June 2017 News Roundup: Legal Developments Around the Country

Online gambling legalization efforts have made significant progress in several states over the past month. It has been reported that a special commission in Massachusetts is likely to recommend legalizing online gambling and poker in the state.

Meanwhile in Illinois, the Senate voted in favor of a bill seeking to legalize daily fantasy sports, online gambling and online poker. That bill has been sent to the House and will be taken up later this month.

While things have been going smoothly for online gambling and DFS, sports betting proponents received a mix bag of results last month. New Jersey’s fight for legal sports betting was dealt a major blow after the Solicitor General recommended against the Supreme Court taking up New Jersey’s case against the federal sports betting prohibition. However, a new effort to repeal that ban emerged just a day later.

Here is our order of business for today:

  • Massachusetts Special Commission Likely to Recommend Online Gambling Regulation
  • DFS and Online Gambling Bill Passes Illinois Senate
  • Solicitor General Opinion Results in Near-Death Blow to New Jersey Sports Betting Effort
  • New Bill Seeking to Repeal Federal Sports Betting Ban Emerges

Massachusetts Special Commission Likely to Recommend Online Gambling Regulation

Online Poker Report reported yesterday that the Special Commission on Online Gambling, Fantasy Sports Gaming and Daily Fantasy Sports in Massachusetts is likely to recommend online gambling legalization and regulation.

The special commission was formed by the legislature last year for the purpose of composing a report on online gambling and fantasy sports. Now, word from insiders is that most members of the special commission have indicated they are likely to support taking the omnibus approach to getting online gambling legalized in Massachusetts.

The omnibus approach would entail combining some sort of gambling legalization bill with other unrelated bills and passing it all in one big go. Doing so would provide the primary advantage of bypassing the contentious debate that standalone gambling bills tend to generate. As a secondary advantage, the omnibus approach would move things along at a much faster pace than trying to pass a gambling bill all by itself.

There will still be a lot of ground to cover between a positive recommendation from the special commission and actual gambling legislation, but that recommendation would still be a significant step in the path to legalization. After all, the commission was put together specifically to make such recommendations. Online Poker Report also reports that the commission’s full report is due by July 31st.

DFS and Online Gambling Bill Passes Illinois Senate

One week ago today, a bill seeking to regulate fantasy sports and legalize online gambling in Illinois received a favorable vote in the Senate. That bill has been referred to the House for further discussion and potentially another vote. The House adjourned its spring session before taking up the bill, but is set to reconvene later this month.

If the bill makes it through the House, it will be sent to the Governor within 30 days and he will have 60 days to sign or veto the bill. If the Governor does nothing, the bill will automatically become law.

The bill in question aims to formally legalize daily fantasy sports and “internet gaming,” which would include casino games as well as poker.

As for daily fantasy sports, the bill would establish numerous consumer safeguards and grant oversight to the Illinois Gaming Board. Safeguards proposed in the bill are reminiscent of the safeguards that have been introduced in other states that have addressed daily fantasy sports:

  • Operators must prohibit minors from participating
  • Operators must practice truthful advertising regarding the likelihood of winning and number of winners
  • Operators must provide self-exclusion programs for problem gamblers
  • Licenses and background checks required for all operators
  • Clearly identify all “highly experienced players” to all the other participants
  • Player funds must be held in segregated accounts
  • Operators must prohibit employees from participating
  • Operators must prohibit athletes and sports professionals from participating in fantasy contests that they could affect through their actions in the real world
  • Players may not deposit more than $1,000 per month unless they undergo a specific process to temporarily or permanently increase their deposit limits

The bill also calls for a graduated tax scheme based on gross revenue. Under this law, gross revenue derived from fantasy sports would be taxed at the following rates:

  • Gross revenue up to and including $1,000,000: 5%
  • Gross revenue of more than $1,000,000 and up to $3,000,000: 7.5%
  • Gross revenue of more than $3,000,000 and up to $8,000,000: 10%
  • All gross revenue above $8,000,000: 15%

Fantasy sports operators will also be subject to license application fees of $500 to $25,000 and licensing fees of $1,500 to $50,000 based on annual gross revenue.

For online gambling and poker, the bill wants to establish the Division of Internet Gaming within the Illinois Gaming Board. This new division will be responsible for regulatory oversight and ensuring licensees adhere to the provisions set forth by this bill.

