BILL ANALYSIS                                                                                                                                                                                                    



                                                                    AB 1437


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          Date of Hearing:  January 6, 2016


                   ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION


                                  Adam Gray, Chair


          AB 1437  
          (Gray) - As Amended September 10, 2015


          SUBJECT:  Internet Fantasy Sports Game Protection Act


          SUMMARY:  Would enact the Internet Fantasy Sports Games Consumer  
          Protection Act, which would require a person or entity to apply  
          for, and receive, a license from the Department of Justice (DOJ)  
          prior to offering an Internet fantasy sports game for play in  
          California.  Specifically, this bill:  


          1)Defines "Internet fantasy sports game" as a game of any  
            duration conducted on the Internet in which a registered  
            player does all of the following: 1) Competes against other  
            registered players or a target score as the owner or manager  
            of an imaginary or simulated team of athletes in an imaginary  
            or simulated game; 2) Uses the statistics accumulated by the  
            athletes in real-world sporting events to determine the scores  
            of the imaginary or simulated game; 3) Plays for a  
            predetermined prize; and 4) Pays a charge to the licensed  
            operator providing the game in order to participate.


          2)Would require the DOJ to issue a license to a person or entity  
            that applies for a license if the person or entity satisfies  
            specified requirements, including, among others, that the  
            applicant is of good character, honesty, and integrity. 








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          3)Would require a person to register with a "licensed operator"  
            prior to participating in an "Internet fantasy sports game" on  
            an "authorized Internet Web site," as those terms are defined.


          4)Would require a licensed operator, among other things, to  
            ensure that a registered player is eligible to play on an  
            authorized Internet Website, and to implement appropriate data  
            security standards to prevent access by a person whose age is  
            under 21 and location has not been verified.


          5)Would authorize the DOJ to assess a civil penalty against a  
            licensed operator that violates these provisions according to  
            a specified schedule depending on the number of violations.


          6)Would require DOJ to develop an online self-exclusion form for  
            problem gamblers on or before July 1, 2017, and to deliver  
            that form to each licensed operator, and would require each  
            licensed operator to make that form available to its  
            registered players.


          7)Would require a licensed operator to facilitate the collection  
            by the Franchise Tax Board of personal income taxes from  
            registered players and shall be responsible for providing  
            current and accurate documentation on a timely basis to all  
            state agencies.


          8)The Fantasy Sports Fund is hereby created in the State  
            Treasury, to be administered by DOJ, All moneys in the fund  
            are continuously appropriated to DOJ, without regard to fiscal  
            years, in the amounts necessary for the department to perform  
            its duties under this bill.


          9)Each licensed operator shall pay an annual regulatory fee, to  







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            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.


          10)Would require each licensed operator to pay a one-time  
            license fee into the General Fund in an unspecified amount.  
            The license fee would be credited against quarterly fees  
            equivalent to an unspecified percentage of the licensed  
            operator's gross income that is attributable to the operation  
            of an authorized Internet Web site in California.


          11)Would make proprietary information provided by a licensed  
            operator confidential in order to protect the licensed  
            operator and to protect the security of an authorized Internet  
            Web site. The bill would also prohibit a city, county, or city  
            and county from regulating, taxing, or entering into a  
            contract with respect to any matter governed to the bill's  
            provisions, and would make conforming changes.


          12)Makes various legislative findings.


          EXISTING LAW:  


          1)Prohibits lotteries, with exceptions for the California State  
            Lottery, bingo for charitable purposes, and charitable raffles  
            conducted by non-profit, tax-exempt organizations.

          2)Defines a lottery as any scheme for the disposal or  
            distribution of property by chance, among persons who have  
            paid or promised to pay any valuable consideration for the  
            chance of obtaining such property or a portion of it, or for  
            any share or any interest in such property, upon any  







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            agreement, understanding, or expectation that it is to be  
            distributed or disposed of by lot or chance, whether called a  
            lottery, raffle, or gift enterprise, or by whatever name the  
            same may be known.

          3)States the Legislature may authorize private, nonprofit, and  
            other eligible organizations, to conduct raffles as a funding  
            mechanism to provide support for their own or another private,  
            nonprofit, eligible organization's beneficial and charitable  
            works, provided that (1) at least 90 percent of the gross  
            receipts from the raffle go directly to beneficial or  
            charitable purposes in California, and (2) any person who  
            receives compensation in connection with the operation of a  
            raffle is an employee of the private nonprofit organization  
            that is conducting the raffle.

