BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Isadore Hall, III Chair 2015 - 2016 Regular Bill No: AB 1437 Hearing Date: 6/28/2016 ----------------------------------------------------------------- |Author: |Gray | |-----------+-----------------------------------------------------| |Version: |6/21/2016 Amended | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |Yes |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Felipe Lopez | | | | ----------------------------------------------------------------- SUBJECT: Gambling: Internet Fantasy Sports Game Protection Act DIGEST: This bill enacts the Internet Fantasy Sports Game Consumer Protection Act, which requires 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. ANALYSIS: Existing law: 1)Provides, under the Gambling Control Act, for the licensure and regulation of various legalized gambling activities and establishments by the California Gambling Control Commission (CGCC) and the investigation and enforcement of those activities by DOJ. 2)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 approval. 3)Requires DOJ 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 AB 1437 (Gray) Page 2 of ? 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. 4)Specifies that the Legislature has no power to authorize, and shall prohibit, casino games of the type currently operating in Nevada and New Jersey. 5)Prohibits a person, whether or not for gain, hire, or reward, from making a betting pool or placing a bet or wager on the result of any contest or event, including a sporting event, as specified. 6)Prohibits any bet, bets, 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, 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 person, animals, or mechanical apparatus. 7)Specifies that no person in this state has a right to operate a gambling enterprise except as may be expressly permitted by the laws of this state and by local ordinances. 8)Prohibits banking or percentage games played with cards, dice, or any device, for money, check, credit or other representative of value. 9)Prohibits bookmaking and pool selling. 10) 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. 11) Prohibits lotteries, with exceptions for the California State Lottery, bingo for charitable purposes, and charitable raffles conducted by non-profit, tax-exempt organizations. 12) Defines a lottery as any scheme for the disposal or distribution of property by chance, among persons who have AB 1437 (Gray) Page 3 of ? 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 is to be distributed or disposed of by lot or chance, whether called a lottery, raffle, or gift enterprise, or by whatever name the game may be known. 13) 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 defined in California Law. 14) Federal law essentially prohibits online gambling but does include specific provisions that allow individual states to offer intrastate internet gaming, provided that state laws permitting and regulating that activity could impose reasonable protections against participation by underage persons or by persons located outside the boundaries of the state. This bill: 1)Requires a person or entity to apply for and receive a license from DOJ prior to offering an Internet fantasy sports game for play in California. 2)Defines an "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 professional athletes in an imaginary or simulated game. b) Uses the statistics accumulated by professional athletes in real-world sporting events to determine the scores of the imaginary or simulated game. c) Plays for a predetermined prize. d) Pays a fee to the licensed operator providing the game in order to participate. 3)Requires DOJ to issue a license to a person or entity to operate an authorized Internet Web site if the applicant AB 1437 (Gray) Page 4 of ? satisfies all of the following: a) The applicant is of good character, honesty, and integrity. b) The applicant's prior activities, criminal record, if any, reputation, habits, and associations do not pose a threat to the public interest of the state, or to the effective regulation and control of Internet fantasy sports games, or create or enhance the dangers of unsuitable, unfair, or illegal practices, methods, and activities in the conduct of Internet fantasy sports games or in the carrying on of the business and financial agreements incidental to those games. c) The applicant is in all other respects qualified to be licensed as provided by the provisions of this bill, including, but not limited to, providing documentation establishing that the applicant is capable of paying the one-time license fee through its own net position or through credit directly available to the applicant. 4)Authorizes DOJ to promulgate regulations to implement the provisions of this bill. 5)Specifies that in order to ensure the protection of registered players, an authorized Internet Web site shall identify the person or entity that is the licensed operator. 