Draft of Federal Sports Betting Bill Released

A 37-page draft of federal sports betting legislation has emerged from the office of retiring Senator Orrin Hatch. The discussion draft is still just a rough version of a bill that may be proposed at some point, but does provide some insight into what some of the highest lawmakers in the land have in mind for sports betting.

The draft follows-on to promises from Orrin Hatch earlier this year to introduce federal sports betting regulation. Within hours of the Supreme Court’s decision to strike down the Professional and Amateur Sports Protection Act (PASPA), Senator Hatch began calling for federal oversight.

Senator Hatch followed up with an update in August during a speech on the Senate floor. In that speech, Senator Hatch emphasized the need to create a federal framework so that state legislation does not become “a race to the bottom.”

He used the word “integrity” no fewer than 17 times during his 12-minute speech, which was seen by many as a preview of his desire to see sports integrity fees integrated into the bill.

Now, ESPN has obtained a copy of Hatch’s draft bill to provide our first concrete view of what the Utah Senator has in mind. Senator Hatch has apparently followed the lead of the pro sports leagues in not pursuing integrity fees, but the bill does contain a league-friendly mandate that sports betting operators rely on official data provided by the leagues for setting wagers.

Legal Sports Report has published a full copy of the draft legislation here.

What’s Inside the Federal Sports Betting Bill

One of the most noteworthy aspects of the bill obtained by ESPN and Legal Sports Report is that it requires states to run any sports betting legalization plans past the US Attorney General’s office for approval before the law may take effect.

If the Attorney General finds any state’s sports betting law unacceptable, the AG may veto the law. The discussion draft of the Senator’s bill justifies giving the federal government this power with the following:

“While each State may decide whether to permit sports wagering and how to regulate sports wagering, there is an important role for Congress in setting minimum standards for sports wagering that affects interstate commerce and providing law enforcement with additional authority to target the illegal sports wagering market and bad actors in the growing legal sports wagering market.”

Additionally, the bill spells out some of the minimum standards required of any state’s sports wagering law as follows.

General Prohibition on Sports Wagering

The bill specifies that it is illegal for any person to accept a sports wager in the United States unless:

  • That person is located in a state with legal sports betting and accepts wagers in accordance with the law
  • That person is allowed to accept a sports wagering under a state’s social gambling law (which is defined in the bill as a law that allows two or more people to conduct private gambling among themselves not as a business)

States to Submit Sports Betting Plans to Federal Government for Approval

Any state seeking to legalize and regulate sports betting must submit the following to the Attorney General and receive the AG’s approval before implementing the law:

  • “A full and complete description” of the state’s sports betting proposal
  • Full text of the state’s sports betting laws
  • Identification of the state’s regulatory sports betting authority
  • Assurance from the state’s attorney general or chief legal officer that the state has provided “adequate authority to carry out” the proposed law

Minimum Standards

The Hatch proposal sets numerous minimum standards that any state law must meet in order to receive approval from the Attorney General:

  • The law must establish a state-level regulatory entity to oversee sports wagering
  • In-person wagering may only be offered at a licensed gaming facility
  • Online/mobile betting platforms have adequate geolocation technology to ensure sports wagers are only placed by customers within state lines, except between states with interstate sports wagering compacts
  • Bets on “any amateur athletic competition” are prohibited
  • Allow sports leagues to request state regulators prohibit wagers that are deemed to pose a risk to sports integrity. The draft bill mentions wagers that deal with a single athlete, which are seen as more susceptible to corruption
  • Sports betting operators must prohibit wagers from underage users (whatever state law considers underage) and from athletes or officials associated with the sport being bet on

Data Rights for the Leagues Until 2023

The NFL and other pro sports leagues have been advocating at the state and federal levels for any legislation to make it mandatory that sportsbook operators purchase data exclusively from the leagues for the purposes of settling wagers and managing in-play betting.

