IDEA Growth is an association representing companies involved in every aspect of the on-line gaming and betting landscape. We have introduced ourselves more thoroughly in previous filings, but more information can be found on our website www.ideagrowth.org. We are grateful for this opportunity to comment on Virginia Lottery’s proposed regulations issued pursuant to Virginia’s recently enacted statue providing for sports betting within the state. While our members have opinions on many issues, as an association, we wanted to focus on five particular issues in the proposed regulations. (We will submit an additional comment on the Sports Bettors Bill of Rights under separate cover.)
11VAC5-70-60 Principal applications
(This section largely reflects comments IDEA made prior to the issuance of the draft regulations, but we feel they bear repeating.)
The regulations require that each applicant pay a non-refundable fee of $50,000 for each “principal” of an applicant with that term meaning anyone who has a 5% or greater ownership or voting share in a company that applies for a permit; who has such ownership or voting rights in a company that seeks a supplier license to operate a sports betting platform on behalf of a permit holder, or who is employed in a managerial capacity for such a permit or license applicant. This fee (in addition to the $250,000 fee due at the time the permit is issued and up to $150,000 fee for supplier licenses) is very high compared to other jurisdictions. For example, in New Jersey, a “key employee” gaming license costs $750 plus the cost of the investigation with a total cost not to exceed $4,000. Pennsylvania charges $2500 per key employee.
The term “managerial” in the statute has a narrow meaning that should be reflected in the regulations. Rather than capturing anyone who manages anyone else in the company, it should be limited only to those individuals who have ultimate accountability over the sports betting platform itself as operated in Virginia. Given the very high application cost per-principal, we would urge the Board to implement an interpretation that does not capture a wide net of sportsbook managers, but only those managers at the top of the reporting chain with ultimate accountability for the platform in Virginia.
To be clear, IDEA Growth supports background checks for additional specific employees in the Commonwealth of Virginia whose job functions allow them to directly affect certain aspects of the sports betting platforms. However, the $50,000 principal fee applies to only a very limited group of people as defined by statute, and given the disproportionate nature of the fee, we would urge that the regulations interpret the term “principal” narrowly.
11VAC5-70-100 Bonds and 11VAC5-70-140 Reserve and Insurance Requirements
Another area of concern for IDEA’s members is the number of bonds and insurance policies that the proposed regulations require and the size of those bonds and insurance policies. As we understand it a permit holder would have to have the following:
To be clear, all of this is on top of the requirement that permit holders have on hand at all times reserves or cash equivalents equal to the amount contained in all player accounts, unpaid winnings, etc. Further, it seems that the bonds are optional and only required at the discretion of the Director but the regulations do not elaborate and what factors impact the Director’s decision to require a bond or not, and how much that bond would be.
We are aware of no other state with such extensive requirements. Most operators will have very little physical footprint in the state, so it is not clear what the general commercial liability insurance is intended to protect against. Generally, such bonds and insurance policies are meant to protect against the possibility that an operator might become insolvent and not be able to pay players, but again, the proposed regulations already have pretty extensive capitalization requirements separate and apart from the bond and insurance requirements, and permit holders are selected in part based on their financial viability. We believe these requirements are excessive and we respectfully request that they be scaled back or removed if an operator demonstrates sufficient solvency and financial integrity and stability.
11VAC5-70-240. Advertising and Marketing.
We ask that you modify the advertising provision (VAC5-70-240 (A) (B)) that requires licensed permit holders, supplier and vendors to provide all advertising and marketing materials to the Director for review and approval prior to public dissemination. The nature of advertising for mobile betting products means that operators must be dynamic and quickly adapt to betting events and be able to market new odds, offers and bonuses in real-time to potential customers.
While the Virginia Lottery and the operators themselves have an interest in promoting responsible advertising this mandate will place an onerous and unnecessary burden on the Lottery without providing a benefit to consumers and could actually negatively impact the health and confidence in regulated sports betting in Virginia. With potentially more than a dozen authorized permit holders operating in the state simultaneously, the Lottery will be put under tremendous pressure to quickly review and approve dozens of ads or promotions that will be submitted on a near daily basis. This will be magnified during the sporting calendar playoff seasons when team match-ups change on a regular basis without a significant amount of lead time for review and approval by the Lottery to allow for the marketing to have any meaningful impact.
The current NBA playoffs illustrate a perfect example of this challenge. Generally, there is only a few days between the end of one playoff series and the beginning of the next, and the results are not predictable. For instance, in the evening of Sunday, August 23rd, two teams advanced to the 2nd round in the Eastern Conference Playoffs and they are scheduled to play just 4 days later on August 27th. Operators will already be working on a condensed schedule to create their marketing and promotional materials and an additional layer of regulatory review before their advertising can reach the public could significantly undermine the effectiveness of the marketing. This is further complicated by the fact that often times injuries or changes in starting players in any sport can often drastically change offerings which could impact marketing and promotions.
Instead, the Virginia Lottery should rely on the code of conduct for operator advertising, such as those already prescribed in VAC5-70-240 and require that operators conform their material to meet the prescribed standards and maintain records of advertising to be made available to the Virginia Lottery upon request.
