Tennessee Becomes the Third State to Endorse DFS Law

Tennessee Governor, Bill Haslam, signed a bill into law on Wednesday, making Tennessee the third state in the country to establish laws to regulate daily fantasy sports (DFS). The governments of Virginia and Indiana have also agreed to and passed regulations for DFS operators in their respective states, earlier this year. Massachusetts Attorney General, Maura Healey, has also enacted DFS regulations in the Bay State and all operators are expected to implement changes before the July 1, 2016.

History of DFS in Tennessee Legislature

Earlier this month, April 2016, State Attorney General, Herbert Slatery, issued an opinion about DFS contests; he claimed that under Tennessee law, all fantasy sports should be classified illegal. However, Tennessee has now become the first state in the country to enact fantasy sports laws, despite a negative opinion from the State Attorney General.

The opinion was issued after a bill to legalise fantasy sports in the state had been introduced. Last week, the legislature voted overwhelmingly to approve the bill; the Senate voted 27-2 to pass the bill and the House concurred with a vote of 67-17.

As the bill was lingering in the background, during the release of the Attorney General’s opinion, they were unable to instruct the fantasy sports operators on any action to take. Neither DraftKings nor FanDuel had been asked to close their real money offerings and neither had announced that it would be leaving the state in the wake of that opinion either. With the new law in place, the fantasy sports providers may be able to enjoy an uninterrupted flow of business.

The next steps for DFS operators in Tennessee

The bill has been scheduled to take effect from the 1st of July 2016 and all DFS operators have till then to get licensed or close shop and stop offering real money games to Tennessee residents.

The laws passed in Indiana and Virginia raised a lot of concern among smaller DFS operators as the high licensing fee of $50,000 was too expensive for all operators other than the market leaders DraftKings and FanDuel. Tennessee laws may offer the smaller providers a feasible opportunity to stay in business.

Details of the Fantasy Sports Bill

Under the new laws the Secretary of State will be given the power to “establish appropriate fees for application and license renewal and other applicable fees” and they will also be in charge of investigations regarding possible violations of the new regulations. They will have to establish a process for “licensure of DFS operators” and makes it a misdemeanour to operate without one.

Taxes will be payable at a rate of 6% on all revenues; and revenues will be calculated by adding all entry fees less the amounts returned in the form of cash and other prizes.

The operators will be required to segregate operating funds from player funds to make sure funds to cover prizes are always available. All operators will also be required to employ an independent auditor, annually, to assess their activities; failure to comply with this will be a violation of their license conditions.

For the protection of young athletes, no DFS operator will be allowed to offer contests based on amateur sporting events.

Lastly, the gaming operators will have to employ clear consumer protection policies, such as truthful advertisement, secure handling of customer data, a ban on participation from employees of the company and safe handling of ‘inside information’ that can affect the outcome of the matches. All players will have to be over 18 years of age and will only be able to deposit a maximum $2500 each month unless financial standing is established with and evidence is submitted that depositing larger sums will not cause financial ruin.

DFS in the South

DFS has been making news for some time now; first with their hyperbolic climb to popularity and then with the ambiguity of their legality and finally for the fantasy sports regulatory laws that have been touched upon in 30 states.

  • The fantasy sports industry has seen a lot of activity in the South in 2016:
  • Attorney General of Mississippi classified DFS as illegal gambling in an opinion and a bill is expected to be signed by the governor later this week.
  • Attorney General of Alabama also classified DFS as illegal gambling and sent cease and desist letters to the major operates – DraftKings and FanDuel. While there was a bill that was looking to legalise gambling in the state, it now seems highly unlikely to make the cut.
  • Attorney General of Georgia is in agreement with Mississippi and Alabama and has had a bill rushed almost immediately after the opinion was released.
  • The state of Florida has failed to pass a bill either way for fantasy sports in this year’s legislative sessions, it is, therefore, uncertain whether DFS operators will become subject to legal issues over the next few months or not.

While the south has been a hotbed of activity in this sector, several other states, outside of the South, could also pass DFS regulations in the near future.

Industry reaction

DraftKings said in a statement, “Today, Tennessee became yet another state to enact a regulatory framework that allows residents to continue playing the games they love. We thank Governor Haslam for his leadership and the members of the legislature, especially Representative Pat Marsh and Senator Jack Johnson, who provided tireless guidance on this important issue. We will continue to work with legislators in other states across the country to implement appropriate consumer protections for our fans.”

Cory Fox, counsel for policy and government affairs, stated, in a press release by FanDuel, “More than one million fantasy players in Tennessee now know that their right to play fantasy sports is safeguarded and that smart consumer regulations are in place to protect them on all fantasy sites operating in the state. Tennessee’s elected leaders — Governor Haslam and the members of the legislature, in particular bill sponsors Senator Jack Johnson and Representative Pat Marsh — took a detailed and careful approach to this issue, and delivered a real solution for the state.”

We will be happy to hear your thoughts

Leave a reply