BILL ANALYSIS                                                                                                                                                                                                    ”



                                                                    AB 1437


                                                                    Page  1





          ASSEMBLY THIRD READING


          AB  
          1437 (Gray)


          As Amended  January 12, 2016


          2/3 vote


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Governmental    |18-1 |Gray, Linder, Alejo,  |Levine              |
          |Organization    |     |Bigelow, Campos,      |                    |
          |                |     |Cooley, Cooper, Daly, |                    |
          |                |     |Cristina Garcia,      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Eduardo Garcia,       |                    |
          |                |     |Gipson,               |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Roger HernŠndez,      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Jones-Sawyer, Lopez,  |                    |
          |                |     |Salas, Steinorth,     |                    |
          |                |     |Waldron, Wilk         |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Appropriations  |15-0 |Gomez, Bigelow,       |                    |
          |                |     |Bloom, Bonilla,       |                    |








                                                                    AB 1437


                                                                    Page  2





          |                |     |Bonta, Calderon,      |                    |
          |                |     |Chang, Daly, Eggman,  |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Eduardo Garcia,       |                    |
          |                |     |Holden, Quirk,        |                    |
          |                |     |Wagner, Weber, Wood   |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
           ------------------------------------------------------------------ 


          SUMMARY:  Enacts 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:  a) 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; b) uses the statistics accumulated by the  
            athletes in real-world sporting events to determine the scores  
            of the imaginary or simulated game; c) plays for a  
            predetermined prize; and d) pays a charge to the licensed  
            operator providing the game in order to participate.


          2)Requires 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. 


          3)Requires a person to register with a "licensed operator" prior  
            to participating in an "Internet fantasy sports game" on an  








                                                                    AB 1437


                                                                    Page  3





            "authorized Internet Web site," as those terms are defined.


          4)Requires 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)Authorizes 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)Requires 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)Requires 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)Creates The Fantasy Sports Fund 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  
            be deposited in the Fantasy Sports Fund, in an amount to be  
            determined by DOJ, for the reasonable costs of license  








                                                                    AB 1437


                                                                    Page  4





            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)Requires 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)Makes 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. This  
            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 and declarations.


          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  
            agreement, understanding, or expectation that it is to be  
            distributed or disposed of by lot or chance, whether called a  








                                                                    AB 1437


                                                                    Page  5





            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 a) at least 90% of the gross receipts  
            from the raffle go directly to beneficial or charitable  
            purposes in California, and b) 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 (PC) 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  








                                                                    AB 1437


                                                                    Page  6





            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,  
            animals, or mechanical apparatus.


          9)Prohibits pool selling or bookmaking, with or without writing,  
            at any time or place. (PC Section 337a)


          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 and 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 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.  








                                                                    AB 1437


                                                                    Page  7





             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  
            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:  a) the value of the prizes is not determined by the  
            number of participants or the amount of any fees paid by those  
            participants; b) all winning outcomes reflect the relative  
            knowledge and skill of the participants; and c) 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,  








                                                                    AB 1437


                                                                    Page  8





            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:  According to the Assembly Appropriations  
          Committee:


          1)Unknown ongoing potential increased General Fund revenue  
            resulting from the unspecified tax and potential penalty  
            fines. 


          2)Unknown increased administrative and enforcement costs to DOJ  
            likely offset by the regulatory licensing fee (special fund).


          3)Unknown potential increases in income tax collection from  
            registered players (General Fund).


          COMMENTS:  


          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 Web sites.  Despite a lack of regulation, participation  
          in DFS still remains very popular. AB 1437 will bring more  
          transparency, accountability and protections to this rapidly  








                                                                    AB 1437


                                                                    Page  9





          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  
          DOJ, California Gaming Commission, or the California Horse  
          Racing Board (CHRB).  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  
          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  








                                                                    AB 1437


                                                                    Page  10





          estimated 56.8 million users in North America alone.


          DFS, which this bill 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% to 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% 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 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 Web sites 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  








                                                                    AB 1437


                                                                    Page  11





          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 Web sites 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 Web  
          sites (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% to 15% of the overall  
          national DFS market.