          4)Prohibits any raffle to be conducted by means of, or otherwise  
            utilize any gaming machine, apparatus, or device, whether or  
            not that machine, apparatus, or device meets the definition of  
            a slot machine as currently define in California law.

          5)Defines "bingo" as a game of chance in which prizes are  
            awarded on the basis of designated numbers or symbols on a  
            card that conform to numbers or symbols that are selected at  
            random.

          6)States the Legislature has no power to authorize, and shall  
            prohibit, casino games of the type currently operating in  
            Nevada and New Jersey.

          7)Prohibits games as defined in Penal Code Section 330, or any  
            banking and/or percentage games.

          8)Prohibits any bet, bets, wager, wagers, or betting pool or  
            pools made between the person and any other person or group of  
            persons who are not acting for gain, hire, or reward, other  
            than that at stake under conditions available to every  
            participant, upon the result of any lawful trial, or purported  
            trial, or contest, or purported contest, of skill, speed, or  
            power of endurance of person or animal, or between persons,  







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            animals, or mechanical apparatus.

          9)Prohibits bookmaking and pool selling.

          10)Authorizes and defines "Advance Deposit Wagering" as a form  
            of pari-mutuel horse wagering in which a person "establishes  
            an account with a board-approved betting system or wagering  
            hub where the account owner provides 'wagering instructions'  
            authorizing the entity holding the account to place wagers on  
            the owner's behalf via the phone or Internet.

          11)Prohibits false advertising, unfair competition and unlawful  
            business practices, specifically prohibiting certain acts or  
            practices undertaken by a person in the operation of a  
            contest, including misrepresenting the odds of winning a prize  
            or failing to award and distribute all prizes, providing for  
            civil penalties and other remedies.

          12)The Gambling Control Act (Act), Business & Professions Code  
            sections 19800 through 19985 governs the licensing and  
            operation of California card rooms under the regulation of the  
            California Gambling Control Commission (CGCC) and the  
            enforcement of those activities by the Department of Justice  
            (DOJ).

          13)Requires DOJ to investigate the qualifications of applicants  
            before any license or other approval is issued and, if  
            necessary, recommends the denial or the limitation,  
            conditioning, or restriction of any license or other approval.  
             DOJ is also required to monitor the conduct of all licensees  
            and other persons having a material involvement, directly or  
            indirectly, with a gambling operation or its holding company,  
            for the purpose of ensuring that licenses are not issued or  
            held by, and that there is no direct or indirect material  
            involvement with, a gambling operation or holding company by  
            ineligible, unqualified, disqualified, or unsuitable persons,  
            or persons whose operations are conducted in a manner that is  
            adverse to the public health, safety, or welfare.  DOJ may  
            investigate suspected violations of the Act and relevant  
            provisions of the Penal Code to investigate complaints that  







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            are lodged against licensees or other persons associated with  
            a gambling operation, by members of the public, and to  
            initiate, where appropriate, disciplinary actions as provided  
            in the Act.

          14)Existing federal law, the Unlawful Internet Gaming  
            Enforcement Act of 2006 (UIGEA), prohibits gambling businesses  
            from knowingly accepting payments in connection with the  
            participation of another person in a bet or wager that  
            involves the use of the Internet and that is unlawful under  
            any federal or state law." The act specifically excludes  
            fantasy sports that meet certain criteria, skill-games and  
            legal intrastate and inter-tribal gaming. The three criteria  
            are: (1) the value of the prizes is not determined by the  
            number of participants or the amount of any fees paid by those  
            participants; (2) all winning outcomes reflect the relative  
            knowledge and skill of the participants; and (3) the fantasy  
            game's result is not dependent on the outcome of any  
            real-world games. Additionally, it allows states to make their  
            own determinations on whether gaming activity is illegal or  
            legal based on their own statute.

          15)Existing federal law, The Professional and Amateur Sports  
            Protection Act of 1992 (PASPA), defines the legal status of  
            sports betting throughout the United States and outlaws sports  
            betting nationwide, excluding four states (Nevada, Oregon,  
            Delaware, and Montana).  

