AB 1437 could become a model for DFS regulations throughout the United States.
The California Assembly Committee on Governmental Organization has approved AB 1437, a bill which would legalize and regulate daily fantasy sports in the state. AB 1437 is known as the “Internet Fantasy Sports Game Protection Act”. The bill was first introduced in September 2015 by Assemblyman Adam Gray.
If passed, AB 1437 will codify how DFS is regulated, licensed and taxed in California. The law is going to be the first law in the nation which regulates daily fantasy sports betting.
Ken Cooley Concerned about Fish
The proposal appears to have gone through committee rather easily, though a few concerns were raised. Assemblyman Ken Cooley was concerned whether daily fantasy sports violated prohibitions against rivals to the state lottery, because of “characteristics of randomness, chance and consideration”.
Cooley expressed concerns about “the knucklehead angle”, saying he wanted safeguards against sharks targeting fish — allowing more skillful players to target those who do not understand the game as well. He was concerned that California regulations might legalize predatory behavior, saying “we should not aid and abet the fool and his money soon being parted.”
Even the worst DFS players are likely to take their chances playing a shark than betting on the lottery, which has a house edge well in excess of any other betting game on the market.
Frank Bigelow’s Wire Act Concerns
Assemblyman Franklin Bigelow was concerned whether DFS violates the Wire Act, which prohibits sports betting across state lines on telephone (or Internet) wires. The Wire Act has been used to ban both sports betting and online sportsbooks. From 2006 to 2011, the Wire Act and its addendum, the UIGEA, were used to ban online casinos and poker sites.
The federal government has the ability to ban activities which involve transactions between 2 or more states, while a state like California usually receives the right to make laws in transactions which take place entirely inside on state. Bigelow said he believes DFS could violate that tenet, saying, “Whatever action happens has to happen intrastate, not interstate”.
Tax and Licensing Fees Undetermined
Several provisions have yet to be determined. The licensing fees and tax levels have not been nailed down in Adam Gray’s legislation. One gets the idea he has left those provisions out in order to provide greater leeway in the coming negotiations.
Amendments to AB 1437
Since first introducing the bill in September, Assemblyman Gray has made several amendments to it. One addresses the Ethan Haskell case, in which a DraftKings employee played on FanDuel and won $350,000, leading to charges Haskell might have used privileged information to gain an advantage. Gray amended the legislation to make sure employees from one company cannot play on the sites belonging to other companies. (DK and FD each changed their policies to assure that would not happen, but other companies might not have such policies.)
Another amendment prohibits companies from commingling operating capital with player funds. This was the policy which caused so much trouble for Full Tilt Poker during the Black Friday investigations. A third change to the proposal called for some minor restrictions on DFS advertising. Anyone who has watched American sports television in the past year knows the DFS ads appear omnipresent. The waves of DFS commercials in the early part of the NFL season certainly contributed to the backlash in the Ethan Haskell case.
“Scarlet Letter” Provision for Grinders
A fourth amendment would force daily fantasy sports sites to tag high-volume players with a “scarlet letter”. That would tell novice gamblers they are playing against high rollers and “grinders”, a term for a DFS competitor who uses advanced statistical models and copious research to gain an advantage. One of the arguments in the wake of New York AG Eric Schneiderman’s ban on DFS in New York erupted over win statistics on FanDuel and DraftKings.
According to Schneiderman, only 11% of daily fantasy sports contestants made a profit on FanDuel and DraftKings in 2015. According to the New York attorney general, that is a sign that DFS is predatory and the companies use false advertisements.
What to Expect Next
Now that the bill has passed out of committee, it can be introduced for a vote on the floor of the California General Assembly. If Gray’s bill were to pass, it would then have to be introduced to the California Senate. Assuming it was passed in the Senate, AB 1437 would then go to Gov. Jerry Brown for his signature. If it passed this third state, AB 1437 would become a California law.
