11 VAC 5-70-10. Definitions

In this section, there are a number of definitions that need either grammatical corrections and/or would be served by additional clarifications. 

The definition of “adjusted gross revenue” needs two minor changes to ensure conformity with the statutory provisions of § 58.1-4030 of the Code of Virginia.  Additionally, the definition references the term “gross revenue” as part of its calculation, but there is no definition of “gross revenue” included in the regulation.  This can be remedied by adding a definition of “gross revenue” to this section after the definition of “global risk management” that mirrors the definition found in § 58.1-4030 of the Code.

The definition of “multi-source authentication” seems to mirror the definition found in Tennessee “Sports Gaming License Rules, Regulations and Standards” Section 15.1.2(Z).  However, there is a minor difference between the Tennessee language and the draft Virginia language.  The draft Virginia language leaves out “/or” between the two categories of potential credentials used for “multi-source authentication.”  Without the “/or” this definition could be read to require one credential each from the category of “information known only to the player” and from the category of “a player’s biometric data.”  This would present significant issues for customers who use devices that are not capable of biometric verification (many desktop or laptop computers as well as many mobile devices), or do not wish to enable biometric verification on their devices.  This can be remedied by adding “/or” between the two categories of potential credentials, and would have the draft Virginia language conform with that of Tennessee.

The definition of “principal” mirrors the definition found in § 58.1-4030 of the Code of Virginia, however, questions have been raised throughout the sports betting industry seeking clarification on the provision that includes all individuals “employed in a managerial capacity” within the definition of “principal.”  If applied broadly to include any employee of an applicant that holds a managerial position, this would lead to the designation of dozens of employees as “principals” who are subject to a background investigation with a $50,000 fee, and impose hundreds of thousands, if not millions of dollars of upfront, nonrefundable costs on an applicant.

Suitability reviews should be limited to those individuals that have control of the sportsbook that will be offered in Virginia, and ultimate responsibility for the entity operating that sportsbook.  Requiring an excessive number of individuals that do not control the business operations to undergo the licensing process is an administrative burden for companies, and the Board, that will significantly slow the licensing process.  Further the costs will deter operators from applying for a permit, with no corresponding benefit to the state of Virginia.  We strongly suggest limiting the scope of the term “principal” as it relates to individuals “employed in a managerial capacity”, to specify the Chief Executive Officer of the entity operating the Virginia sportsbook and the “General Manager” or equivalent who holds day-to-day responsibility for the Virginia sportsbook operation. 

The definition of “sports betting” specifically excludes wagering on “sports events organized by the International Olympic Committee.”  This restriction is not reflected in statute and will only drive customers seeking to wager on the Olympics to use offshore, illegal sportsbooks.  As such we urge the removal of this prohibition.

The definition of “vendor” or “sports betting vendor” includes anyone “within the Commonwealth of Virginia who is engaged by, under contract to, or acting on behalf of a permit holder and does not meet the criteria for licensing as a principal or a supplier.”  To introduce sports betting quickly in Virginia, it is imperative that the Virginia Lottery limit the scope of vendor registration to “integrated” vendors that provide goods/services that drive the functionality of sports betting platforms and not extend that scope to general providers of industry-agnostic goods/services. Another sports wagering state delayed the launch of their market by months due to an overly inclusive vendor licensing requirement, which caused operators to chase large, publicly traded corporations to fill out a simple form.  Sports betting companies use a wide range of non-gaming vendors, particularly in the marketing/marketing technology space, that are highly resistant to submitting any type of form, no matter how limited.  To address this issue we suggest only requiring vendor registrations from “integrated” vendors and “affiliated marketers” while exempting persons who provide goods/services that are industry agnostic from the vendor registration requirement.

To address the concerns raised above, we suggest the following changes to 11 VAC 5-70-10:

“ “Adjusted gross revenue” means the total of all cash, property, or any other form of remuneration, whether collected or not, received by a permit holder from its sports betting operations, minus:

1. All cash or the cash value of merchandise paid out a[t]s winnings to bettors, and the value of all bonuses or promotions provided to players as an incentive to place or as a result of their having placed wagers, 

2. Uncollectible gaming receivables, not exceed 2% or a different percentage as otherwise determined by the Board, of gross revenue minus all cash paid out as winnings to bettors;

3. If the permit holder is a significant infrastructure limited licensee, as defined in § 59.1-365 of the Code of Virginia, any funds paid into the horsemen’s purse account pursuant to the provisions of subdivision 14 of § 59.1-369 of the Code; and 

4. All excise taxes on sports betting paid pursuant to federal law.

…

(to be inserted after definition of “administrative process act”)

“Affiliate marketer” means entities and individuals involved in promoting, marketing, and directing business to online gaming sites who have an agreement with an internet gaming operator to be compensated based on the number of registrations, the number of depositing registrations, or a percentage of adjusted gross receipts.

…

(to be inserted after definition of “global risk management”)

"Gross revenue" means the total of all cash, property, or any other form of remuneration, whether collected or not, received by a permittee from its sports betting operations.

…

“Multi-source authentication” means a strong procedure that requires more than one method to verify a player’s identity through a combination of two or more independent credentials, including: 

1. Information known only to the player, such as a password, pattern or answers to challenge questions; and/or 

2. A player’s biometric data, such as fingerprints, facial or voice recognition, to the extent it does not violate any privacy laws. 

“Permissible jurisdiction” means any jurisdiction in which global risk management or the betting or wagering on a sporting event is lawful or not otherwise expressly prohibited under the laws of that jurisdiction.

…

“Principal” means an individual who, solely or together with the individual’s immediate family members, (i) owns or controls, directly or indirectly, five percent or more of the pecuniary interest in any entity that is a permit holder, or (ii) has the power to vote or cause the vote of five percent or more of the voting securities of such entity. “Principal” includes an individual who is employed in a managerial capacity for a sports betting platform on behalf of a permit holder.  For purposes of this definition “employed in a managerial capacity” means the Chief Executive Officer of the permit holder or their sports betting platform supplier and the individual who has ultimate responsibility for the operation of the sports betting platform in Virginia.

“Sports betting” means placing wagers on professional sports, college sports, sporting events, and any portion thereof, and includes placing wagers related to the individual performance statistics of athletes in such sports and events. “Sports betting” includes any system or method of wagering approved by the Director. “Sports betting” does not include placing a wager on a college sports event in which a Virginia public or private institution of higher education is a participant[, nor does “sports betting” include placing a wager on sports events organized by the International Olympic Committee].

“Vendor” or “sports betting vendor” means a person within the Commonwealth of Virginia who is engaged by, under contract to, or acting on behalf of a permit holder and does not meet the criteria for licensing as a principal or a supplier, such as an affiliate marketer.  A person that provides goods and/or services to a permit holder that it also provides primarily to others for purposes not involving sports betting is not included in the definition of “vendor” or “sports betting vendor.””