          16)Existing federal law, The Interstate Wire Act of 1964 (Wire  
            Act), prohibits individuals and entities from engaging in the  
            business of betting or wagering through the knowing use of "a  
            wire communication for the transmission in interstate and  
            foreign commerce." 



          FISCAL EFFECT:  Unknown


          COMMENTS:  







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           Purpose of the bill  : According to the author, AB 1437 will  
          establish a first in the nation framework to license and  
          regulate Daily Fantasy Sports in California to ensure consumers  
          are playing on websites which provide comprehensive consumer  
          protections. Currently, Californians participate in Daily  
          Fantasy Sports (DFS) games on a daily basis on unregulated  
          Internet Websites.  Despite a lack of regulation, participation  
          in DFS still remains very popular. AB 1437 will bring more  
          transparency, accountability and protections to this rapidly  
          growing industry.


          Neither federal nor California laws provide any protections for  
          DFS consumers causing California players to assume all the risk.  
          Any negative social or financial impacts are borne by the  
          citizens of California, while the revenues generated from these  
          games are being realized by unlicensed operators and do not  
          provide any benefits to the citizens of California. In  
          California, every legal gaming industry, whether it is card  
          clubs, horse racing or Indian casinos are subject to licensing  
          requirements, regulatory oversight, and enforcement under the  
          Department of Justice, California Gaming Commission, or the  
          California Horse Racing Board. Even church fundraisers are  
          subject to regulation when conducting a charitable raffle or  
          bingo night.


          The author states, it is not his intent to stifle or ban this  
          growing industry as other states have done, but to protect its  
          consumers, which the California Legislature has a responsibility  
          to do. AB 1437 would replace an unregulated online industry with  
          a safe and responsible entertainment option for adults, which  
          include safeguards against compulsive and underage play, money  
          laundering, fraud, and identity theft.


           General Background  : "Fantasy Sports" has been around for about  
          30 years, since the creation of a competition called "Rotisserie  







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          Baseball", in which friends bid on players to build a  
          roster/team, then spend the season seeing which fan's players  
          are the most successful. Fantasy football soon followed, often  
          in a format where competitors draft players one by one rather  
          than selecting them in an auction format. Participants assemble  
          imaginary or virtual teams of real players of a professional  
          sport. Teams compete based on the statistical performance of  
          those players in actual games. This performance is converted  
          into points that are compiled and totaled according to a roster  
          selected by each fantasy team's manager. Traditional online  
          fantasy sports are a multibillion-dollar industry with an  
          estimated 56.8 million users in North America alone.


          DFS, which AB 1437 seeks to regulate, are a subset of  
          traditional fantasy sport games. As with traditional fantasy  
          sports games, DFS players compete against others by building a  
          team of professional athletes from a particular league (NFL,  
          NBA, MLB, NHL, etc.) or competition, and earn points based on  
          the actual statistical performance of the players in real-world  
          competitions. However, DFS are an accelerated variant of  
          traditional fantasy sports that are conducted over short-term  
          periods, such as a week (NFL) or single day (MLB, NBA, NHL) of  
          competition, as opposed to those that are played across an  
          entire season. DFS games are structured in the form of  
          competitions; users pay an entry fee in order to participate,  
          and build a team of players in a certain sport while complying  
          with a salary cap. The best players - i.e. Tom Brady or Adrian  
          Peterson- are most likely to produce superior statistics, but  
          they also are the most expensive. The most successful  
          competitors assemble rosters that mix high-profile players with  
          less celebrated athletes who cost less but still are capable of  
          standout performances. Depending on their overall performance,  
          players may win a share of a pre-determined pot. Entry fees help  
          fund prizes, while a portion (10%-15%) of the entry fee goes to  
          the provider (i.e. Draft Kings, FanDuel, Yahoo).  A player is  
          also able to play in head-to-head games against another player.  
          FanDuel reports that 62 percent of its entries each night are  
          for $1 or $2 tournaments. FanDuel has reported that the average  
          initial deposit is $25. Fees can range from a dollar to  







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          thousands of dollars, while fans with the best-performing  
          rosters have won as much as $1 million in events that include  
          tens of thousands of entries.





