SB28 By Senator Whatley RFD Tourism and Marketing Rd 1 07-FEB-17

SYNOPSIS: Under existing law, there is no provision to allow gaming in the form of fantasy and simulated sports contests.

This bill would establish the Fantasy Sports Contests Act to regulate the operation of fantasy or simulated sports contests in this state.

This bill would require fantasy sports contest operators to register with the Secretary of State in order to conduct fantasy sports contests in the state, would establish registration and renewal fees, and would provide procedures for the approval or denial of an application.

This bill would require fantasy sports contest operators to implement procedures for consumer protection of fantasy sports contest players, would require audits of fantasy sports contest operators, and would provide for the administration and enforcement of the act by the Secretary of State.

This bill would also exempt fantasy sports contests from criminal penalties associated with gambling activity.

Amendment 621 of the Constitution of Alabama of 1901, now appearing as Section 111.05 of the Official Recompilation of the Constitution of Alabama 1901, as amended, prohibits a general law whose purpose or effect would be to require a new or increased expenditure of local funds form becoming effective with regard to a local government entity without enactment by a 2/3 vote unless: it comes within one of a number of specified exceptions; it is approved by the affected entity; or the Legislature appropriates funds, or provides a local source of revenue, to the entity for the purpose.

The purpose or effect of this bill would be to require a new or increased expenditure of local funds within the meaning of the amendment. However, the bill does not require approval of a local government entity or enactment by a 2/3 vote to become effective because it comes within one of the specified exceptions contained in the amendment.

A BILL TO BE ENTITLED AN ACT

To establish the Fantasy Sports Contests Act; to regulate fantasy and simulated sports contests; to provide definitions; to require fantasy sports contest operators to register with the Secretary of State in order to conduct fantasy sports contests in the state; to provide for application and renewal fees; to provide for the distribution of application fees; to provide procedures for the approval or denial of an application; to require fantasy sports contest operators to post a surety bond; to require certain fantasy sports contest operators to implement procedures for consumer protection of fantasy sports contest participants; to require an audit of fantasy sports contest operators; to provide for administration and enforcement of the act by the Secretary of State; to provide that certain violations would be deemed a deceptive trade practice; to require fantasy sports contest operators to maintain certain records and to submit annual reports to the Secretary of State; to exempt fantasy sports contests from certain criminal penalties associated with gambling activity; to establish the fantasy sports fund; and to provide for the administering of the fantasy sports fund by the Secretary of State; and in connection therewith would have its purpose or effect the requirement of a new or increased expenditure of local funds within the meaning of Amendment 621 of the Constitution of Alabama 1901, now appearing as Section 111.05 of the Official Recomplilation of the Constitution of Alabama of 1901, as amended.

BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:

Section 1. This act shall be known and may be cited as the Fantasy Sports Contests Act.

Section 2. For the purposes of this act, the following terms shall have the following meanings:

(1) AUTO DRAFT. Athlete selection offered by a fantasy sports operator that does not involve any input or control by a player.

(2) CONFIDENTIAL INFORMATION. Information related to the play of a fantasy sports contest by fantasy sports contest participants obtained as a result of or by virtue of a person's employment by a fantasy sports contest operator.

(3) ENTRY FEE. Cash or cash equivalent that is required to be paid by a fantasy contest player to a fantasy sports contest operator in order to participate in a fantasy sports contest.

(4) FANTASY SPORTS CONTEST. Includes any fantasy sports or simulated sports game or contest, in which all of the following are satisfied:

a. Players are subject to an entry fee to assemble imaginary teams of athletes.

b. The value of all prizes and awards offered to winning participants are established and made known to the participants in advance of the contest, and the value of such prizes and awards is not determined by the number of fantasy contest participants or the amount of entry fees paid by the fantasy contest participants.

c. All winning outcomes reflect the relative knowledge and skill of the fantasy sports contest participants and shall be determined predominantly by accumulated statistical results of the performance of athletes participating in actual sports events.

d. No winning outcome is based on the score, point spread, or any performance or performances of any single actual team or combination of such teams or solely on any single performance of an individual athlete or player in any single actual sports event.

e. A fantasy sports contest does not include either of the following:

1. A contest in which the operator allows the players to auto draft athletes or to choose between preselected teams of athletes.

