Virginia, the USA’s First Regulated DFS Market

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Monday, March 28th, 2016 | Written by Stephen Smith

Daily fantasy sports betting sites had a dark year in 2015, following a major scandal that broke regarding what amounted to basically insider trading. After state District Attorneys and legislatures all began to investigate their operations, daily fantasy sports betting operators like FanDuel and DraftKings seemed to be fighting for their very right to exist. Now, however, the industry has won a victory with the passing of the first law to legalize daily fantasy sports betting in the U.S.

The Virginia Law

In March, Virginia became the first state to legalize and regulate daily fantasy sports betting. The legislation that was signed into law by Governor Terry McAuliffe (photo) is called the Fantasy Contests Act, and it establishes a number of regulations and rules that daily fantasy sports operators will need to adhere to in order to legally provide service in the Commonwealth State. Following the bill’s passing into law, FanDuel lawyer Cory Fox commented:

“Governor McAuliffe and members of the Virginia legislature took a thoughtful, deliberative approach to establishing a law that safeguards fantasy sports while installing consumer protections. Virginia showed real leadership in being the first state to pass smart regulations this year and we hope to see more states follow Virginia’s lead in the months ahead.”

The Fantasy Contests Act

Here are some key details of the Fantasy Contests Act, and the requirements placed on DFS operators:

– Registration Requirement. Under the new law, all daily fantasy sports betting sites will have to register with the state of Virginia.

– Licensing Requirement. After registering and receiving approval to operate from the state of Virginia, daily fantasy sports betting sites will have to pay a licensing fee of $50,000.

– Age Access Requirements. The Virginia law mandates that all daily fantasy sports betting sites take steps to authenticate the age of players. Only people aged 18 and up are permitted to use the sites.

– Protection for Consumers. In order to keep their licenses, daily fantasy sports betting sites must put policies and procedures in place to protect their users. The sites must keep confidential customer information secured and cannot share it with third parties. Also, funds that players deposit in their accounts on daily fantasy sports betting sites must be placed in a separate account from operating expenses.

– Ethics Requirements. The Virginia law prohibits all employees from daily fantasy sports betting sites from participating in public contests, including using other daily fantasy sports betting sites. This part of the law was drafted specifically to prevent scandals like the one that occurred last year.

– Compliance Audits. Two times per year, all daily fantasy sports betting operators will be subject to complete audits to ensure that they are continuing to comply with all regulations and rules.

The Potential Impact of the Law

So just what does the Virginia law mean for the daily fantasy sports betting industry? It’s hard to say. On the one hand, the Virginia legislation sets a precedent, as the state has decided that daily fantasy sports betting does require regulation but is not the same as other types of online gambling. Operators like DraftKings and FanDuel can point to the law when lobbying in other states. At the same time, passing a law shows that daily fantasy sports betting sites should be regulated in some way, which goes against the argument that they are just games of skill.

Going Forward

Currently, there are around 30 states considering how to deal with daily fantasy sports betting. It will be interesting to see how things progress and which other states will join Virginia in legalizing daily fantasy sports betting in the coming months. Needless to say, it remains a state-by-state issue, with the various states taking their own approach to the subject, as they would do for say marijuana legalization.

Other states currently expressing a willingness to move ahead with daily fantasy sports regulation include Indiana, and Massachusetts, whose Attorney General Maura Healey recently proposed a comprehensive set of rules for DFS companies, which she said are designed to present a “level, fair playing field” for players. Meanwhile, the organization representing the DFS industry in North America, The Fantasy Sports Trade Association, have priased the Massachusetts regulations for providing a solid framework for other states to consider.