The NFL argues that the use of official data is necessary to protect the integrity of the game, but that argument seems like a flimsy cover story because Nevada and other regulated markets around the world have survived for decades without forcing sports betting operators to buy data from the leagues.

Lawmakers at the state level have rebuffed the leagues in their requests for data rights, so the NFL and other leagues have taken to lobbying at the federal level. The draft bill seems to have stricken a compromise of sorts by requiring betting operators to rely on data from the leagues until 31 December 2022.

After that point, operators may rely on data from other sources approved by that state’s regulator if the regulator finds the source meets the following qualifications:

  • Provides timely, accurate data to a similar degree as data provided by the league
  • Data is “legally obtained”
  • Data is provided ‘in full compliance with the terms of any applicable contract or license”
  • The data provider is expressly authorized by the state’s regulator to provide such data

Consumer Protections

Senator’s Hatch’s draft bill also calls for a number of consumer protection measures to be included in any state’s sports betting bill.

  • National self-exclusion list that will allow customers to prohibit themselves from betting on sports with any licensed operator anywhere in the nation
  • Sports betting operators are not allowed to enforce unnecessary withdrawal restrictions such as requiring customers to participate in publicity events, enforcing minimum or maximum withdrawal amounts, requiring customers to place a certain amount of bets before withdrawing, setting unreasonable deadlines for customers to provide identify verification documents or charging dormant account fees
  • Terms and conditions must be clearly explained to all customers, including terms of deposit bonuses
  • Sports betting operators must maintain a reserve of at least the sum of customer account balances, outstanding wagers and amounts owed to customers for winning wagers
  • Advertising material must disclose the identity of the sports betting operator, provide information on problem gambling treatment and shall not target minors

Licensing Requirements

Sports betting operators must meet the following licensing requirements before being allowed to offer sports betting in any state.

  • Each state’s regulator must investigate all applicants to determine their suitability
  • Presidents, CEOs, partnership members and senior personnel must also pass background checks
  • Applicants will be considered unsuitable if they fail to provide adequate information, supply inaccurate information, have been convicted of an offense punishable by one year or more of imprisonment, are delinquent in filing federal or state tax returns or are delinquent in paying any taxes, penalties or interest owed on taxes

Bad Actor Clause

This bill also includes a wide-ranging bad actor clause that precludes licensing to anyone who has, after 13 October 2006, done any of the following:

  • Taken an illegal online bet
  • Paid winnings on an illegal online bet
  • Promoted through advertising an illegal online betting site
  • Collected payment on behalf of any illegal gambling operator
  • Knowingly “owned, operated, managed, or employed by” an illegal betting site
  • Has provided or received any assistance, financial or otherwise, from an illegal betting site

Note: the significance of that date is that it is the day the UIGEA was signed into law.

Recordkeeping Requirements

Licensed betting operators must keep records for at least five years of the following on all wagers in excess of $10,000:

  • Name, address, SSN or passport number of people who have placed wagers or attempted to place wagers
  • Amount and type of all wagers taken
  • Time at which wagers have been placed or attempted
  • The location at which the wager was placed, including IP address if applicable
  • The outcome of the wager

National Sports Betting Clearinghouse Established

The Hatch bill also calls for the formation of a national sports betting clearinghouse designed to monitor for suspicious betting activities across the nation. Licensed operators in all states will be required to provide “anonymized sports wagering data in real-time or as soon as practicable, but not later than 24 hours” after the bet was placed.

Wagering information must include a unique identifier, amount and type of the wager, time and location of the wager and outcome of the wager.

State regulators will also be required to submit suspicious betting activity reports to the national clearinghouse.

Wire Act Amended and Interstate Compacts Allowed

Under the Hatch sports betting bill, the Wire Act will be amended to allow interstate compacts between states allowing operators and individuals to place wagers across state lines with operators licensed in other states that are party to the compact.