6)Requires a licensed operator to ensure that an Internet fantasy sports game on its authorized Internet Web site complies with all of the following: a) An imaginary or simulated sports team in the game shall not be based on the current membership of an actual team that is a member of a professional sports organization. b) A prize or award offered to the winning registered player or players shall be established and made known to the participating registered players in advance of the contest. c) The value of a prize or award offered to the winning registered player or players shall not be determined by the number of participating registered players or the amount of any fees paid by those participating registered players to the licensed operator. d) The winning outcome of the game shall not be either of the following: AB 1437 (Gray) Page 5 of ? i) Based on the score, point spread, or performance of any single real-world team or any combination of real-world teams. ii) Based solely on the single performance of an individual athlete in a single real-world sporting event. 7)Prohibits a licensed operator from offering an Internet fantasy sports game based on a collegiate sports or athletic event, or any other sports or athletic event in which amateur athletes participate. 8)Requires a licensed operator to hold the funds of a registered player in a registered player's account in trust for that registered player. 9)Requires a licensed operator to implement, and prominently display on its authorized Internet Web site, procedures that accomplish all of the following: a) Prevent unauthorized withdrawals from registered player accounts, including, but not limited to, withdrawals by the licensed operator and other individuals. b) Prevent commingling of funds in a registered player account with other funds, including, but not limited to, the licensed operator's funds. c) Establish procedures for a registered player to report complaints to the licensed operator regarding whether his or her account has been misallocated, compromised, or otherwise mishandled, and a procedure for the licensed operator to respond to those complaints. 10) Prohibits a licensed operator from issuing credit to a registered player. 11) Prohibits a licensed operator from allowing a registered player to establish more than one account or user name on its authorized Internet Web site. 12) Prohibits a licensed operator from advertising in publications or other media aimed exclusively or primarily at persons under 21 years of age and from depicting person's under 21 years of age, including students, or school or college settings. 13) Prohibits a licensed operator from advertising an Internet AB 1437 (Gray) Page 6 of ? fantasy sports game to an individual by phone, email, or any other form of individually targeted advertisement or marketing material, if the individual has self-excluded himself or herself or if the individual is otherwise barred from participating in that Internet fantasy sports game. 14) Requires a person to register with a licensed operator prior to participating in an Internet fantasy sports game on an authorized Internet Web site. 15) Requires a licensed operator to ensure that a registered player is eligible to play on an authorized Internet Web site, and implement appropriate data security standards to prevent access by a person whose age and location has not been verified. 16) Requires a licensed operator to ensure that a registered player is physically located within the State of California at the time of participating in an Internet fantasy sports game on an authorized Internet Web site. 17) Requires a licensed operator, prior to registering and permitting a person to participate in an Internet fantasy sports game, to verify that the person is 21 years of age or older by doing both of the following: a) Attempt to match the name, address, and date of birth provided by the person to information contained in records in a database of individuals who have been verified to be 21 years of age or older by referencing an appropriate database of government records. b) Verify that the name and physical billing address on the check or credit card offered for payment by the person seeking to be a registered player matches the name and address listed in the database. 18) Specifies that if the licensed operator is unable to verify that the person is 21 years of age or older, the licensed operator shall require the person to submit age-verification documents consisting of an attestation signed by the person that he or she is 21 years of age or older and a copy of a valid form of government identification, either electronically or by mail. A valid form of government identification includes a driver's license, state identification card, passport, official AB 1437 (Gray) Page 7 of ? naturalization or immigration document, including an alien registration receipt card or an immigrant visa, or United States military identification. The licensed operator shall verify that the physical billing address on the check or credit card provided by the person matches the address listed on his or her government identification. 