          Substantial sales and marketing budgets from major DFS operators  
          have helped drive overall awareness in the last 12-months.  
          Although DFS websites had been operating since 2009, the two  
          largest operators-DraftKings and FanDuel-became household names  
          through a large media blitz that began just prior to the  
          commencement of the 2015 NFL season. According to Nomura analyst  
          Anthony DiClemente, DraftKings and FanDuel likely spent a  
          combined $150 million on TV and internet advertising in the  
          third quarter, which ended September 30, 2015 and included the  
          beginning of the NFL season. DFS websites experienced one  
          million new customers signing up during the NFL's opening week.  
          DraftKings alone reported registering 220,000 new players that  
          week.  By 2016, according to industry experts, Daily Fantasy  
          Sports players are projected to wager more on Daily Fantasy  
          websites (i.e. FanDuel, DraftKings and Yahoo!) than the total  
          amount wagered annually on legal sports wagering sports in  
          Nevada. Daily fantasy games are expected to generate roughly  
          $3.72 billion in entry fees and $370 million in revenue this  
          year, according to industry consultant Eilers Research. By 2020,  
          they are expected to reach about $17.7 billion and $1.77  
          billion, respectively. Industry experts have estimated that  
          California accounts for approximately 10%-15% of the overall  
          national DFS market.





          Many companies have invested in DFS websites, including:  
          Professional sports teams and leagues, media conglomerates  
          (Google Capital, Time Warner, NBC Sports Ventures, Comcast  
          Ventures) and venture capitalists. The NBA has a four year  







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          agreement with FanDuel that includes a percentage in the  
          company, and Major League Baseball and the NHL own equity in  
          DraftKings. The NFL does not own equity in either, but has an  
          advertising partnership with one. New England Patriots owner,  
          Robert Kraft, and Dallas Cowboys owner, Jerry Jones, also own  
          equity in DraftKings.  DraftKings has entered into an  
          arrangement with the Patriots, Cowboys and Chiefs under which  
          there is a DraftKings fantasy area in each of the three teams'  
          home stadiums.





          On October 5, 2015, The New York Times reported that an employee  
          of DraftKings was placing bets on rival site, FanDuel, using  
          information not generally available to the public, calling it  
          insider trading. The DraftKings employee, a midlevel content  
          manager, won $350,000 that same week. DraftKings admitted to  
          inadvertently releasing data before the start of the third week  
          of NFL games. However, the company denied insider trading or any  
          accusations the employee won any contest due to inside  
          information, because the data was released after all  
          lineups/rosters for the contest that week were locked. Shortly  
          after, the FBI launched an investigation into allegations of  
          insider trading. To date, they have not stated the results of  
          their investigation, or whether it even continues. A law firm  
          hired by DraftKings determined that there was no evidence of  
          wrongdoing, but the issue called attention to the fact that DFS  
          - unlike most businesses - faced no regulation and little  
          government oversight. Since the incident, FanDuel and DraftKings  
          responded by permanently banning employees from playing in daily  
          contests for money. Shortly after the insider trading story hit  
          the news, regulators across the nation began to take action,  
          beginning with Nevada and New York. AB 1437 was introduced in  
          September, almost an entire month prior to the data leak.











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           Federal Gaming Laws  :





           UIEGA (2006):  The Unlawful Internet Gambling Enforcement Act of  
          2006 (UIGEA) is United States legislation regulating online  
          gambling. It was added as Title VIII to the SAFE Port Act (found  
          at 31 U.S.C.  5361-5367) which otherwise regulated port  
          security. The UIGEA "prohibits gambling businesses from  
          knowingly accepting payments in connection with the  
          participation of another person in a bet or wager that involves  
          the use of the Internet and that is unlawful under any federal  
          or state law." The act specifically excludes fantasy sports that  
          meet certain criteria, skill-games and legal intrastate and  
          inter-tribal gaming. The three criteria related to DFS are: (1)  
          the value of the prizes is not determined by the number of  
          participants or the amount of any fees paid by those  
          participants; (2) all winning outcomes reflect the relative  
          knowledge and skill of the participants; and (3) the fantasy  
          game's result is not dependent on the outcome of any real-world  
          games. Additionally, it allows states to make their own  
          determinations on whether gaming activity is illegal or legal  
          based on their own statute. In the "Congressional Findings and  
          Purpose" section of the statute, the "Rule of Construction"  
          notes that: "No provision of this subchapter shall be construed  
          as altering, limiting, or extending any Federal or State law or  
          Tribal-State compact prohibiting, permitting, or regulating  
          gambling within the United States."





