11 VAC 5-70-140. Reserve and Insurance Requirements.
Subsection (A) of this section provides a list of the permissible forms that a permit holder’s reserve to cover the outstanding liability of the permit holder to players may take, however the list does not include payment processor reserves and receivables. This option is authorized in a number of states, including: Colorado; Iowa; Indiana; and Pennsylvania. Allowing permit holders to use payment processor reserves and receivables to satisfy the reserve requirement allows for greater flexibility for permit holders to invest in driving customers from the illegal offshore market to the legal regulated market, while still ensuring the customer protection that the reserve requirement provides.
Additionally, Subsection (A) prohibits permit holders from removing, releasing, or withdrawing any funds from its reserves “without the written approval of the Director.” This provision is inconsistent with the provisions of Subdivision (5) of Subsection (B) of this section, which requires daily calculation of the reserve requirement. As acknowledged, the reserve requirement will fluctuate and permit holders should be able to deposit and withdraw reserve funds in concert with this calculation, to ensure the reserve is sufficient, without having to request the written approval of the director.
Subdivision (5) of Subsection (B) of this section requires that in the event a permit holder’s reserve is insufficient, the permit holder must provide notification to the director within twenty-four hours, including an explanation of the steps taken to remedy the deficiency. In the unlikely event that such a shortfall occurs, the process of identifying and remediating the technical issue, accounting error, or other underlying cause may well take longer than 24 hours. Requiring permit holders to report such events on an overly abbreviated and rigid timeline would unnecessarily distract them from prioritizing analytical and remediation efforts, without providing any meaningful countervailing benefit. Instead, the provision should be revised to require notification to the director within 48 hours following the permit holder’s identification of any such deficiency.
To address the concerns raised above, we suggest the following changes to 11 VAC 5-70-140:
“A. A permit holder shall maintain a reserve in the form of cash, cash equivalents, irrevocable letter of credit, payment processor reserves and receivables, 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.]
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5. A permit holder shall calculate its reserve requirements each 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] 48 hours and identify the steps taken to remedy the deficiency.”
11 VAC 5-70-160. Audit, Financial, Recordkeeping, and Banking Requirements.
Subsection (C) of this section provides a five year record retention requirement on permit holders, however the provisions of §58.1-4034 of the Code of Virginia only imposes a three year record retention requirement. To conform the requirements of the regulation to those in statute, this requirement should be change to three years.
To address the concern raised above, we suggest the following change to 11 VAC 5-70-160(C):
“C. A permit holder shall retain all records, financial records, supporting documents, statistical records, and any other documents, including electronic storage media, pertinent to its sports betting operation for at least [five] three years from their creation.”
11 VAC 5-70-170. Permissible Wagers.
Subsection (A) of this section includes a prohibition on proposition wagers on college sports which reflects the prohibition included in §58.1-4039(A)(2) of the Code of Virginia. While Colorado has substantially similar language in statute (CRS 44-30-1501(8)), the Colorado Limited Gaming Control Commission has interpreted this language to only prohibit individual player propositions as it relates to college sports events, while allowing other proposition wagers. The wagers authorized for sporting events are available in their approved events catalog, which may be viewed here: https://www.colorado.gov/pacific/enforcement/sports-betting-catalog
As a comparison, Colorado authorizes a significant number of individual player propositions for NFL football (player to score the first touchdown, player x passing yards, player x receiving yards, etc.) that are not approved for NCAA football, while wagers are allowed on both for team based propositions (team to have the most passing yards, team to have the most rushing yards, etc.). Virginia would be best served to follow this model, to ensure that customers are able to access the widest variety of wagers permissible under the statute.
Additionally, we suggest that Virginia adopt a similar procedure to that of Colorado in publishing a catalog or list of approved wagers types for every sport. This serves the public in knowing what wagers are authorized for every sport, serves the operators by providing them with a comprehensive list of all approved wager types, and serves the Lottery by eliminating duplicative requests from operators to approve sports/wagers types that have already been requested by, and approved for, other operators.
To address the concerns raised above, we suggest the following changes to 11 VAC 5-70-170:
“A. A permit holder may accept a wager from a player on sporting events, including:
[A.] 1. A proposition wager, except a proposition wager on an individual participant in college sports or a proposition wager placed on any type of possible injury;
[B.] 2. A bet placed after the sporting event has started; or
[C.] 3. A bet placed after the sporting event has started, in compliance with § 58.1-4036 of the Code of Virginia and section 190 of this chapter.
B. 1. A permit holder may accept wagers on those sports events and leagues approved by the Lottery, which shall be reflected on an Authorized Sports Betting Sports Events, Leagues or Bets List.
2. Where a sports league is authorized, permit holders may accept wagers on all sports events conducted by such sports league, where the sports event is of the kind generally conducted by that league.
3. The Director or designee shall post on the Lottery website a list of authorized sports events, leagues and bets. As new events and/or leagues are authorized per 11 VAC 5-70-170(C), the Director or designee shall update the list of Authorized Sports Betting Sports Events, Leagues and Bets List, and inform the permit holders, sports betting platform suppliers, and applicable sports governing bodies of those changes. New sports events approved by the Lottery based on requests received from a permit holder are considered approved for all permit holders and will be noticed in accordance with this Rule.
(C) 1. Permit holders may request the Lottery authorize sports events, leagues or bets not already authorized and included on the Authorized Sports Betting Events and Leagues and Bets List. Permit holders must apply prior to offering the new event or wager to the public. Permit holders must submit the application at least 72 hours prior to any new scheduled event requested.
2. The application shall be in a form as specified by the Lottery, including:
(a) The name of the sports governing body; and
(b) A description of its policies and procedures regarding event integrity.
3. Where a permit holder wishes to authorize a sports event conducted by an approved sports league, of a type not generally conducted by that sports league, the Lottery may contact the sports governing body for input.
4. The Director or Director’s designee will consider the following factors prior to authorizing a sports event, league or portion of a sport or athletic event:
(a) Any relevant input from the sports governing body or conductor of the sports event;
(b) Whether the outcome is determined solely by chance;
(c) Whether the outcome can be verified;
(d) Whether the event generating the outcome is conducted in a manner that ensures sufficient integrity controls exist so the outcome can be trusted;
(e) That the outcome is not affected by any bet placed; and
(f) Whether the event is conducted in conformity with all applicable laws.”