19) Specifies that a licensed operator is not in violation of the age prohibition if the operator complies with the age verification process set forth in this bill, and a person under 21 years of age participates in an Internet fantasy sports game on the operator's authorized Internet Web site. 20) Specifies that DOJ may assess a civil penalty against a licensed operator that violates the provisions of this bill according to the following schedule: a) Not less than $1,000 and not more than $2,000 for the first violation. b) Not less than $2,500 and not more than $3,500 for the second violation. c) Not less than $4,000 and not more than $5,000 for the third violation. d) Not less than $5,500 and not more than $6,500 for the fourth violation. e) $10,000 for a fifth or subsequent violation. 21) Requires DOJ to develop an online self-exclusion form on or before July 1, 2017 and deliver the form to each licensed operator. 22) Requires a licensed operator to prominently display a link to DOJ's Responsible Gambling Internet Web page and the online self-exclusion form when either of the following occurs: a) A person registers as a registered player. b) Each time a registered player accesses the authorized Internet Web site prior to playing. 23) Requires a licensed operator to retain each online self-exclusion form submitted to it by a registered player to identify persons who want to be excluded from play. A licensed operator shall exclude those persons from play. A licensed operator that has made commercially reasonable AB 1437 (Gray) Page 8 of ? efforts to comply with this subdivision is not in violation of this section if a person who has filled out an online self-exclusion form thereafter participates in an Internet fantasy sports game on the operator's authorized Internet Web site. 24) Prohibits an officer, director, principal, employee, or contractor of a licensed operator from doing any of the following: a) Playing on an Internet fantasy sports game by a licensed operator. b) Playing an Internet fantasy sports game offered by a licensed operator through another person or proxy. c) Disclosing proprietary or nonpublic information that may affect the play of an Internet fantasy sports game to any individual authorized to play that Internet fantasy sports game. 25) Requires a licensed operator to make the prohibitions known to all affected individuals and corporate entities. 26) Requires a licensed operator to identify a highly experienced registered player using a symbol attached to that registered player's account or username or by other means easily identifiable by other registered players. 27) Requires a licensed operator to develop and offer at least one Internet fantasy sports game in which a highly experienced player cannot participate either directly or through another person as a proxy. 28) Requires a licensed operator to facilitate the collection by the Franchise Tax Board of personal income taxes from registered players and be responsible for providing current and accurate documentation on a timely basis to all state agencies. State entities shall treat the proprietary information provided by a licensed operator as confidential in order to protect the licensed operator and to protect the security of an authorized Internet Web site. 29) Exempts proprietary information supplied by a licensed operator to a state agency from public disclosure. 30) Creates the Fantasy Sports Fund (Fund) in the State AB 1437 (Gray) Page 9 of ? Treasury, to be administered by DOJ. All the moneys in the fund are continuously appropriated to DOJ, without regard to fiscal years, in the amounts necessary for DOJ to perform its duties under the provisions of this bill. 31) Requires each licensed operator to pay an annual regulatory fee, to be deposited in the 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 bill, including, but not limited to, enforcement efforts related to illegal Internet gambling activities. 32) Specifies that prior to operating its authorized Internet Web site, a licensed operator shall remit to the State Treasurer a one-time license fee in an unspecified amount to be deposited into the General Fund and credited against the annual regulatory fee. Upon depletion of the license fee balance, DOJ shall notify the licensed operator to commence quarterly payments to the state. 33) Specifies that in consideration of the substantial value of each license, a licensed operator shall remit to the State Treasurer on a quarterly basis for deposit in the General Fund an amount equal to an unspecified percentage of its gross income that is attributable to the operation of an authorized Internet Web site in California. 34) Specifies that each quarterly payment shall be due on the 10th day of the month following the end of each quarter. 35) Requires a licensed operator to make all electronic and written financial records available to the State Treasurer and DOJ on an electronic basis. 36) Prohibits a city, county, or city and county to regulate, tax, or enter into a contract with respect to any matter governed by the provisions of this chapter. This section does not prohibit or limit the investigation and prosecution of any violation. 37) Makes various legislative findings. 