           PASPA/Bradley Act (1992)  : The Professional and Amateur Sports  
          Protection Act of 1992 (Pub.L. 102-559), also known as the  
          "Bradley Act," attempts to define the legal status of sports  
          betting throughout the United States. This act effectively  







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          outlawed sports betting nationwide, excluding a few states. The  
          sports lotteries conducted in Oregon, Delaware, and Montana were  
          exempt, as well as the licensed sports pools in Nevada. In  
          addition, Congress provided a one-year window of opportunity  
          from the effective date of PASPA (January 1, 1993) for states  
          which operated licensed casino gaming for the previous ten-year  
          period to pass laws permitting sports wagering-California did  
          not take advantage of this window, thus sports betting is  
          illegal in CA.





           The Wire Act of 1961:  The Interstate Wire Act of 1964 (Wire Act)  
          prohibits individuals and entities from engaging in the business  
          of betting or wagering through the knowing use of "a wire  
          communication for the transmission in interstate and foreign  
          commerce."  The Wire Act was recommended as law by U.S. Attorney  
                                                                                       General Robert Kennedy "to crack down on organized crime members  
          using the telegraph to get results on horse races."  However,  
          the U.S. Department of Justice also on occasion has used this  
          act to prosecute professional gamblers.





          Under the Wire Act, the legal definition of a "wire  
          communication" includes any communication made through an  
          "instrumentality used or useful in the transmission of writings,  
          signs, pictures, and sounds ? by aid of wire, cable, or other  
          like connection between the points of origin and reception."  
          Although Congress' passing of the Wire Act predated the advent  
          of the Internet, several court decisions have held that the Wire  
          Act's scope includes Internet communications based on the clear  
          meaning of "wire communications" set forth in the act.  For  
          instance, the U.S. Court of the Appeals for the First Circuit  
          held in United States v. Lyons that online sports betting  
          violated the Wire Act because" [a]nyone ? would readily agree  







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          that the internet is used and useful in the transmission of  
          writings."  The court further noted that even though the Wire  
          Act predated the Internet, its definition of wire communications  
          "so accurately describes it]."





          In 2011, the United States Department of Justice made available  
          its legal opinion on the Wire Act, 18 U.S.C.  1084, which  
          concluded that "interstate transmissions of wire communications  
          that do not relate to a 'sporting event of contest' fall outside  
          the reach of the Wire Act."  In essence, the opinion stated that  
          the Act applies only to sports betting and has no application to  
          casino games or other forms of gambling.  Among other things,  
          that opinion opened the door for states to permit and regulate  
          gambling over the Internet.  Thus far, Delaware, Nevada and New  
          Jersey have done so.





           Illegal Gambling Business Act of 1970  : In 1970, as part of the  
          Organized Crime Control Act, Congress passed the Illegal  
          Gambling Business Act (IGBA). The statute was aimed at  
          syndicated gambling. Congress determined that large-scale,  
          illegal gambling operations, like casino-type activities,  
          including games such as blackjack, financed organized crime,  
          which, in turn, has a significant impact on interstate commerce.  
          In order to determine if a defendant violated IGBA the  
          government must show:





               (1) A gambling business described in the indictment was  
                 conducted which violated the laws of the state in which  







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                 it was conducted; 





               (2) Five or more persons including the defendant, knowingly  
                 and deliberately conducted, financed, managed,  
                 supervised, directed or owned all or part of that  
                 gambling business; and 





               (3) The gambling business was either in substantially  
                 continuous operation for more than thirty days, or,  
                 alternatively, the gambling business, on at least one  
                 day, had gross revenues of two thousand dollars or more.





          Regulatory Enforcement in CA  : There are two main entities that  
          handle regulatory enforcement of gaming issues in California. It  
          is a common misconception that the California Gambling Control  
          Commission (Commission) and the California Bureau of Gambling  
          Control (Bureau) are the same entity. The Commission works in  
          the regulatory and adjudicatory arena while the Bureau deals  
          with investigatory and enforcement issues.





