The New Jersey Assembly recently passed legislation that would regulate daily fantasy sports games. Analysts project that taxing the growing industry could generate annual revenue of $6.6 million.
The New Jersey fantasy sports bill, Assembly Bill No. 3532, would regulate large-scale fantasy sports operators like DraftKings and FanDuel. It would not apply to leagues between friends and family. Daily fantasy games differ from traditional season-long fantasy sports leagues because the daily fantasy winners are determined on a daily basis based on the statistics generated by sports players during that day's games. While individual fantasy players typically only bet a few dollars, the sheer number of fantasy players participating on national websites can generate prizes reaching millions of dollars.
Regulatory Scheme Under Assembly Bill No. 3532
Assembly Bill No. 3532 would expressly legalize “fantasy sports activity,” which is defined as a "contest with an entry fee in which a participant owns or manages an imaginary team and competes against other participants or a target score for a predetermined prize with the outcome reflecting the relative skill of the participants and determined by statistics generated based on performance by actual individuals participating in actual competitions or athletic events."
As stated in the Bill, the goal of the proposed legislation is to “protect participants and promote a positive business environment in the conduct of fantasy sports activities.” Accordingly, operators would be required to obtain a permit and meet several other compliance obligations.
Fantasy sports operators would be eligible to obtain a permit so long as the following conditions are satisfied:
- The outcome of fantasy sports activities must be determined by statistics generated based on the performance of actual individuals participating in real competitions or athletic events;
- All prizes offered to participants must be established and disclosed in advance;
- The outcome must not be based solely on the performance of an individual athlete, or on the score, point spread, or any performance of a single real team or combination of real teams;
- A fantasy sports operator may permit participants to use a mobile account or a participant deposit account;
- A casino license or licensed racetrack may use its facilities to accept entry fees and to pay prizes;
- A casino licensee may partner with, or enter into a contract with, one or more fantasy sports operators to offer fantasy sports activities; and
- A participant in a fantasy sports activity must be at least 18 years of age.
More requirements under Assembly Bill No. 3532
The proposed fantasy sports bill also requires fantasy sports operators to use commercially reasonable practices to prohibit the sharing of statistical information with third parties that could impact a fantasy sports activity until that information is publicly available, and contract with a certified public accountant to perform a financial audit of the operator to ensure compliance with the law. The proposed legislation also mandates that operators segregate participants’ funds from operational funds and maintain certain monetary reserves and financial instruments in the amount of the deposits in participants’ accounts.
Operators would also be required to adopt procedures to ensure that any prohibited participant does not participate in fantasy sports activities and that all participants are at least 18 years of age. To help address the potential for gambling addiction, operators must offer individuals the ability to restrict themselves from participating in fantasy sports activities and take reasonable steps to prevent a participant from exceeding the number of entries a participant may submit to each fantasy sports activity.
The proposed legislation also provides for the imposition of fines on fantasy sports operators who fail to obtain a permit. Fines may also be imposed on anyone who knowingly tampers with software, computers, or other equipment used to conduct fantasy sports activities to alter the payout.