38) Includes an urgency statute to take effect immediately. AB 1437 (Gray) Page 10 of ? Background Author's statement. According to the author, AB 1437 will establish a framework to license and regulate Daily Fantasy Sports (DFS) in California to ensure consumers are playing on websites that provide comprehensive consumer protections. Currently, Californians participate in DFS games on a daily basis on unregulated Internet websites. Despite a lack of regulation, participation in DFS remains very popular. AB 1437 will bring more transparency, accountability and protections to this rapidly growing industry. The author states that, 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. The games do not provide any benefits to the citizens of California. In California, every legal gaming industry (card clubs, horse racing, and Indian casinos) is subject to licensing requirements, regulatory oversight, and enforcement under DOJ, CGCC, 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 California consumers, which the Legislature has a responsibility to do. AB 1437 would replace an unregulated online industry with a safe and responsible entertainment option for adults, which includes safeguards against compulsive and underage play, money laundering, fraud, and identity theft. Daily fantasy sports (DFS). DFS are a subset of traditional season long fantasy sports games, which have been around to some extent for more than 40 years. However, unlike traditional fantasy sports, DFS began around 2009 and are conducted over a short-term period, such as a single day-MLB, NBA, NHL-or on a weekly basis-NFL or NCAA Football. DFS players compete against others by building a team of AB 1437 (Gray) Page 11 of ? real-world athletes from a particular league or competition, and earn points based on the actual statistical performance of the players in real-world competition. For example, in football, DFS players are generally required to choose a team that includes a real life quarterback, two running backs, two to three wide receivers, a tight end, a kicker and a team defense. Each real world athlete is assigned a specified price by DFS operators, with the best players, who are more likely to produce superior statistics, having the highest price. DFS players must decide whether a highly valued athlete is worth the higher price or if a less expensive athlete is a better bargain. The salary cap ensures that a DFS player's team is not composed entirely of the highest priced real-world athletes. A DFS player earns points based on how real-world athletes perform in their respective games. For instance, running backs earn points based on how many touchdowns they score-generally six points per touchdown-and how many rushing/receiving yards they produce-generally one point per every 10 yards. To illustrate, if professional football player Adrian Peterson ends a game with one touchdown, 90 rushing yards, and 20 receiving yards, a DFS player would receive a total of 17 points for having Adrian Peterson in his or her team. This includes six points for the touchdown, nine points for the 90 rushing yards, and two points for the 20 receiving yards. The DFS player's team who accumulates the most total points is declared the winner. Depending on their overall performance, DFS players win a share of a pre-determined payout. Generally in larger contests, more than one DFS player will earn a portion of the payout-depending on what position the DFS player finishes in that contest. For example, an operator might hold a 1,000 entry contest where the top 100 players receive a payout. The player, who finishes in 100th place, while still receiving a payout, will receive less of a payout than the 20th place player, who in turn will receive less of a payout than the 1st place player-who receives the largest payout. DFS players pay an entry fee in order to participate. AB 1437 (Gray) Page 12 of ? Generally, 90 percent of the player's entry fee will go toward a pot, and the remaining 10 percent is paid to the DFS operator. Entry fees can range from as low as a single dollar to as high as thousands of dollars. There are various types of games, from head-to-head contests, where two players face off against each other, to larger contests with thousands of entries and payouts of up to millions of dollars. Nationwide, DFS 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, DFS operators could reach $17.7 billion and $1.77 billion, respectively. Industry experts have estimated that California accounts for approximately 10 to 15 percent of the overall national DFS market. It is estimated that there are approximately 57 million DFS players in the United States and Canada. DraftKings/FanDuel. Although DFS operators have been operating since 2009, the two largest operators, DraftKings and FanDuel, became household names through a large media blitz that began prior to the start of the 2015 NFL season. It has been reported that both DraftKings and FanDuel spent a combined $150 million on television and Internet advertising during that period. Not only were the advertisements prominent on television and the Internet, they