2. A contest where the winning outcome is based on the score, point spread, or any performance or performances of any single actual team or combination of teams or solely on any single performance of an athlete or participant in any single actual event.

(5) FANTASY SPORTS CONTEST OPERATOR. A person or entity that offers fantasy sports contests through an online digital platform with an entry fee for a cash or cash equivalent prize to members of the public.

(6) FANTASY SPORTS CONTEST PARTICIPANT. A person who pays a fee for the ability to participate in a fantasy sports contest offered by a fantasy sports contest operator.

(7) IMMEDIATE FAMILY. A person's parents, children, spouse, siblings, and first cousins. The term includes those related by birth, marriage, adoption, civil partnership, or cohabitation.

(8) PERSON. An individual, a corporation, or other business entity.

(9) PRIZE. An award, incentive, promotion, or anything of value, including, but not limited to, money, contest credits, merchandise, or admission to another fantasy sports contest.

Section 3. (a) A person may not offer a fantasy sports contest through an online digital platform that enables Alabama consumers to participate in such contests without that person being licensed as a fantasy sports operator by the Secretary of State.

(b) A fantasy sports contest operator offering fantasy sports contests to persons in this state must complete and submit an application to the Secretary of State in order to register to conduct fantasy sports contests.

(1) An initial registration application fee shall be remitted to the Secretary of State with the fantasy sports contest operator's initial application.

(2) An annual registration renewal fee shall be remitted to the Secretary of State with the fantasy sports contest operator's annual registration renewal application as established by the Secretary of State.

(3) The Secretary of State may also collect a licensing fee, late fee, correction of information fee, and a change of information fee according to the schedule provided in subsection (b) of Section 5.

(4) Fees collected under this subsection shall be deposited in the Fantasy Sports Fund created in Section 6.

(c) A complete registration renewal application shall include written evidence of both the actual entry fees collected in this state and cash or cash equivalents paid to fantasy sports contest participants in this state during the prior period of registration.

(d) Within 120 days after receipt of a complete application, the Secretary of State shall approve or deny the registration. A complete application that is not acted upon within 120 days after receipt shall be deemed approved, and the Secretary of State shall register the fantasy sports contest operator. A fantasy sports contest operator that submits a complete initial registration application within 10 days of the effective date of this act may continue to operate during the period in which the Secretary of State reviews the application.

(e) An application for a fantasy sports contest operator's registration shall include all of the following:

(1) The full name of the applicant.

(2) The location of the applicant's principal place of business.

(3) The applicant's criminal record, if any, or if the applicant is a corporation or other business entity, the criminal records, if any, of any person owning 15 percent or more equity interest in the applicant, as determined pursuant to a rule of the Secretary of State.

(4) A description of any physical facility operated by the fantasy sports operator in this state, the facility's employees, and the nature of the facility's business.

(5) If the applicant is a corporation or other business entity, the name of the state in which it is incorporated and the names and addresses of the officers, directors, and shareholders of the corporation who hold 15 percent or more equity in the corporation. If the applicant is a business entity other than a corporation, the names and addresses of the principals, partners, or shareholders who hold 15 percent or more equity in the entity.

(6) If the applicant is a corporation or other business entity, the names and addresses of the ultimate equitable owners of the corporation or entity, if different from those provided under subdivision (5), unless the securities of the corporation or entity are registered pursuant to Section 12 of the Securities Exchange Act of 1934, 15 U.S.C. §§78a.-78kk, and either of the following are satisfied:

a. The corporation or entity files the reports required by Section 13 of the Securities Exchange Act of 1934, with the United States Securities Exchange Commission.

b. The securities of the corporation or entity are regularly traded on an established securities market in the United States.

(7) The estimated total number of fantasy sports contests that the applicant will conduct annually and the estimated number of fantasy sports contests that the applicant will conduct annually in this state.

(8) A statement of the applicant's assets and liabilities.

(9) If applicable and required by the Secretary of State, the names and addresses of the officers and directors of any debtor of the applicant and the names and addresses of any stockholder who holds more than 15 percent of the stock of the debtor.

