DraftKings Inc. hereby submits comments on the proposed sports betting regulations issued by the Department on August 10, 2020.  This submission supplements the comments submitted by DraftKings on August 25 in response to the first set of regulations issued on July 15. Thank you for your consideration.

PLEASE NOTE text in underlined bold denotes an insertion and text between [brackets] denotes a deletion.

11 VAC 5-70-10 Definitions

“Cancelled wager” means a wager that has been cancelled due to an event or circumstance that prevents the wager’s completion.

“Voided wager” means a wager voided by a permit holder for a specified sporting event.

DraftKings respectfully requests clarification for these two definitions. Throughout these draft rules, the terms are used in connection with each other, and we respectfully request the Department provide additional clarity on any differences in their use or application, as well as the term “rescinded wager” which is not defined but is used in 11 VAC 5-70-270(K) . Through the course of normal business across multiple jurisdictions, sports betting operators may use the terms interchangeably internally due to their own house rule conventions, as well as different regulatory requirements across the U.S. While the terminology may differ, the intent is the same: create a transparent process for the treatment of wagers that are invalidated. Further clarity on their meaning will assist permit holders when developing their internal controls and house rules in compliance with the requirements laid out in 11 VAC 5-70-300, 11 VAC 5-70-260 and other portions of the sports betting rules.

[“Event number” means a set of alpha and/or numeric characters that correspond to a sporting event or an event ancillary to a sporting event.]

DraftKings respectfully requests this definition be removed, as it is more appropriately applicable to traditional retail books, rather than a mobile market, and is therefore an outdated term and not the most appropriately suited for these proposed regulations.

“Prohibited individual” means any individual: (1) who is prohibited from wagering pursuant to the sports betting law; (2) whose name is on any [self-exclusion list or] Virginia Lottery self-exclusion list; [(3) whose participation may undermine the integrity of the wagering or the sporting event;] (4) who is excluded from wagering for any other good cause; or (5) who makes or attempts to make a wager as an agent or proxy on behalf of another for compensation (i.e., messenger betting).

DraftKings respectfully suggests the above modifications to clarify that the individual permit holders are responsible for preventing the placement of wagers by those who are prohibited within the Commonwealth of Virginia.  Permit holders do not have access to all self-exclusion lists across all jurisdictions, and this change appropriately tailors the list of prohibited persons while being responsive to customer needs and fulfilling the consumer protection objectives of these regulations. 

DraftKings seeks to remove section 3 of this definition, as it is a subjective class of individuals, which will make the list difficult to compile and disseminate among permit holders. DraftKings respectfully submits that the list of prohibited persons in the sports betting law, § 58.1-4041, adequately addresses integrity concerns by addressing athletes and others closely associated with the sporting event, and that the catch all of (4) in this definition adequately covers any other bettors excluded for cause.

DraftKings seeks to clarify that the Department will administer and disseminate master self-exclusion lists to permit holders for an accurate, comprehensive, and consistent implementation of the program in the state. Requiring each permit holder to separately compile such lists will lead to different lists of varying degrees of accuracy and comprehensiveness, potentially inviting restricted or excluded customers to seek out platforms where the operator’s commercially reasonable efforts did not result in their exclusion.

“Proposition wager” or “proposition bet” means a wager on an individual action, statistic, occurrence, or non-occurrence  to be determined during a sporting event and includes any such action, statistic, occurrence or non-occurrence that does not directly affect the final outcome of the sporting event to which it relates.

DraftKings respectfully notes that the term “individual” used in this definition is itself defined in these regulations as a “human being, and not a corporation, partnership, association, trust, or other entity.” DraftKings therefore respectfully suggests that in applying the prohibition on proposition wagers to college sports, only wagers on individual athletes should be prohibited while wagers on the actions and statistics of the team as a whole should be permitted.  For example, permit holders could not offer a wager on whether a specific running back has over 100 rushing yards in a college game, but could offer a wager that the whole team has over 100 rushing yards in the game.

“Sports governing body” means an organization, headquartered in the United States, that prescribes rules and enforces codes of conduct with respect to a professional sports or college sports event and the participants therein. “Sports governing body” includes a designee of the sports governing body.

DraftKings respectfully requests clarification on what constitutes a designee of a sports governing body, and whether it is considered an individual who works in an official capacity for a governing body, an official data provider, some combination of either of these possibilities, or another individual. A designee is not clearly defined and permit holders need clarity to ensure not only that they are complying with all regulations, but are dealing with the appropriate individuals to do so.