were front and center at professional and collegiate sporting events. Though there are various DFS operators, DraftKings and FanDuel constitute approximately 90 to 95 percent of the DFS market. According to financial consultants, it is estimated that each company has a valuation of more than $1 billion. Various news agencies, including ESPN, have recently reported that DraftKings and FanDuel have been in discussions about a possible merger. The Unlawful Internet Gaming Enforcement Act of 2006 (UIEGA). The UIEGA 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 AB 1437 (Gray) Page 13 of ? requirements, skill-games and legal intrastate and intertribal gaming. However, UIGEA also contains language that states "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." Thus, UIGEA defers to any other federal or state law that prohibits or regulates gambling, including DFS. Despite the fact that UIEGA did not expressly legalize DFS and deferred to applicable federal law and state law concerning gambling matters, supporters of DFS have pointed to the carve out in UIGEA in discussing the legality of DFS. The Professional and Amateur Sports Protection Act of 1992 (PASPA). PASPA makes it unlawful, except in four states, for a person or governmental entity to sponsor, operate, advertise, promote, license, or authorize wagering or gambling based, directly or indirectly, on one or more competitive games in which amateur or professional athletes participate, or on one or more performances of such athletes in such games. PASPA originally provided a one-year window opportunity, from its effective date for states to pass laws permitting sports wagering. California passed no such law. The Wire Act of 1961. The Wire Act prohibits individuals and entities from engaging in the business of betting or wagering through the use of a "wire communication for the transmission in interstate and foreign commerce." The Wire Act was recommended by U.S. Attorney General Robert Kennedy "to crack down on organized crime members using the telegraph to get results on horse races." The U.S. Department of Justice has on occasion used the Wire 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." Legality of DFS in California. It is unclear whether DFS is currently legal in the State of California as there are no AB 1437 (Gray) Page 14 of ? statutes or legal decisions that directly address the topic. As of today, there has been no determination by California's Attorney General as to whether DFS violates any California law. Several legislators have requested a formal opinion from the Attorney General as to the legality of DFS in California. However, the Attorney General has yet to respond to such request. Supporters of DFS argue that "because there is no statute or legal decision that explicitly makes DFS illegal, until it is deemed otherwise, DFS is legal under California law." Article IV, Section 19 of the California Constitution states that the Legislature has no power to authorize, and shall prohibit casinos of the type currently operating in Nevada and New Jersey. In addition, the Governor is authorized to negotiate tribal compacts, for the operation of slot machines and for the conduct of lottery games and banking and percentage games by federally recognized Indian tribes. Opponents of this bill argue that "pursuant to the California Constitution, banked games fall within the exclusive purview of California's gaming tribes, and if DFS violates the Constitution's prohibition against gaming of the sort found in Nevada casinos, it can be authorized only through a constitutional amendment approved by the state's voters." In addition, opponents to this bill argue that, "the California State Legislature long ago determined that sports pools and percentage games are illegal gambling activities in California. In addition, because online DFS operators charge bettors a rake that is a percentage of the wager, DFS is an illegal percentage game." Gambling regulation/enforcement in California. The Gambling Control Act creates a comprehensive scheme for statewide regulation of legal gambling under a bifurcated system involving DOJ and the five-member CGCC. The CGCC is authorized to establish minimum regulatory standards for the gambling industry and to ensure that state gambling licenses are not issued to or held by unsuitable or unqualified individuals. DOJ monitors the conduct of gaming operations to ensure compliance with state gambling laws and conducts extensive background investigations of applicants seeking a state gambling license. DOJ also conducts background checks for all key employees and state gambling licensees and vendor applications. AB 1437 (Gray) Page 15 of ? In addition, DOJ inspects premises where gambling is conducted, examines gambling equipment, audits papers, books, and records of the gambling establishment, investigates suspected violations of gambling laws, and is ultimately responsible for enforcing compliance with all state laws pertaining to gambling. "Lottery" and "Skill vs. Chance". 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 California law. 