          Many companies have invested in DFS Web sites, 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  
          agreement with FanDuel that includes a percentage in the  
          company, and MLB 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  








                                                                    AB 1437


                                                                    Page  12





          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.  This bill  
                                              was introduced in September, almost an entire month prior to the  
          data leak.


          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 United States Code (U.S.C.) Sections 5361 to 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  








                                                                    AB 1437


                                                                    Page  13





          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  
          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 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 United States (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.  
          DOJ 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,  








                                                                    AB 1437


                                                                    Page  14





          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  
          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 U.S. DOJ made available its legal opinion on the  
          Wire Act, 18 U.S.C. Section 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  








                                                                    AB 1437


                                                                    Page  15





            which violated the laws of the state in which 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  
            $2,000 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 CGCC 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)CGCC:  Makes determinations of suitability for the issuance of  
            licenses, work permits, registrations and Tribal key  
            employees, vendors and financial sources to ensure that no  
            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; 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)Bureau:  Conducts all financial review inspections, gaming  
            device testing, investigations and Tribal casino visits;  
            receives all applications, fees, and deposits; handles  








                                                                    AB 1437


                                                                    Page  16





            questions about licensing (background investigations, initial  
            applications, renewal applications) or compliance matters  
            (inspections, audits); receives, reviews and investigates  
            gambling related complaints.  Additionally, the Bureau 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 CHRB  
            regulates pari-mutuel wagering, racing, breeding, and track  
            standards in the State.  The California Lottery Commission is  
            charged with 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  








                                                                    AB 1437


                                                                    Page  17





          under current California law (See PC Section 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, PC Section 330 does not  
          define "percentage game."  The First Appellate California court  
          construed PC Section 330 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, 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, Texas 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 rulings that are more favorable 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:


          1)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  








                                                                    AB 1437


                                                                    Page  18





            view, DFS 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 (AG)  
            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.  In January 2016, Governor Brian Sandoval  
            said he wanted the state's Gaming Policy Committee to look at  
            possible regulation of the DFS industry. 
          2)New York:  On November 11, 2016, New York AG 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, against FanDuel and DraftKings in November 2015.  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 early January, 2016.   
            On January 11, 2016, an appellate court upheld the stay,  
            pending the result of a full trial.


          3)Massachusetts:  On November 19, 2015, Massachusetts AG 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.










                                                                    AB 1437


                                                                    Page  19





          4)Illinois:  On December 23, 2015, Illinois Attorney General  
            Lisa Madigan declared in an opinion letter that daily fantasy  
            sports are considered illegal gambling under Illinois law.  
            "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.  Both sites continue to operate in  
            Illinois, and presumably will until the case is resolved in  
            court.
          5)Texas:  On January 19, 2016, Texas' AG issued an advisory  
            opinion that DFS is prohibited gambling in the state and  
            suggested a court would find the practice illegal.


          Approximately 19 states have introduced legislation that would  
          authorize and regulate DFS, including Illinois, Florida, New  
          Jersey, Pennsylvania, Virginia and New York.  States have  
          generally taken one of three legislative approaches to DFS:


          1)Regulatory - States which have taken the regulatory approach,  
            such as this bill, have proposed legislation that would  
            subject DFS operators to some form of formal oversight.
          2)Casino-Partnership - States, such as Indiana, have proposed  
            legislation that would authorize land-based casinos to partner  
            with DFS operators. 


          3)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.


          Support:  According to Daily Fantasy Sports Players Alliance  








                                                                    AB 1437


                                                                    Page  20





          (DFSPA), AB 1437 (Gray) would create a regulatory framework for  
          DFS Web sites (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:  "Fantasy sports  
          have 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. This bill 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  
          authorize any game that would constitute banking, gambling pools  
          or percentage games." 




          Analysis Prepared by:                                             
          Eric Johnson and Kenton Stanhope / G.O. / (916) 319-2531  FN:  
          0002588








                                                                    AB 1437


                                                                    Page  21