TWENTY-NINTH LEGISLATURE, 2017
STATE OF HAWAII
A BILL FOR AN ACT
relating to online fantasy sports.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that websites, such as FanDuel and DraftKings, allow Hawaii residents to participate in daily fantasy sports contests and win money based on the performance of the athletes they select. Daily fantasy sports contests involve online competitions among thousands and millions of people and are played daily. A person can draft a new team each day for a wager with the goal of picking the highest scoring players. Daily fantasy sports contests allow wagers of up to $1,000 and allow each person multiple entries leading to top prizes of up to $1,000,000. The rate at which a person wins or loses a daily fantasy sports cash prize is substantial because the person can play in multiple daily fantasy sports contests every day.
Daily fantasy sports contests were crafted to comply with the federal Unlawful Internet Gambling Enforcement Act of 2006 that shuttered online poker websites, but the Act provided a specific exemption for daily fantasy sports contests. As a result, the legality of these contests is a matter of state law.
In January 2016, the attorney general concluded in Opinion Number 16-1 that daily fantasy sports contests constitute illegal gambling under Hawaii law. The attorney general opined that because daily fantasy sports contests are contests of chance and involve future contingent events not under the control of players, these contests fall under the definition of "gambling" under section 712-1220, Hawaii Revised Statutes. Accordingly, daily fantasy sports contests are deemed to be illegal under Hawaii law.
However, in August 2016, New York enacted a law that legalized and regulated daily fantasy sports websites serving persons located in New York. The new law authorizes regulatory control by the New York State Gaming Commission, requires registration of these operators and registrants, prohibits certain sports and individuals from registered interactive fantasy sports contests and platforms, and exempts registered interactive fantasy sports contests from criminal gambling laws.
In passing the law, the New York State Legislature found that interactive fantasy sports contests are not wagers on future contingent events not under the contestants' control or influence because contestants have control over which players they choose and the outcome of each contest is not dependent upon the performance of any one player or any one actual team. The outcome of any fantasy sports contest does not correspond to the outcome of any one sporting event. Instead, the outcome depends on how the athletes performed in their respective event. Once the athletic events are completed the daily fantasy sport participant's roster of players is compared to the rosters of other participants to see which roster scored the most points. Accordingly, the New York State Legislature declared that interactive fantasy sports contests do not constitute gambling in New York. Furthermore, the New York State Legislature found that because participation in a lawful and licensed interactive fantasy sports industry is a privilege and not a right, regulatory oversight provided in the law is intended to safeguard the integrity of the games and the participants and ensure accountability and the public trust.
The legislature further finds that despite the attorney general's gambling concerns regarding daily fantasy sports contests in Hawaii, the New York State Legislature concluded that these contests are games of skill, not games of chance. Accordingly, because the federal Unlawful Internet Gambling Enforcement Act of 2006 exempts daily fantasy sports contests and leaves the legality of these contests a matter of state law, daily fantasy sports contests should not be considered gambling under the penal code as long as these contests are appropriately registered and monitored.
The purpose of this Act is to legalize online fantasy sports contests in Hawaii by:
(1) Establishing an online fantasy sports contests registration and monitoring program under the department of the attorney general;
(2) Exempting registered online fantasy sports contests from state gambling laws; and
(3) Appropriating funds to the department of the attorney general to establish and implement a registration and monitoring program for online fantasy sports contests.
SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:
online fantasy sports
§ -1 Definitions. As used in this chapter, unless the context otherwise requires:
"Animal contest" means any event that competes animals against each other, including horses, dogs, or cocks.
"Authorized player" means an individual residing in this State who is not a prohibited player and who participates in an online fantasy sports contest offered by a registrant.
"Collegiate sport or athletic event" means a sport or athletic event offered or sponsored by or played in connection with a public or private institution that offers education services beyond the secondary level.
"Department" means the department of the attorney general.
"Entry fee" means cash or cash equivalent that is paid by an authorized player to an operator or registrant to participate in an online fantasy sports contest offered by the operator or registrant.
"High school sport or athletic event" means a sport or athletic event offered or sponsored by or played in connection with a public or private institution that offers education services at the secondary level.
"Highly experienced player" means an authorized player who has:
(1) Entered more than one thousand contests offered by a single operator or registrant; or
(2) Won more than three prizes valued at $1,000 each or more from a single operator or registrant.
"Minor" means any person who is under the age of eighteen years.
"Online fantasy sports contest" or "contest" means a game of skill in which one or more contestants compete against each other online by using their knowledge and understanding of athletic events and athletes to select and manage rosters of simulated players whose performance directly corresponds with the actual performance of human competitors on sports teams and in sports events.
"Online fantasy sports operator" or "operator" means any person or entity that offers any online fantasy sports contest to any authorized player through any online fantasy sports platform.