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 status of DFS in other States. Many states have begun to take regulatory actions or propose legislation regarding DFS. Several states, specifically Nevada and Illinois, have determined DFS to be illegal gambling. In Texas, the state's attorney general declared that DFS would likely be considered gambling if the issue came up in the courts. In Massachusetts, the Attorney General laid out regulations in late march that would govern the DFS industry from a consumer protection standpoint. While lawmakers have expressed interest in licensing and taxing DFS operators, Massachusetts has yet to officially license DFS. Recently, the New York Legislature passed a bill to legalize and regulate DFS-Governor Cuomo has not yet acted on that bill. Staff comments and policy considerations. Current operators - The bill does not specify whether current operators would be allowed to continue to operate prior to being officially licensed in California. Should current operators be allowed to operate during this time frame? License fees - The bill currently does not specify the annual AB 1437 (Gray) Page 16 of ? licensing fee or the percentage of gross revenue that should be remitted to the state. Without knowing the fee or the percentage that the state will receive, it is hard to determine what the benefit is to the state. In addition, without specific numbers it is difficult to determine the impact that such a fee would have on competition. What should be the license fee and the percentage of the gross income that is remitted to the state? Role of California Gambling Control Commission (CGCC) - The CGCC is responsible for determining 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 control gaming activities in the state of California. The bill currently does not specify a role for CGCC in regulating DFS in California. Should the CGCC play a role in licensing DFS in California? Highly experienced players - The bill currently specifies that licensed operators must identify a highly experienced registered player using a symbol attached to that registered player's account or username or by other means easily identifiable by other registered players. However the bill does not define a "highly experienced player." Should a highly experienced player be defined? Computer scripts - Computer scripts are a list of commands that a computer can execute without the user's interaction. For example, a player could use a script to convert data from a spreadsheet into hundreds of unique lineups almost instantly, rather than entering them manually on the site. Computer scripts could also be used to adjust lineups quickly on late breaking news. In the past, some DFS players have complained that computer scripts are unfair for players that do not use them and are against the DFS' core idea of players playing against other human players. Should computer scripts be prohibited? Athlete prohibitions - Should real world athletes, staff, coaches, or game officials be prohibited from participating in AB 1437 (Gray) Page 17 of ? DFS games? Complaint process - Should a licensed operator be required to establish a player complaint process, in consultation with DOJ? Geolocation - The bill currently requires a licensed operator to ensure that a registered player is physically located within the State of California at the time of participating in an Internet Fantasy sports game. This language suggests that California players would be prohibited from playing with DFS players in other states. If California players are allowed to play with DFS players in other states, it is unclear how the requirements in this bill-if found to be contradictory with requirements in other states-would be fulfilled. Furthermore, because some DFS contests occur over a period of days, it is unclear if this prohibition means that a player's entry would be invalid if that player travels out of state during the duration of the contest. Current language also suggests that a DFS player would be prohibited from changing their entry if they travel out-of-state. Should California provide for pool liquidity? DOJ/CGCC regulations - The bill only specifies that DOJ may promulgate regulations. Should DOJ be required to promulgate regulations? Should the CGCC play a role in developing those regulations? Background investigations - Should DOJ be required to perform background checks on officers, owners, investors or corporate affiliates of a licensed operator? License renewal - Should a licensed operator be subject to a biennial license renewal process? Parental controls - Should a licensed operator be required to establish parental control procedures? Advertising prohibitions - Should a licensed operator be prohibited from advertising misleading claims including odds of AB 1437 (Gray) Page 18 of ? winning DFS contests? Tournament format - Some states that have introduced and/or passed DFS legislation include provisions to require licensed operators to disclose the maximum number of entries allowed by a single DFS player for each contest and/or to require licensed operators to provide single entry