Under this bill, only current entities licensed under the Riverboat Gambling Act and the Illinois Horse Racing Act are considered eligible to apply for an online gaming license. Would-be licensees will be subject to a non-refundable application fee of $250,000. After a background check and suitability determination, licensees will be on the hook for a $10,000,000 licensing fee that counts towards future taxes owed.

The bill does not specifically use the words “online poker” or “casino games” in describing the types of internet games that it will permit. Instead, the bill describes “fee-based” and “non-fee-based” games as the two types of gaming that may be offered by licensed operators. Fee-based games are games in which the operator charges a commission or rake while non-fee-based games are set up in a manner in which the player plays against the operator in a game under rules that give the operator a mathematical advantage.

This sudden push for legal online gambling in Illinois comes as a surprise. There have been other efforts to legalize online gambling in the state, but the bill that passed the Senate was originally thought to be limited to fantasy sports.

Interestingly, it was brick-and-mortar casino interests in Illinois that insisted on the inclusion of online gambling in this bill. The Chicago Tribune reports that casino operators view daily fantasy sports as competition, but would be satisfied with the chance to expand into online gaming.

Then, in evidence of the rushed nature of the bill, representatives of the horse racing industry rushed into a hearing room to object to the legislation. Lawmakers there decided on the spot to amend the legislation and allow racetracks and certain ADW operators to apply for gaming licenses as well. This was not a pre-planned concession, but it was enough to satisfy both sides and get the bill through.

Solicitor General Opinion Results in Near-Death Blow to New Jersey Sports Betting Effort

The U.S. Solicitor General’s office may have dealt the final blow to New Jersey’s efforts to challenge the constitutionality of the law that prohibits single game sports betting in all states except Nevada.

On May 24th, the U.S. Solicitor General filed a much-anticipated brief as to whether or not the U.S. Supreme Court should hear either of two cases related to New Jersey’s challenge of the Professional and Amateur Sports Protection Act of 1992 (PASPA). Ultimately, the brief recommended against the Supreme Court taking up the case.

After suffering numerous defeats in the courtroom, New Jersey had appealed the case all the way to the Supreme Court in the hopes that the Supreme Court would hear the case. This avenue has most likely been closed off with the recommendation. Past research shows that the Supreme Court follows such recommendations 80% of the time in history, and 100% of the time over the previous 20 such recommendations.

However, the Washington Post reports that the brief did leave open one last legal avenue. The state could still repeal all laws against sports betting in a last-ditch “Wild West” scenario. This scorched-earth scenario would allow anyone and everyone to engage in the sports betting business – even street corner bookies – with absolutely no regulations.

This approach is deemed possible based on wording in PASPA that says states may not “endorse” or regulate sports betting. If the state simply repeals all laws against sports betting and does not regulate the activity, it may not violate the letter of the law.

The Solicitor General’s Office even mentioned this possibility in its brief:

“If New Jersey wishes to repeal its prohibition on sports gambling altogether and thereby remain silent with respect to such gambling… PASPA does not stand in its way.”

New Bill Seeking to Repeal Federal Sports Betting Ban Emerges

Just a day after the Solicitor General’s Office published its brief regarding the New Jersey sports betting case, ESPN reported that a congressional committee has revealed a draft of legislation seeking to repeal the federal sports betting ban and allow the states to legalize online gambling.

Congressman Frank Pallone of New Jersey released a draft discussion version of a bill called the Gaming Accountability and Modernization Enhancement Act (GAME Act) through the House Energy and Commerce Committee on May 25th.

Broadly, the GAME Act includes two proposals: a full repeal of PASPA that would result in the legalization of sports betting and the removal of federal barriers to state-by-state legalization of online gambling.

The repeal of PASPA would permit all states to legalize and regulate single game sports betting. Additionally, it would create a federal system under which operators that accept bets in multiple states are able to prove they comply with each state’s regulations. Individual states would still be left free to regulate online gambling and sports betting as they see fit, but this law would make it possible for operators to do business in more than one state should state laws permit multi-state operators within their borders.

Frank Pallone’s press release explains the rationale behind the bill:

“Despite the federal gaming laws in place today, Americans are betting up to $400 billion a year on sporting events alone. It’s time to recognize that the laws are outdated, and the GAME Act will modernize them by increasing transparency, integrity, and consumer protections.”

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