(10) For each person listed in the application as an officer or director, a complete set of fingerprints shall be taken by an authorized law enforcement officer. The fingerprints must be submitted to the Secretary of State for processing. Foreign nationals shall submit such documents as necessary to allow the Secretary of State to conduct criminal history records checks in the person's home country. The applicant shall pay all costs of fingerprint processing, and the Secretary of State may charge a reasonable handling fee for each set of fingerprints.

(f)(1) An applicant is not eligible for registration for a fantasy sports contest operator's license or the renewal of such registration if the person or any officer or any director of the corporation or entity has been convicted of a felony in this state, a felony in another state which would be a felony if committed in this state, or a felony under the laws of the United States, or has been determined by the Secretary of State, after investigation, not to be of good moral character.

(2) For purposes of this subsection, an individual is convicted of a felony if he or she is found guilty of a felony as a result of a jury verdict or non-jury trial, or has entered a plea of guilty or nolo contender to a felony.

(g) An applicant for registration as a fantasy sports contest operator shall provide evidence of a surety bond in the amount of one million dollars ($1,000,000), payable to the Secretary of State, furnished by a corporate surety authorized to conduct business in the state in such a form as established by the Secretary of State. The bond shall be kept in full force and effect by the fantasy sports contest operator during the term of the registration and any renewal thereof.

Section 4. (a) For fantasy sports contests with an entry fee, fantasy sports contest operators shall implement procedures to accomplish all of the following:

(1) Prevent the fantasy sports contest operator from being a participant in a fantasy contest the fantasy sports contest operator offers.

(2) Prevent employees of the fantasy sports contest operator, and immediate family of those employees, from competing in any fantasy sports contest offered by the fantasy sports contest operator in which the operator offers a cash prize.

(3) Verify each player's true identity and location using commercially reasonable means.

(4) Prevent sharing of confidential information that could affect fantasy sports contest play with third parties until the information is made publicly available.

(5) Use technologically reasonable measures to detect and prevent the use of a player's account by another player.

(6) Verify that fantasy sports contest participants are 18 years of age or older.

(7) Ensure that individuals who participate or officiate in a game or contest that is the subject of a fantasy sports contest are restricted from entering a fantasy sports contest that is determined, in whole or in part, on the accumulated statistical results of a team of individuals in the game or contest in which they are a participant or official.

(8) Allow individuals to restrict themselves from entering a fantasy sports contest upon request and take reasonable steps to prevent those individuals from entering fantasy sports contests offered by the fantasy sports contest operator.

(9) Ensure any fantasy sports operators' advertisements in the state clearly and conspicuously depict accurate representations concerning chances of winning and the number of persons winning.

(10) Disclose the number of entries a single fantasy sports contest participant may submit to each fantasy sports contest and take reasonable steps to prevent participants from submitting more than the allowable number.

(11) Clearly and conspicuously identify highly experienced players in fantasy sports contests by a symbol attached to a player's username, or by other easily visible means, on all fantasy sports operator contest mediums and platforms.

(12) Prohibit the use of scripts in fantasy sports contests that give players an unfair advantage over other players and ban players found to have used such scripts from further fantasy sports contests.

(13) Ensure prompt distribution of any prize awarded to a player.

(14) Return all funds from a closed player account within five business days.

(15) Segregate fantasy sports contest participant funds from operational funds and maintain a reserve in the form of cash, cash equivalents, an irrevocable letter of credit, a bond, or a combination thereof, in the amount of the deposits in participant accounts for the benefit and protection of funds authorized fantasy sports contest participants held in fantasy sports contest accounts.

(16) Annually contract a third party to perform an independent audit, consistent with generally accepted accounting standards, to ensure compliance with all of the requirements in this act. The fantasy sports contest operator shall submit the results of the independent audit conducted within the previous 12 months to the Secretary of State when submitting the annual registration renewal application.

(17) Provide information to show that the applicant is in good standing with the Department of Revenue.

(18) Provide any other information that the Secretary of State deems necessary.

(b) In order to maintain a fantasy sports operator license, the licensee shall maintain records of all player accounts, retain such records for five years from the date the account was created, and submit annual reports of all fantasy sports accounts opened or maintained by Alabama consumers to the Secretary of State, including all of the following information:

(1) All account transactions.

(2) All winnings by Alabama consumers.

(3) The amount in accounts opened or maintained by Alabama consumers.