11 VAC 5-70-140 Reserve and Insurance Requirements

A. A permit holder shall maintain a reserve in the form of cash, cash equivalents, payment processors reserves, payment processors receivables, irrevocable letter of credit, or bond, or a combination thereof, in an amount approved by the Director to cover the outstanding liability of the permit holder to players. A bond used by a permit holder to maintain any portion of its reserve shall comply with the bond requirements of section 100 of this chapter. A permit holder may not remove, release, or withdraw funds from its reserves without the written approval of the Director.

DraftKings respectfully suggests the above modification to the proposed regulation. While it is critical that operators maintain a reserve to cover outstanding sports wagering liability, limiting the reserve to cash and/or a bond can place an unnecessary strain on the entity by tying up large amounts of cash that could otherwise be used for operational expenses. Bettors can be fully protected by a reserve comprising other financial instruments, as demonstrated by Nevada’s Regulation 5.225.20.(a), which allows gaming operators to use a range of financial instruments to satisfy the reserve requirement.  DraftKings respectfully requests our suggested modification be adopted in order to place Virginia more in line with other regulated sports wagering jurisdictions. Further, the suggested language aligns with DraftKings’ previous comments in regards to 11 VAC 5-80-100 D.

B. 5. A permit holder shall calculate its reserve requirements each business day and, if the permit holder determines its reserve is insufficient to cover the requirement of this subsection, it shall notify the Director of the deficiency within 24 hours and identify the steps taken to remedy the deficiency.

DraftKings respectfully suggests this update to the proposed regulations to conform the regulations with regular business practices. As transfers can only be completed on a business day, a deficiency could not be rectified until a financial institution is available for business. By way of example, if there is a shortage on a Friday, Saturday or Sunday the earliest available day a transfer can be made is Monday. In the case that all three days are deficient a permit holder would be required to notify the Director three separate times, even if a resolution cannot be completed until Monday. Alternatively, a shortage may occur on a Friday or Saturday, due to a large number of wagers in anticipation of a large event on a Sunday, such as the Super Bowl, and once those wagers settle on Sunday the account is no longer deficient.

[D. A permit holder shall maintain the following types and levels of insurance:

1. General commercial liability insurance in the amount of $5,000,000;

2. Errors and omissions insurance in the amount of $15,000,000; and

3. Such other types and amounts of insurance as the Director requires.]

DraftKings respectfully requests this section be removed from the proposed regulations. DraftKings believes setting specific coverage amounts for insurance is a business decision. Only one other U.S. regulated jurisdiction’s sports wagering regulations address insurance for mobile operators, and if coverage amounts are set too high it could be prohibitive on operator’s entering the market. 

If the Lottery chooses to retain insurance requirements, DraftKings respectfully suggests that the specific types of insurance required should be narrowly tailored to match the nature of the business. Section 11 VAC 5-70-140 D 1 outlines coverage requirements for General Liability Insurance, however, Virginia’s sports wagering market will be mobile and will not require the amount of General Liability Insurance a land based establishment requires because the nature of an online business is far less likely to have tortious injuries to third parties and other incidents that are more common with brick-and-mortar businesses.

A mobile sports wagering operator’s errors and omissions insurance, if required, should be at a level determined by the operator, as an operator knows its business the best. This is how other jurisdictions handle insurance for sports wagering operators.  Additionally, the one regulated U.S. jurisdiction with insurance requirements for mobile operators in its sports wagering regulations—Tennessee—has a sports wagering law which specifically mandates that the regulator address insurance in the regulations, whereas Virginia’s sports wagering law does not contain a similar requirement. 

11 VAC 5-70-160 Audit, Financial Record Keeping, and Banking Requirements

E. A permit holder shall deliver all relevant data requested by the Director either by report or data file in the form and frequency [required] agreed to by the Director and the permit holder in order to achieve [while achieving] compliance with the standards of integrity, security, and control.

DraftKings respectfully requests the above changes to comply with standard business practices. Compilations of large data sets may take significant time and effort to compile and this language reflects that reality while ensuring compliance with important record keeping duties. DraftKings believes this change will ensure that all relevant data is provided as requested, while ensuring that the requirements are not too onerous to cause operational issues.

K. A permit holder shall maintain [an escrow] a separate account[, designating the Department as its sole beneficiary,] with a financial institution federally insured by the FDIC and licensed to transact business in the Commonwealth of Virginia. This [escrow] account shall be separate from all other operating accounts of the permit holder to ensure the security of funds due to the Commonwealth of Virginia.

DraftKings respectfully requests this change to align Virginia’s regulations with other regulated U.S. sports wagering jurisdictions.  Only one state in the country requires operators to keep funds in an escrow account for the benefit of the state.  All other states have effectively administered their laws without this requirement, reducing the administrative burden for operators and resulting in no associated detrimental effects to the states’ tax collection. This small change would still hold permit holders accountable for their tax burden to the Commonwealth, while providing permit holders some flexibility as to how they fulfill that obligation.