              (1)  California Gambling Control Commission (Commission)  :  
               Makes determinations of suitability for the issuance of  
               licenses, work permits, registrations and Tribal key  
               employees, vendors and financial sources to ensure that no  







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               ineligible, unqualified, disqualified or unsuitable persons  
               are associated with controlled gaming activities.  
               Additionally, acts as the decision maker in disciplinary  
               accusations brought against licensees by the Bureau of  
               Gambling Control; sets policy, criteria and standards;  
               serves as the trustee of the Indian Gaming Revenue Sharing  
               Trust Fund and administrator of the Indian Gaming Special  
               Distribution Fund; reviewing and ruling body at evidentiary  
               hearings.



              (2)  California Bureau of Gambling Control (GBGC)  : Conducts  
               all financial review inspections, gaming device testing,  
               investigations and Tribal casino visits; receives all  
               applications, fees, and deposits; handles questions about  
               licensing (background investigations, initial applications,  
               renewal applications) or compliance matters (inspections,  
               audits); receives, reviews and investigates gambling  
               related complaints. Additionally, the GBGC is the  
               enforcement for game legality issues; reviews and approves  
               the rules of games and gaming activities in all California  
               cardrooms prior to them being offered for play; initiates  
               disciplinary accusations against licensees; administers  
               self-exclusion program list for cardrooms; register  
               non-profit organizations and suppliers of gambling  
               equipment and/or services to conduct charity fundraising  
               events using controlled games (charity poker night  
               fundraisers); processing applications associated with the  
               Charitable Remote Caller Bingo program. The Attorney  
               General's Charitable Trust Section regulates charitable  
               raffles.  Nonprofit organizations must register and file  
               annual financial disclosure reports



              (3)  Other Areas of California Gaming Regulation  : The  
               California Horse Racing Board regulates pari-mutuel  
               wagering, racing, breeding, and track standards in the  
               State. The California Lottery Commission is charged with  







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               the authority and responsibility to oversee the California  
               Lottery and ensure its integrity, security and fairness.  
               Charitable Bingo (non-tribal) - Complaints and questions  
               should be directed to the local government (city or county  
               regulator) where the bingo games are conducted. The Office  
               of Problem Gambling (California Department of Public  
               Health) offers help and training resources for problem  
               gambling.
           


          "Lottery" and "Skill vs. Chance"  : As stated above, the  
          Legislature is prohibited from authorizing lotteries. Thus, if  
          an activity is deemed to be a lottery, then it is considered  
          illegal gambling. When deciding whether an activity is a  
          lottery, one factor the State must determine is whether it is a  
          game of "skill" or "chance". Should an activity meet all the  
          criteria of a "lottery", which includes the determination that  
          it is a game of "chance" not "skill", the activity is illegal  
          under current California law (See CA PC Sections 319). In  
          determining whether a particular game or scheme is a lottery,  
          the test in California is whether the game is dominated by  
          chance, the test is not whether the game contains an element of  
          chance or an element of skill but rather, as between them, which  
          is the dominating factor in determining the result of the game-  
          "The Predominate Factor Test". (See In re Allen (1962) 59 Cal.2d  
          5; Bell Gardens Bicycle Club v. Department of Justice (1995) 36  
          Cal.App.4th 717, 748). 





           "Percentage Games"  : As stated above, PC Section 330 prohibits  
          specific "percentage games", however, Section 330 does not  
          define "percentage game." The First Appellate California court  
          construed Section 330 of the Penal Code referring to percentage  
          game as prohibiting "any game of chance from which the house  
          collects money calculated as a portion of wagers made or sums  
          won in play." See Sullivan v. Fox (1987) 189 Cal.App.3d 673,  







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          679. "The Predominant Factor Test" would also be used in  
          determining a "percentage game", because, like lotteries, it too  
          must be a game of chance. 


           


          Regulatory and Legislative Actions  : Many states have begun to  
          take regulatory actions or propose legislation on DFS. Several  
          states, specifically Nevada, New York and Illinois, have  
          determined-through regulatory bodies-DFS to be illegal gambling,  
          thus attempting to put a cease and desist on the activity their  
          respective state. Other states, like Massachusetts, have issued  
          more favorable rulings to the industry, because they do not  
          consider DFS to be illegal gambling, but do put in place  
          regulations on DFS. See notable actions by states below:





                  Nevada  : On October 15, 2015, A. G. Burnett, the Nevada  
               Gaming Control Board's chair, issued a ruling stating that  
               fantasy sports betting is prohibited under Nevada law  
               unless the operators had the appropriate Nevada licenses.  
               In Burnett's view, daily fantasy sports activity  
               constituted a "game" as defined by Nevada law, thus making  
               conduct of the "game" a form of "gambling" for which a  
               license was required.  He also stated that daily fantasy  
               sports activities constituted a "sports pool," which also  
               required a Nevada license. Nevada Attorney General Adam  
               Laxalt called the opinion, "well-reasoned, methodical, and  
               a step-by-step analysis. "Under Nevada law today, this is  
               both gambling and sports pool betting.   "I don't think  
               anybody wants to shut out a new and lucrative business. But  
               the way Nevada law is currently written, they didn't fit."   
               No action has been taken by the AG's office, other than  
               issuing a legal analysis on DFS.  








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                  New York  : In November, New York Attorney General Eric  
               Schneiderman declared DFS to be illegal gambling and issued  
               an order for the industry to cease and desist their  
               operations. An emergency hearing was held to consider  
               injunctions from the AG, FanDuel and DraftKings in  
               November. A Supreme Court judge found on the side of the NY  
               AG on December 11, 2015, but an appeals court put a stay on  
               the preliminary ruling, reinstating the status quo until  
               January 4, 2016 when another hearing will take place.



               There are four bills pending in the legislature - two that  
               seek to put DFS under the purview of the gaming commission,  
               and another that would exempt DFS from the gambling code as  
               a game of skill using UIGEA language, and another that  
               seeks to amend the state constitution.





                  Massachusetts  : On November 19, 2015, Massachusetts  
               Attorney General Maura Healey announced regulations that  
               would govern the DFS industry from a consumer protection  
               standpoint.  The state Gaming Commission, which is expected  
               to produce a "white paper" regarding the issues surrounding  
               regulation of daily fantasy sports. Lawmakers have  
               expressed interest in licensing and taxing DFS operators,  
               things that AGs regulations do not do.  A court case is  
               also pending in Massachusetts in which DraftKings is suing  
               payment processors to continue doing business with them  
               while they accept customers in New York.



                  Illinois  : On December 23, 2015, Illinois Attorney  
               General Lisa Madigan declared in an opinion letter that  







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               daily fantasy sports are considered illegal gambling under  
               Illinois law.  "Participants (in the online fantasy  
               leagues) must pay an entry fee or buy-in amount in order to  
               win a prize.  State law "clearly declares that all games of  
               skill or chance, when played for money, are illegal  
               gambling in Illinois," Madigan's opinion said.  "Absent  
               legislation specifically exempting daily fantasy sports  
               contests from the gambling provisions, it is my opinion  
               that daily fantasy sports contests constitute illegal  
               gambling under Illinois law," Madigan wrote.  The AG  
               examined the legality of daily fantasy sports at the behest  
               of two state legislators.  In response to the AG opinion,  
               DraftKings and FanDuel filed lawsuits in Illinois asking a  
               judge to declare their games legal a day after the state's  
               attorney general outlawed them as gambling.  Unlike the  
               ongoing case in New York, DraftKings' and FanDuel's cases  
               will not be linked.  DraftKings' case will take an  
               "expedited" schedule, with the AG responding by January 22.  
                A trial will not take place until June.  Meanwhile,  
               FanDuel is suing jointly with Head2Head Sports - a season  
               long fantasy sports provider.  Both sites continue to  
               operate in Illinois, and presumably will until the case is  
               resolved in court
          Approximately 16 states have introduced legislation that would  
          authorize and regulate DFS, including Illinois and New York.  
          States have generally taken one of three legislative approaches  
          to DFS:


                 Regulatory-States which have taken the regulatory  
               approach, such as AB 1437, have proposed legislation that  
               would subject DFS operators to some form of formal  
               oversight.



                 Casino-Partnership-States, such as Indiana, have  
               proposed legislation that would authorize land-based  
               casinos to partner with DFS operators. 