tournaments. Should a licensed operator be required to disclose the maximum number of entries allowed by a registered player in each contest and should they be required to provide single entry tournaments? Self-exclusion - The bill specifies that DOJ shall develop a self-exclusion form by July 1, 2017. Should the self-exclusion form be available as soon an operator is licensed? Should a licensed operator be required to provide DFS players the option to self-exclude from individual DFS contests, for any period of time including a lifetime ban across all platforms and across different licensed operators? Audit authorization - Should DOJ have the authority to conduct an audit of any licensed operator, at any time, or at least annually to ensure compliance with this bill? Server location - The bill is currently silent on the location of a licensed operator's server and back-up server. Since both DraftKings' and FanDuel's servers are located out-of-state, should California mandate that a licensed operator's server be located in this state in order to enable quick inspection by DOJ agents? Player records - Some states that have introduced and/or passed DFS legislation include provisions to require licensed operators to maintain player records for a period of five years. Should a licensed operator be required to maintain such records? Approval of games - Should DOJ be required to approve specific games before a licensed operator is allowed to offer such games? AB 1437 (Gray) Page 19 of ? Prior/Related Legislation AB 2863 (Gray, 2016) establishes the Internet Poker Consumer Protection Act of 2016 and authorizes the CGCC and the DOJ to license and regulate internet poker, as specified. (Pending on the Assembly Floor) FISCAL EFFECT: Appropriation: Yes Fiscal Com.: Yes Local: No SUPPORT: Anschutz Entertainment Group California Police Chiefs Association Daily Fantasy Sports Players Alliance Los Angeles Clippers San Diego Chargers OPPOSITION: California Coalition Against Gambling Expansion California Nations Indian Gaming Association California Tribal Business Alliance County of Riverside, District Attorney, Michael A. Hestrin County of San Bernardino, District Attorney, Michael A. Ramos Morongo Band of Mission Indians New Sports Economy Institute Pala Band of Mission Indians San Manuel Band of Mission Indians Stand Up for California! United Auburn Indian Community ARGUMENTS IN SUPPORT: The California Police Chiefs Association states that, "DFS websites are visited by millions of Californians and should continue in a regulated environment where consumers are protected. AB 1437 will ensure that DFS websites provide safe and responsible entertainment option for adults, which include safeguards against compulsive and underage gambling, money laundering, fraud, and identity theft." The NBA Los Angeles Clippers state that, "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 AB 1437 (Gray) Page 20 of ? games. We have found fantasy sports to be an important tool in this mission. We are supportive of efforts to ensure that our fans are enjoying fantasy sports in a protected, regulated environment." ARGUMENTS IN OPPOSITION: The Morongo Band of Mission Indians state that, "many attorney generals across the country have concluded that DFS is in fact gambling. While California Attorney General Harris has yet to opine on the issue, the question still remains as to whether or not DFS is illegal in California. Specifically does DFS violate Article IV, Section 19 of the California Constitution or Penal Code Section 337 (a), and thus, is the Legislature both prohibited from authorizing it and mandated to prohibit it? AB 1437 acknowledges that DFS explicitly violates 337 (a), yet, DFS operators are seemingly rewarded with the adoption of a new regulatory structure, with no repercussions for violating state law." Additionally, the San Manuel Band of Mission Indians argue that, "any measure that expands gaming in California must also address how regulatory costs are to be equitably apportioned among licensed entities and how problem gaming programs are to be funded. Both the State's regulatory agencies and its efforts to address problem gambling currently are funded disproportionately by Indian tribes that conduct gaming activities in California. In order to operate in California, DFS operators must be required to pay a proportionate share of the costs associated with regulation, enforcement and problem gaming." The California Coalition Against Gambling Expansion argues that, "like a growing number of states have concluded, we contend that DFS is an illegal gambling activity that should be banned, not a legal activity needing to be regulated. Although the actions of other states may not be definitive, they should at least be informative. In addition, DraftKings has applied for and received a gambling license from the United Kingdom. This seems an acknowledgement from the industry that this is gambling, and if so, any legislation seeking to authorize a new form of gambling must first amend our State Constitution." DUAL REFERRAL: Senate Rules Committee AB 1437 (Gray) Page 21 of ?