With respect to the standard outlined in the draft regulations one area of particular concern is with VAC5-70-240 (I) which prohibits permit holders from advertising “in a media outlet (including social media) that appeal primarily to those under the age of 21.” This draft regulation would likely curtail advertising on social media, even if the ads appropriately target users who are of the legal age to wager on sports. Social media outlets are critical to reaching adult audiences, as the majority of adults use a variety of platforms on a regular basis.
Similarly, we are concerned that VAC5-70-240 (Q) that requires that advertising “shall reflect generally accepted contemporary standards of good taste,” is entirely subjective measurements and without clear guidance it will extremely difficult for a permit holder to comply or for the Virginia Lottery to enforce this standard. Also subjective is the prohibition on “saturation” in VAC5-70-240 (K), which imposes vague and problematic restrictions on permit holders’ commercial speech.
Combined, these requirements could severely impact permit holders’ ability to reach their potential legal customers. Cutting off key advertising media would drastically reduce the ability for legal operators to draw customers to their sports wagering websites and applications, especially as they are competing with illegal, offshore operators that do not abide by state laws or social media policies.
11VAC5-70-210. Minors and Prohibited Players.
Based on the statute, Section 58.1-4041 (C) mandates that permit holders are required to block “Any competitor, coach, trainer, employee, or owner of a team in a professional or college sports event, or any referee for a professional or college sports event …” The statute goes on to say that, “In determining which persons are prohibited from placing wagers under this subsection, a permit holder shall use publicly available information and any lists of persons that a sports governing body may provide to the Department.”
Unfortunately, there is no mandate in statute or in the proposed regulation that a sports governing body must provide a list of prohibited players that abides by their code of conduct. Further, if a sports governing body does provide a list, then there is no requirement that those lists include personal identifiable information (PII), such as a Social Security Number and date of birth, which would be necessary information for a permit holder to have in order to block a “prohibited player.” In the absence of PII or prohibited players provided by the sports governing body the onus is on the permit holder to use “publicly available information” to determine who should be prohibited.
Under the current draft of the regulations it is unclear what an operator should do if a customer by the name of “Alex Smith” attempted to create an account. It is impossible for an operator to determine if that customer is the quarterback of the Washington professional football team, or simply shares the same name without having PII that answers that question. Furthermore, the only entity that clearly knows what the various codes of conduct require are the organizations themselves. An operator does not know if a particular league’s code of conduct forbids any sports wagering or simply wagering on that player or coach’s sport.
Given that the statute requires a permit holder to prohibit competitors, coaches, officials etc., the regulations should similarly require that sports governing bodies submit to the Director a list of prohibited players and mandate that PII be included so that the Director may disseminate those lists and permit holders can reasonably make informed decisions about which players to prohibit from establishing accounts and placing wagers. Following this approach would not be without precedent as that is the regulatory approach that was taken in Colorado after extensive discussions with operators and leagues.
Without the necessary information, provided from the sports leagues and given to the Director to share with permit holders, it would almost impossible to expect operators to be able to successfully block all prohibited players, even as they would be subject to penalties for failing to do so. Ultimately, the sports governing bodies have all of the information necessary to enforce this provision and they should be required to share the names and PII of “prohibited players” with the Virginia Lottery.
11VAC5-70-230. Investigations; Reporting.
iDEA Growth submits that there is no benefit to the integrity of sports to require permit holders to share in “real-time” information about wagers directly with respective sports governing bodies and we urge the Lottery to serve as a gatekeeper of this sensitive information and share it accordingly.
The integrity of legal sports betting has historically been placed in the hands of a state enforcement regulator, coupled with the mandated cooperation of the licensed operator and, when necessary, state and federal law enforcement. Virginia’s proposed regulations already contain robust provisions related to integrity monitoring (11VAC5-70-220) and even require that permit holders “maintain membership in the Global Lottery Monitoring System (GLMS) or other integrity monitoring association or contract with an integrity monitoring system provider as approved by the Department.”
The industry dedicates a significant amount of resources to protecting the integrity of their wagering markets, but also to monitoring the events themselves to ensure integrity of the sport is safeguarded. Some operators conduct this type of integrity monitoring in-house with teams of sophisticated analysts, and operators also work with certified (and licensed) third-parties to provide comprehensive integrity services. Moreover, most U.S. regulated sports betting operators are already members of the Sports Wagering Integrity Monitoring Association (SWIMA), which works with US (and global) regulators to report fraud and other illegal or unethical activity related to betting on sporting events in the United States.
As has been proven in sports wagering markets across the United States, the regulated entities working with state regulators, law enforcement and independent integrity monitors are in the best position to ensure sports wagering integrity. Thusly requiring that permit holders share this information (even in an anonymized fashion) directly with a sports governing body is unnecessary; creates data privacy concerns and most importantly, will not have any meaningful impact on sports wagering integrity. To be clear, sports governing bodies, can and should play a role in investigating suspicious activity, but only when it is based on the judgement and recommendation of the Virginia Lottery and/or law enforcement and when the information is shared by those entities, not from the licensed permit holders.
Thank you for your consideration.
J. Daniel Walsh
Farragut Partners
On behalf of IDEA Growth