"Online fantasy sports platform" or "platform" means the combination of hardware, software, and data networks used to manage, administer, or control contests and any associated entry fees.
"Online fantasy sports registrant" or "registrant" means an operator who is registered by the department.
"Prohibited player" means:
(1) Any member, officer, employee, or agent of an operator or registrant;
(2) Any spouse, child, brother, sister, or parent residing as a member of the same household in the principle place of abode of any member, officer, employee, or agent of an operator or registrant;
(3) Any individual with access to confidential information about contests;
(4) Any amateur or professional athlete whose performance may be used to determine the outcome of a contest;
(5) Any sports agent, team employee, referee, or league official associated with any sport or athletic event on which contests are based;
(6) Any individual located in a state where the conduct of contests is expressly prohibited; or
(7) Any minor.
"Prohibited sports event" means any collegiate sport or athletic event, any high school sport or athletic event, or any animal contest.
"Sports event" means any amateur or professional sport or athletic event except a prohibited sports event.
§ -2 Registration; operators. (a) No operator shall administer, manage, or otherwise make available an online fantasy sports platform to persons located in this State unless registered with the department pursuant to section -3. A registrant may use multiple online fantasy sports platforms and offer multiple types of contests; provided that each platform and each type of contest has been reviewed and approved by the department. This chapter shall apply only to online fantasy sports contests for which an authorized player pays an entry fee.
(b) Registration issued by the department pursuant to section -3 shall remain in effect for three years. The department shall establish a process for renewal.
(c) The department shall post a list of all operators registered in the State pursuant to this section on the department's website for public use.
(d) The department shall adopt rules to implement this chapter, including the initial form of the application for registration. The rules shall provide for the registration and operation of contests in the State and include but not be limited to responsible protections with regard to compulsive play and safeguards for fair play.
§ -3 Scope of registration review. (a) The department shall prescribe the initial form of the application for registration that shall include but not be limited to:
(1) The full name and principle address of the operator;
(2) If a corporation, the name of the state in which incorporated and the full names and addresses of any partner, officer, director, shareholder holding ten per cent or more equity, and ultimate equitable owners;
(3) If a business entity other than a corporation, the full names and addresses of the principals, partners, shareholders holding five per cent or more equity, and ultimate equitable owners;
(4) Whether the corporation or business entity files information and reports with the United States Securities and Exchange Commission as required under section 13 of the Securities Exchange Act of 1934, as amended, or whether the securities of the corporation or business entity are regularly traded on an established securities market in the United States;
(5) The type and estimated number of contests to be conducted annually; and
(6) A statement of the assets and liabilities of the operator.
(b) The department may require the full names and addresses of the officers and directors of any creditor of the operator and stockholders who hold more than ten per cent of the stock of the creditor.
(c) Each individual listed on the application for registration as an officer or director shall be subject to a criminal history record check in accordance with section 846-2.7, including providing a full set of electronic fingerprints for the purpose of obtaining federal and state criminal history record checks to the Hawaii criminal justice data center for processing with the Federal Bureau of Investigation. The application shall not be considered complete until the results of the criminal history record check are received by the department. The department may obtain criminal history information through the Hawaii criminal justice data center in accordance with section 846-2.7 for the purposes of this section.
(d) Upon receipt of the criminal history record check pursuant to subsection (c), the department shall determine whether to approve or deny any application for registration. The department shall deny any application for registration or suspend, refuse to renew, or revoke any existing registration issued pursuant to this chapter upon the finding that the operator or registrant, or any partner, officer, director, or shareholder has:
(1) Knowingly made a false statement of material fact or deliberately failed to disclose any information required by the department;
(2) Possessed a registration or license to offer or conduct contests that was denied, suspended, or revoked in any other state or country for just cause;
(3) Legally defaulted in the payment of any obligation or debt due to any state or political subdivision; or
(4) Knowingly failed at any time to comply with any requirement under this chapter, adopted rule, or requirement prescribed by the department.
(e) If an application for registration is denied or an existing registration is suspended, denied renewal, or revoked, the department shall notify the operator or registrant of the right to submit a request for a contested case hearing pursuant to chapter 91 within sixty days of the department's decision. The contested case hearing shall be conducted in accordance with chapter 91.
