DraftKings Comments on 11 VAC 5-70 – Sports Betting (Sections 50-80)
PLEASE NOTE text in underlined bold denotes an insertion and text between [brackets] denotes a deletion.
1 VAC 5-70-50 Sports betting applications
B. 7. Whether the applicant intends to limit its participation in any of the types of allowable sports events available in the Commonwealth and, with particularity, how it plans to manage each type of sports event it proposes to offer;
DraftKings respectfully seeks clarification on this proposed regulation to better understand whether applicants need to formally opt out of offering wagering on allowable sports events approved by the Board, and how that works in the application process if the Department has not yet provided a list of approved events. DraftKings also seeks clarification on what information is to be provided regarding management of “each type of sports event it proposes to offer,” as applicants must submit a number of additional materials that describe acceptance and treatment of events under 11 VAC 5-70-260, 11 VAC 5-70-270, and 11 VAC 5-70-290.
B. 8. Whether the applicant intends to offer its sports betting platform in physical locations within the Commonwealth or to participate only in an online environment;
DraftKings respectfully seeks clarification on this proposed regulation to determine whether any permit holder licensed by the Commonwealth of Virginia may be permitted to open a physical location in addition to offering a mobile platform.
H. 5. Number of shares outstanding [and the market value of each share];
DraftKings respectfully requests the above provision be struck from the proposed regulations because market value of shares consistently change, so it’s not clear at what point market value would be determined. Providing current market value would require repeated, updated filings from applicants, a procedure that would create additional, unnecessary burden on both applicants and the Director and Department staff.
P. The application shall disclose all principal entities of the applicant.
A sports betting permit application is required to disclose “all principal entities of the applicant,” however, the term “principal entities” is not defined. DraftKings respectfully requests that “principal entities” be defined in the regulations and that the definition be narrowly drafted to capture only those entities that have direct control over the business of the applicant, such as a parent company.
Q. If the applicant is not an individual, the application shall include a list of the individuals who are serving, or who are designated to serve, during the first year after the date the application is submitted to the Director, as a director, officer, partner, [an individual having key management responsibility,] or any other principal, and provide:
DraftKings respectfully requests “key management responsibility” be deleted, as it is not defined and is vague and potentially overbroad, since the individuals with ultimate accountability for the actions and decisions of such managers are required to be disclosed in the form of directors, officers, partners, and principals. Furthermore, DraftKings respectfully suggests that the identification and disclosure of directors, officers, partners, and principals should not automatically result in an individual licensing requirement for each person; rather licensing determinations should be made on a case-by-case basis depending on the individual’s specific job functions and responsibilities.
Q. [3. The individual's principal occupation during the 5-year period preceding the date on which the application is submitted to the Director; and]
DraftKings respectfully requests that this section be struck, as the information is an additional, unnecessary disclosure about an overly broad group of individuals. This information will be readily available in background checks conducted by the department for principals subject to background checks as provided by law, and serves only as additional administrative burden on both the applicant and the department to provide this information for all individuals listed here.
R. The application shall:
1. State whether another entity has a beneficial ownership in the applicant, as defined Article 1, Chapter 14 (§ 13.1-1201) of the Code of Virginia.
2. Describe the:
a. Nature of the beneficial ownership; and
b. Extent of control exercised by the beneficial owner; and
3. Include information and documents required by this chapter as to each beneficial owner and principal entity.
DraftKings respectfully requests confirmation that references to “beneficial ownership” in Section R are not applicable to incorporated applicants. DraftKings notes that the term “beneficial owner” as defined in Article 1, Chapter 14 (§ 13.1-1201) of the Code of Virginia applies only to “businesses trusts” which are unincorporated entities meeting certain requirements. If this section is intended to be applied to a broader category of applicants than just unincorporated business trusts, DraftKings respectfully requests the entire Subsection R be stricken because it would be overly burdensome for a public company to provide the enumerated information for each entity with an ownership interest in the company.
If the section applies to incorporated entities and is not struck, DraftKings respectfully request further guidance as to how it would be applied. As noted above in the comments to Subsection P, “principal entity” is not defined in the proposed regulations. DraftKings respectfully suggests that this term be narrowly defined to capture only those entities with the direct ability to control the applicant. Furthermore, DraftKings respectfully suggests that there be an ownership threshold that triggers any request for additional information on beneficial owners and principal entities, as is appropriate to reflect the fact that a small ownership stake does not result in control over the applicant, particularly for public companies which have many owners with a small ownership stake.
T. The Director may award a sports betting permit after consideration of the application and based on:
5. The amount of adjusted gross revenue and associated tax revenue that an applicant is expected to generate
DraftKings respectfully requests clarification as to whether the Department or the applicant will determine the applicant’s expected revenue, and what information an applicant must submit to substantiate this.
X. At least 60 days before the end of the term of a permit, a permit holder shall submit a:
DraftKings respectfully requests clarification as to the term of a renewal permit. The term of the license is three years from the date of issuance (11 VAC 5-70-50(W)) whereas the Annual Application Period is defined as May 15-31. See 11 VAC 5-70-10. DraftKings requests clarification as to whether permit holders must renew during the Annual Application Period in May as required by 11 VAC 5-70-20(A)(3), or at the expiration of their three-year permit.
11VAC5-70-60 Principal applications
B. A principal who will be employed in a managerial capacity for a sports betting platform on behalf of a permit holder:
DraftKings respectfully requests clarification on what constitutes “a principal employed in a managerial capacity for a sports betting platform on behalf of a permit holder.” DraftKings specifically seeks clarification on (1) whether this is limited to employees of the permit holder, or if it extends to employees of suppliers who provide services for the permit holder, and (2) the job functions that trigger a finding of being employed in a managerial capacity for the sports betting platform. Given the high cost and burden associated with principal licensing, it is appropriate for this provision to be narrowly construed to only apply to the individual or individuals with ultimate accountability over the function of the sports betting platform as operated in Virginia as employed by the permit holder and, if applicable, the supplier operating a sports wagering platform on behalf of a permit holder.
F. The term of a principal license shall be three years from the date of issuance.
Given the comprehensive suitability investigation conducted for a principal’s initial license, DraftKings respectfully submits that renewal applications should be only abbreviated forms covering the time period since the issuance of the original license, and that such renewal fee shall be lower commensurate with the shorter investigation needed to determine suitability.
B. A principal who will be employed in a managerial capacity for a sports betting platform may submit the principal application together with a supplier license application.
Similarly to 11 VAC 5-70-60(B), DraftKings requests clarification on what constitutes a principal employed in a managerial capacity for a sports betting platform on behalf of a permit holder.
A. Any person not approved by the Director as a registered sports betting vendor may not perform vendor functions for a permit holder or sports betting supplier within the Commonwealth.
As noted above, the definition of vendor is extremely broad and should be narrowly tailored so as to capture only those vendors who provide services that directly impact the sports betting customer in the Commonwealth. DraftKings respectfully suggests that the term “vendor functions” be clarified so as to identify those functions that the Commonwealth deems trigger vendor registration.