The bill’s text also specifically mentions amending the Wire Act in order to facilitate sportsbooks in laying off bets with other sportsbooks located in other states. Laying off is the practice in which a sportsbook has taken heavy action on one side of a wager and decides to place a wager of its own with a different sportsbook in order to reduce its exposure should the sporting event end in such a way to cause a big payout to the betting public.

Federal Excise Tax Altered

The federal governments 0.25% excise tax on sports betting handle will remain in place (it was established in 1951 but has been lowered to its current rate over the years). However, where the money collected from the excise tax will go has been altered.

Money collected by the excise tax will go into a “Wagering Trust Fund” that will be used to fund a newly-created National Sports Wagering Commission, assist with problem gambling efforts, fund the National Sports Wagering Clearinghouse and to fund federal investigations into illegal betting activities.

Strengthens Gambling Violation Laws

A fair amount of text in the draft bill is dedicated to spelling out actions the Attorney General may take against individuals and operators of unlicensed gambling sites, as well as adds language to the Sports Bribery Act of 1964 to prohibit extortion, blackmail and wagers made with non-public information.

One portion of the bill in particular stands out as potentially troublesome for foreign betting sites as it states the Attorney General may take action against sites that can be accessed from within the United States deemed to violate US law even if those sites are based overseas and even if the owner of the site cannot be located.

Payment processors and websites that serve advertisements will also be prohibited from working with unlicensed betting sites in any capacity. Additionally, the bill appears to have something in place to prevent residents from using search engines to access unlicensed betting sites:

“(iv) Information Location Tools – After being serve with a copy of an order under this paragraph, a service provider of an information location tool shall take technically feasible and reasonable measures, as expeditiously as possible to:

  1. Remove or disable access to the internet site associate with the domain name set forth in the order; or
  2. Not serve a hypertext link to the internet site described in subclause (I)

First Reactions to the Orrin Hatch Sports Betting Bill

Industry types are likely still digesting the Orrin Hatch draft bill, but early reactions indicate this will not be a popular bill.

American Gaming Association VP of Government Relations Chris Cylke told SBC Americas that the AGA is still reviewing the proposal but offered this to start:

“Since the Supreme Court’s ruling in May, the American Gaming Association has consistently maintained that federal legislation regarding sports betting is not necessary. That underlying position remains unchanged. At the same time, we remain committed to maintaining an open and constructive dialogue with policymakers considering sports betting legislation at any level of government.”

The odds of Orrin Hatch’s proposal becoming law do not look good at this point. Senator Hatch will be retiring in January and won’t be around much longer to push the bill forward. He will likely have an ally in Senator Chuck Schumer, however, who has said he too supports federal sports betting legislation. The pro sports leagues will also find the bill just fine due to the clause about data rights.

Representatives of states with legal sports betting will likely find this bill unpalatable in the extreme as it takes a good deal of authority away from the states. It seems Orrin Hatch, who was one of the original authors of PASPA, cannot get away from taking authority from the states and giving it to the federal government even after PASPA was ruled unconstitutional under the anti-commandeering doctrine.

Representative Dina Titus of Las Vegas said this in response to the news:

“The Supreme Court’s decision overturning PASPA was not an invitation for the federal government to repress states that have led the way. I’ll continue to fight for Nevada’s best interests in these discussions.”

The Supreme Court decision did leave the door open for federal sports betting regulation, but the wording used in this draft bill seems to invite more problems than necessary. Giving the Attorney General the authority to strike down state laws is just not a good strategy when we consider why Hatch’s own PASPA was stricken down just months ago.

Something to keep in mind is that this is just draft legislation. It has not been introduced, it has not been debated and no changes have been suggested. Such a bill would still have a long way to go, and even its success in a vote is uncertain.

Representative Dina Titus’ first reaction to the draft bill was probably just a taste of things to come. Additionally, the portion of the bill dealing with search engine results will likely be wildly unpopular among free speech types. Right now, I wouldn’t recommend betting on this bill to become law.