§ -4 Safeguards; minimum standards. (a) As a condition of registration in the State, each operator or registrant shall implement the following safeguards:
(1) Limit each authorized player to one active and continuously used account, and prevent prohibited players from maintaining accounts or participating in any contest offered by that operator or registrant;
(2) Prohibit minors from participating in any contest, including:
(A) If a registrant becomes or is made aware that a minor has participated in one of its contests, the registrant shall promptly refund any deposit received from the minor no later than two business days after the registrant is aware of the minor's participation regardless of whether the minor engaged or attempted to engage in a contest; provided that any refund may be offset by any prizes already awarded;
(B) Each registrant shall publish and facilitate parental control procedures to allow parents or guardians to exclude minors from access to any contest or platform. These procedures shall include a toll-free number to call for help in establishing the parental controls; and
(C) Each registrant shall take appropriate steps to confirm that an individual opening an account is not a minor;
(3) When referencing the chances or likelihood of winning in advertisements or upon contest entry, make clear and conspicuous, accurate statements that are not misleading concerning the chances of winning and the number of winners;
(4) Enable authorized players to exclude themselves from contests and take reasonable steps to prevent these players from entering a contest from which they have excluded themselves;
(5) Permit any authorized player who requests to be excluded from contests to permanently close an account registered to that player on any platforms supported by the operator or registrant at any time and for any reason;
(6) Offer introductory procedures for authorized players, which shall be prominently displayed on the main page of the operator's or registrant's platform, that explain contest play and how to identify a highly experienced player;
(7) Identify all highly experienced players in any contest by a symbol attached to the highly experienced players' usernames or by any other easily visible means on all platforms supported by the operator or registrant;
(8) Disclose the number of entries a single authorized player may submit to each contest;
(9) Disclose the maximum number of total entries allowed for each contest;
(10) Implement measures to protect the privacy and online security of authorized players and their accounts;
(11) Offer all authorized players access to their account history and account details;
(12) Ensure authorized players' funds are protected upon deposit and segregated from the operating funds of the operator or registrant and otherwise protected from corporate insolvency, financial risk, or criminal or civil actions against the operator or registrant;
(13) List on each website, in a prominent place, information concerning assistance for compulsive play in the State, including a toll-free number directing callers to reputable resources containing further information that shall be free of charge;
(14) Ensure the value of any prizes and awards offered to authorized players is established and made known to the authorized players in advance of the contest, and that the value is not determined by the number of authorized players or the amount of any entry fee paid by the authorized players;
(15) Ensure all winning outcomes reflect the relative knowledge and skill of the authorized players and is determined predominately by accumulated statistical results of the performance of individuals in sports events;
(16) Ensure no winning outcome is based on the score, point spread, or performance of a single sports team, or any combination of teams;
(17) Ensure no winning outcome is based solely on any single performance of an individual athlete in a single sport or athletic event; and
(18) Ensure no game or contest is based on a prohibited sports event.
(b) Each registrant shall restrict the number of entries submitted by a single authorized player for any contest to a maximum of one hundred fifty entries per player per contest, or a maximum of three per cent of the total number of entries by all authorized players for any contest, whichever is less, or as determined by the department. Registrants shall take reasonable steps to prevent authorized players from submitting more than the allowable number of entries per contest. The department shall adopt rules to further effectuate this section to ensure that the number of entries submitted by a single authorized player for any contest will lead to a fair and equitable distribution of number of entries.
(c) Operators shall not directly or indirectly operate, promote, or advertise any platform or contest to individuals located in the State unless registered pursuant to this chapter. Unless otherwise approved by the department, operators and registrants shall not directly or indirectly promote or advertise any online fantasy or simulation sports games or contests with an entry fee during the conduct of any online fantasy or simulation sports games or contests without an entry fee. This subsection shall not apply to any operator or registrant that prohibits prohibited players from participating in online fantasy or simulation sports games or contests without an entry fee.
(d) Registrants shall not offer any contest based on any prohibited sports event.
(e) Registrants shall not permit any minor or prohibited participant to enter any contest.
(f) Advertisements for contests and prizes offered by a registrant shall not target prohibited participants, minors, or self-excluded individuals. Representations or implications about average winnings from contests shall be fair and not be misleading, and shall, at a minimum, include:
(1) The median and mean net winnings of all authorized players participating in contests offered by the registrant; and
(2) The percentage of winnings awarded by the registrant to highly experienced players participating in contests offered by the registrant within the preceding calendar year.
(g) Registrants shall prohibit the use of third-party scripts or scripting programs for any contest and ensure that measures are in place to deter, detect, and, to the extent reasonably possible, prevent cheating, including collusion, and the use of cheating devices, including the use of software programs that submit entry fees or adjust the athletes selected by an authorized player.
(h) Operators and registrants shall develop and prominently display procedures on the main page of the operator's or registrant's platform for the filing of a complaint by the authorized player against the registrant. An initial response shall be given by the registrant to the player filing the complaint within forty-eight hours. A complete response shall be given by the registrant to the player filing the complaint within ten business days. An authorized player may file a complaint alleging a violation of this chapter with the department.
(i) Registrants shall maintain records of all accounts belonging to authorized players and retain these records for five years from the date an account was created.
