeting this group of people. To allow fair game play, the operators must always disclose and enforce the number of entries each player is allowed per match. They are also to make sure that players have access to their account information and history at all times.

DFS in Texas

DFS is a popular leisure activity in Texas. The stakes are higher in the state compared to many others in the country. About a year ago, Texas Attorney General, Ken Paxton, declared that DFS constituted illegal gambling under state laws. As a result DFS Giant, FanDuel ended up leaving the state. This was part of a settlement they had reached with Paxton and his office. DraftKings on the other hand did not agree and continued to offer contests to players in the state.

Texas seems to be one of the states looking to legalise and regulate DFS in their state early on in 2017. Eight states had legalised DFS over the course of 2016. Texas does not have much in the way of gaming at the moment. The state houses one tribal casino, a lottery and pari- mutuel wagering on horse and dog races. This would explain the huge popularity of DFS in the state.

Responses to the DFS Bills in Texas

The Texas Fantasy Sports Alliance (TFSA) commended the State Representatives responsible for the bills. TFSA is a coalition of sports fans, champions of free markets and limited government, consumer activists and Texas residents. They are pleased that Texas Rep. Raymond, Kuempel, Anderson, White and Herrero were calling on the legislature to ensure Texans may continue playing the fantasy sports games they love.

Scott Dunaway, a spokesman for TFSA said, “TFSA applauds Rep. Raymond for proposing legislation that clarifies the right of Texans to play fantasy sports, while also providing consumer protections, and allowing this growing industry to prosper in Texas. We are confident the legislature will follow their lead by affirming the legality of this extremely popular leisure- time activity.”

Rep. Raymond said that the bills will help clarify the laws for both DFS operators and players in Texas.

He said, “HB-1457 will clarify a confusing and ambiguous law and affirm that fantasy sports are legal in Texas.”

He added, “The government should not be limiting the freedom of Texans to participate in fantasy sports contests, which are clearly a game of skill, not chance.”

Representative Kuempel mentioned that he was pleased with the bill and hoped to keep the government from taking a beloved sporting activity away from his fellow Texans. He said, “I am proud to support legislation that protects Texans’ right to participate in fantasy sports contests, while preventing unnecessary government involvement in Texans personal lives and pocketbooks.”

According to Ted Kasten, the founder of DraftAnalyzer.com, Texas is a major hub for DFS activity. DraftAnalyzer is a fantasy sports information provider based in Austin and a board member of the Fantasy Sports Trade Association.

Kasten said, “Texas has been a major beneficiary of the fantasy sports industry. Over a dozen fantasy-sports related businesses are headquartered here in Texas. I look forward to supporting Reps. Raymond, Kuempel, Anderson, White, and Herrero as they work to protect an industry that is not only enjoyed by millions, but is also a growing source of jobs and revenue for our great state.”

The bills were hardly a surprise as Rep. Raymond had indicated earlier last year that he would be introducing DFS legislation at some point in 2017. Texas’ legislature was not in session throughout 2016; so, this is the first time the statehouse has had the opportunity to tackle DFS since states became interested in the issue late in 2015. It has been heard that in the space of a few weeks 65,000 people from Texas have already contacted their legislators, requesting that the laws surrounding fantasy sports to be clarified and their right to play fantasy sports be affirmed.

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