- Ohio: Lawmakers pass legislation regulating daily fantasy sports contests
- January 5, 2018 | Authors: David M. Kall; David D. Ebersole; Michelle Rood Gearity
- Law Firms: McDonald Hopkins LLC - Cleveland Office; McDonald Hopkins LLC - Cleveland Office
On Dec. 5, 2017, the Ohio House of Representatives approved a measure, House Bill 132, which legalizes daily fantasy sports (DFS), by a vote of 92 to 3. The week prior, on Nov.29, 2017, it passed the Senate, 25 to 4. Cleveland.com reported that the legislation had support within the community, from, among others, the Cleveland Indians, which has marketing partnership with DraftKings, a fantasy sports website.
When we last addressed action on DFS regulation in Ohio , we described Sen. William Coley’s effort, by way of Senate Bill 356, to classify these kinds of games as those of chance. Most states that have legalized DFS have gone out of their way to define them instead as games of skill. Thus, the Legal Sports Report opined that SB 356 would have “shut down pretty much the entire DFS industry as currently situated…”
In an October 2016 piece, worldcasinodirectory.com reported that Sen. Coley favored clarifying DFS and other electronic gaming rules, and that he “want[ed] to put operators on alert and have residents of the state aware of issues that can arise from this type of gaming,” like the low odds of winning against the house. Sen. Coley voted against HB 132, the legislation that lawmakers passed this month.
Gov. John Kasich is “likely to sign the bill, which would make him the 19th governor to sign legislation dealingwith the daily fantasy sports industry in recent years,” according to a Dec. 5, 2017 Legal Sports Report article. HB 132 would make Ohio the “third top-10 market in the US to legalize DFS, joining New York and Pennsylvania.”
The 18 states with DFS laws currently on the books include:
3. Connecticut (the DFS law passed as part of the state budget, but needs the approval of the state’s Native American tribes before it takes effect)
12. New Hampshire
13. New Jersey
14. New York
OHIO’S DFS LEGISLATION
In broad terms, HB 132 grants the Ohio Casino Control Commission the authority to regulate, investigate, license, and penalize daily fantasy contests. It also exempts fantasy contests from Ohio’s gambling laws, which currently do not address DFS at all.
More specifically, the bill accomplishes the following:
1. Requires a fantasy contest operator to pay a nonrefundable license fee, set by the commission, not to exceed $10,000 per year.
2. Permits the commission to impose other fees and penalties related to the operation of fantasy contests.
3. Specifies that any revenue from the fees and penalties that the commission imposes must be deposited in the Casino Control Commission Fund.
4. Requires all the expenses to be paid from the fund.
The latest Fiscal Note And Local Impact Statement, dated Dec. 1, 2017, defines fantasy contests as simulated games or contests a person must pay an entry fee to enter, in which:
1. The values of all prizes and awards are established and made known ahead of the contest.
2. All winning outcomes are based on the relative skill and knowledge of the players, as determined by accumulated statistical results of the performance of a roster of athletes in actual sporting events.
3. Winning outcomes are not based on randomized or historical events, or on the score or performance of any individual athlete, single team, or combination of teams in an actual sporting event.
Two lawmakers, Reps. Jonathan Dever and Robert McColley, introduced HB 132 in May 2017. In a press releasethat Rep. Dever issued at the time, the pair sought “to clarify the legality of daily fantasy sports and ensure [that] the millions of Ohioans who currently participate in these games are able to continue enjoying them. The legislation ensures that all fantasy sports businesses, large and small, have the opportunity to continue operating and thriving in our state.”
The announcement cited statistics from the Fantasy Sports Trade Association, pointing out that in Ohio, nearly 2 million people participate in DFS. In North America, that number is more than 57 million people. “For the millions of Ohioans participating in fantasy sports, this legislation creates guardrails for the industry while also protecting consumers.”
The bill text provides that the Ohio Casino Control Commission “may adopt, and as advisable and necessary may amend or repeal, rules that include all of the following:”
- Prohibit employees of fantasy contest operators, relatives living in the same households as those employees, and athletes and officials in the underlying sports contests from competing in public fantasy contests offered by an operator or from sharing material nonpublic information that was obtained as a result of employment with third parties.
- Ensure fantasy contest operators prohibit access to minors and anyone who has requested to restrict themselves from entering fantasy contests.
- Establish requirements with respect to funds controlled by fantasy contest operators, including segregating fantasy contest player funds from operational funds or maintaining a reserve, which may not be used for operational activities, that exceeds the amount of player funds on deposit, and prescribing the forms these reserve funds may take, including, but not limited to, cash, cash equivalents, and payment processor reserves.
- Prescribe requirements related to beginning and highly experienced players.
requirements for fantasy contest operators' internal procedures to:
- Ensure compliance with all applicable state and federal requirements to protect the privacy and online security of fantasy contest players and their accounts.
- Suspend the accounts of players who violate the rules.
- Provide fantasy contest players with access to information on playing responsibly and seeking assistance for compulsive behavior.
- Establish the maximum number of entries that a fantasy contest player may submit to each fantasy contest.
- Require fantasy contest operators to designate at least one key employee as a condition to obtain a license. A key employee must be responsible for ensuring that all the bill's requirements are met.
- Establish the length of time for which a license may be valid, not to exceed three years;
- Establish the fee to obtain a license, which shall not exceed $10,000 for each year of a license, and a total of $30,000 for a three-year license, and which may be paid in equal installments on an annual basis over the term of the license.
- Any other procedure or thing the commission determines necessary to establish consumer protections or regulate fantasy contests.
The bill text also prohibits the commission from adopting rules that:
1. Limit or regulate the statistical makeup of a game or contest, or the digital platform of a fantasy contest operator.
2. Require licensure of any persons other than fantasy contest operators, holding companies, or management companies.
LEGAL AND FISCAL EFFECTS
Picking up on the fact that HB 132 exempts fantasy contests from the gambling laws, which currently do not address DFS at all, the Ohio Legislative Service Commission’s May 2017 bill analysis opined that “[t]he legal effect of exempting fantasy contests from the Gambling Law is unclear…[but] [b]y exempting fantasy contests from the Gambling Law, it could also suggest that a fantasy contest would be considered gambling but for the exemption. If fantasy contests are not gambling, it is not clear why they need to be exempt from the Gambling Law.”
The Fiscal Note and Local Impact Statement states that HB 132 “is likely to have no local fiscal effect.”
WHAT’S NEXT FOR DFS?The December 2017 Legal Sports Report article predicts that Illinois and Florida will be the next states to tackle DFS, in 2018, and in 2019, Texas.