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                 Carve-Out-States which have taken the carve-out  
               approach, such as Louisiana, have proposed legislation that  
               would merely exempt DFS competitions from statutory  
               gambling prohibitions.
           Author's Amendments  : The author will offer amendments in  
          committee that will further strengthen consumer protections for  
          DFS consumers in California, specifically:





         I.  Protections for DFS consumer accounts:
               
               1.     Funds in DFS consumer accounts will be held in trust  
                 by the Daily Fantasy Sports Operator (DFSO) for the DFS  
                 consumer that establishes the account.  DFSOs will  
                 implement and prominently publish procedures that:

                 a.       Prevent unauthorized withdrawals from DFS  
                   consumer accounts by DFSOs or others;

                 b.       Prevent commingling of funds in a DFS consumer  
                   account with other funds including, without limitation,  
                   funds of the DFSO; and



                 c.       Establish procedures for responding to and  
                   reporting on complaints by DFS consumers that their  
                   accounts have been misallocated, compromised or  
                   otherwise mishandled.



         I.  Truthful Advertising - Limitations on Advertising Content:
          
               1.  DFSO advertisements will not depict minors (under the  







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                 age of 21), students or school or college settings.  
          
               1.     DFSOs will not advertise in publications or other  
                 media that are aimed exclusively or primarily at minors.

           I.    Protections for Problem Gamers:
                        
                1.  DFSOs will not market a contest to DFS consumers by  
                 phone, email or in any form of individually targeted  
                 advertisement or marketing material if the player is  
                 self-excluded or otherwise barred from playing in that  
                 contest.

               2.  DFSOs shall not issue credit to DFS consumers.

           II.   Fairness of DFS contests:
          
                1.  No DFSO employee, DFSO principal, DFSO officer, DFSO  
                 director, or DFSO contractor may play on any DFS contest  
                 platform of any DFSO.  Nor may such person play through  
                 another person as a proxy.  

                2.  No DFSO employee, DFSO principal, DFSO officer, DFSO  
                 director, or DFSO contractor may disclose proprietary or  
                 non-public information that may affect DFS gameplay to  
                 any person permitted to engage in DFS gameplay.  DFSOs  
                 will make these restrictions known to all affected  
                 individuals and corporate entities.

                3.  DFSOs will identify highly experienced players by a  
                 symbol attached to their username, or by other easily  
                 visible means, on all DFSO contest platforms.

                4.  All DFSOs will develop games in which highly  
                 experienced players cannot participate either directly or  
                 through another person as a proxy.

                5. DFSOs will not allow a DFS player to establish more  
                 than one username or more than one account.








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           Support  : According to Daily Fantasy Sports Players Alliance  
          (DFSPA), AB 1437 (Gray) would create a regulatory framework for  
          Daily Fantasy Sports (DFS) websites (i.e. Fan Duel, Yahoo, and  
          Draft Kings) to operate in California. Specifically, it would  
          establish a regulatory framework by which entities, as  
          authorized and licensed by DOJ, may facilitate Internet fantasy  
          sports games to consumers. DFS is enjoyed by millions of  
          Californians and should continue to in a regulated environment  
          where consumers are protected.





          The Los Angeles Clippers writes in support: "As you know,  
          fantasy sports has been an important tool used by many sports  
          teams, including the LA Clippers to deepen connections and  
          engagement with our fans. Our organization looks for ways to  
          increase fan enjoyment of our games. We are supportive of your  
          efforts to ensure that our enjoying fantasy sports in a  
          protected, regulated environment. AB 1437 is an important  
          positive step towards protecting Californians who enjoy fantasy  
          sports, and as such, we support your initiative."   


           


          Opposition  : Stand Up For California! writes in opposition: "DFS  
          is a sports pool or percentage game. The California State  
          Legislature long ago determined that sports pools and percentage  
          games are illegal gambling. In addition, because online DFS  
          operators charge bettors a rake that is a percentage of the  
          wager, DFS is an illegal percentage game. Of great importance,  
          in 1999, the California Supreme Court ruled in HERE v. Davis  
          case that: Article 4 Section 19 (e) of the California  
          Constitution elevated Penal Code Section 330 et. seq. to a  
          constitutional level. Accordingly, the Legislature may not  







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          authorize any game that would constitute banking, gambling pools  
          or percentage games." 


          


          REGISTERED SUPPORT / OPPOSITION:




          Support


          Anschutz Entertainment Group (AEG)


          California Police Chiefs Association 


          Daily Fantasy Sports Players Alliance


          Los Angeles Clippers


          Various DFS Players in California




          Opposition


          Stand up for California!











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          Analysis Prepared by:Eric Johnson and Kenton Stanhope / G.O. /  
          (916) 319-2531