(4) All fantasy sports operator revenue derived from Alabama consumer accounts and transactions.

Section 5. (a) The Secretary of State is responsible for the administration and enforcement of this act. The Secretary of State shall do all of the following:

(1) Oversee the licensing of fantasy sports operators that seek to operate in this state.

(2) Adopt rules pursuant to the Alabama Administrative Procedure Act for the administration and enforcement of this act.

(3) Maintain a registry of fantasy sports operators licensed to operate in this state.

(4) Ensure fantasy sports operators do not directly or indirectly operate or promote to Alabama consumers any fantasy sports contest without a valid license obtained from the Secretary of State.

(5) Conduct investigations and monitor the operation of fantasy sports contests.

(6) Provide information to the Department of Revenue to assist in its administration and collection of taxes applicable to fantasy sports operators.

(7) Review the books, accounts, and records of any current or former contest operator who is or was registered to do business in this state.

(8) Require fantasy sports operators to report annually all winnings earned by fantasy sports players in this state on online platforms supported by the fantasy sports operator to the Secretary of State.

(9) Ensure that all licensed fantasy sports operators comply with the audit requirements of subdivision (16) of subsection (a) of section 4.

(10) Take testimony and issue summons, subpoenas, and subpoenas duces tecum in connection with any matter related to the administration or enforcement of this act.

(11) Monitor and enforce the collection and safeguard of contest entry fees, the payment of contest prizes, and the consumer protection provisions of Section 4.

(12) Coordinate with other state personnel as needed to assist in the administration and enforcement of this act.

(13) Suspend or revoke, after hearing, the registration of a fantasy sports contest operator that violates Section 3 or Section 4 or rules adopted by the Secretary of State pursuant to this act.

(14) Perform any other duties authorized by this act.

(b)(1) In addition to the duties set out in subsection (a), the Secretary of State shall establish the following schedule of fees in a reasonable amount:

a. A nonrefundable application fee.

b. A nonrefundable fee for licensing.

c. An annual licensing renewal fee.

d. Late fees.

e. A correction of information fee.

f. A change of information fee.

(2) In addition to the fees in subdivision (b)(1), the Secretary of State is authorized to charge an online transaction fee to cover costs associated with processing payments for applicants for licensing or renewals of licenses submitted online.

(c) A violation of this act is a deceptive trade practice under the Deceptive Trade Practices Act, Chapter 19 of Title 8, Code of Alabama 1975.

Section 6. (a) There is created within the State Treasury a fund to be known as the Fantasy Sports Fund.

(b) All fees collected under Section 3 shall be deposited in the Fantasy Sports Fund.

(c) All costs to the Secretary of State for the administration of this act shall be paid from the fund.

(d) All funds remaining in the Fantasy Sports Fund shall revert to the General Fund at the conclusion of each fiscal year.

Section 7. (a) Each fantasy sports contest operator shall keep and maintain daily records of its operations as required by the Secretary of State, shall maintain the records for at least seven years, and shall make the records available for audit and inspection by the Secretary of State and appropriate law enforcement agencies during the fantasy sports contest operator's regular business hours. The records must include all financial transactions with sufficient detail to determine compliance with the requirements of this act.

(b) Each fantasy sports contest operator shall file an annual report with the Secretary of State that includes the required records and any additional information deemed necessary by the Secretary of State. The reports shall be deemed confidential and exempt from disclosure under Section 36-12-40, Code of Alabama 1975. Nothing in this act shall prohibit the sharing of information by the Secretary of State with law enforcement agencies that agree to abide by this subsection.

Section 8. Article 2 of Chapter 12 of Title 13A, Code of Alabama 1975, does not apply to a fantasy sports contest conducted in compliance with this act.

Section 9. Although this bill would have as its purpose or effect the requirement of a new or increased expenditure of local funds, the bill is excluded from further requirements and application under Amendment 621, now appearing as Section 111.05 of the Official Recompilation of the Constitution of Alabama of 1901, as amended, because the bill defines a new crime or amends the definition of an existing crime.

Section 10. This act shall become effective on the first day of the third month following its passage and approval by the Governor, or its otherwise becoming law.

Fantasy Contests

Gambling

Sports and Recreation

Secretary of State

Business and Commerce