§ -5 Department powers and duties. (a) The department shall have the following powers and duties for purposes of administering and enforcing this chapter:
(1) Approve and deny applications for registration to conduct contests in the State and to suspend, refuse or renew, or revoke any registration issued to the registrant pursuant to this chapter;
(2) Review and approve each platform and contest offered by an operator or registrant;
(3) Accept and investigate complaints of any kind from an authorized player and attempt to mediate these complaints where appropriate;
(4) Investigate alleged violations of this chapter;
(5) Initiate proper enforcement proceedings where action is deemed by the department to be necessary or appropriate; and
(6) Execute all powers and duties assigned by and necessary to implement this chapter.
(b) The department shall adopt rules, pursuant to chapter 91, to effectuate the purposes of this chapter. The rules shall include but not be limited to the following:
(1) Guidelines for the development of the initial form of the application for registration;
(2) Procedures for the registration and operation of contests in the State; and
(3) Responsible protections with regard to compulsive play and safeguards for fair play.
The rules may monitor the conduct and operation of contests and platforms, protect authorized players, and promote the fairness, honestly, and integrity of contests.
§ -6 Penalties. Any individual, operator, or registrant that violates this chapter shall be liable for a civil penalty of no more than $1,000 for each violation that shall accrue to the State and may be recovered in a civil action brought by the department.
§ -7 Annual report. (a) Each registrant shall annually submit a report to the department no later than June 30 of each year that shall include the following information that applies to accounts held by authorized players located in the State:
(1) The number of accounts held by authorized players on all platforms offered by the registrant and the number of accounts held by highly experienced players on all platforms offered by the registrant;
(2) The total number of new accounts established in the preceding year as well as the total number of accounts permanently closed in the preceding year;
(3) The total amount of entry fees received from authorized players;
(4) The total amount of prizes awarded to authorized players;
(5) The total amount of online fantasy sports revenue received by the registrant;
(6) The total number of authorized players that requested to exclude themselves from contests; and
(7) Any additional information that the department deems necessary to carry out this chapter.
(b) Upon receipt of the annual report submitted by each registrant, the department shall be authorized, to the extent that the department deems to be in the public interest, to conduct a financial audit of any registrant, at any time, to ensure compliance with this chapter.
(c) The department shall annually publish a report based on the aggregate information provided by all registrants pursuant to this section. The department shall submit this annual report to the legislature no later than twenty days prior to the convening of the regular session of each year and post this annual report on the department's website no later than one hundred eighty days after the deadline for the submission of individual reports as required under subsection (a)."
SECTION 3. Chapter 712, Hawaii Revised Statutes, is amended by adding a new section to part III to be appropriately designated and to read as follows:
"§712- Online fantasy sports contests. (a) Online fantasy sports contests registered and conducted pursuant to chapter are exempt from this part.
(b) The conduct of unregistered online fantasy sports contests is prohibited and may be subject to this part."
SECTION 4. Section 712-1220, Hawaii Revised Statutes, is amended as follows:
1. By adding a new definition to be appropriately inserted and to read:
""Online fantasy sports contest" means a game of skill in which one or more contestants compete against each other online by using their knowledge and understanding of athletic events and athletes to select and manage rosters of simulated players whose performance directly corresponds with the actual performance of human competitors on sports teams and in sports events."
2. By amending the definition of "contest of chance" to read:
""Contest of chance" means any
contest, game, gaming scheme, or gaming device in which the outcome depends in
a material degree upon an element of chance, notwithstanding that skill of the
contestants may also be a factor therein[
.]; provided that a contest
of chance shall not include online fantasy sports contests registered and
conducted pursuant to chapter ."
3. By amending the definition of "gambling" to read:
. A person
engages in gambling if he stakes or risks] means staking or risking
something of value upon the outcome of a contest of chance or a future
contingent event not under [ his] the person's control or
influence, upon an agreement or understanding that [ he] the person
or someone else will receive something of value in the event of a certain
outcome. Gambling does not include [ bona]:
(1) Bona fide business transactions
valid under the law of contracts, including but not limited to contracts for
the purchase or sale at a future date of securities or commodities[
(2) Agreements to compensate for loss
caused by the happening of chance, including but not limited to contracts of
indemnity or guaranty and life, health, or accident insurance[
(3) Online fantasy sports contests registered and conducted pursuant to chapter ."
SECTION 5. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2017-2018 and the same sum or so much thereof as may be necessary for fiscal year 2018-2019 for the department of the attorney general to establish and implement a registration and monitoring program for online fantasy sports contests.
The sums appropriated shall be expended by the department of the attorney general for the purposes of this Act.
SECTION 6. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.
SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 8. This Act shall take effect on July 1, 2017.
Online Fantasy Sports; Gambling; Exemption; Department of the Attorney General; Appropriation
Establishes an online fantasy sports contests registration and monitoring program under the department of the attorney general. Exempts registered online fantasy sports contests from state gambling laws. Appropriates funds to the department of the attorney general to establish and implement a registration and monitoring program for online fantasy sports contests.
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.