Last Thursday, the California State Assembly’s Committee on Governmental Organization repurposed Assembly Bill No. 1437 that would impose new regulations on operators of Internet fantasy sports games.

If passed, how would AB-1437 affect service providers in the fantasy sports industry?

Internet Fantasy Sports Game Protection Act

When introduced this February by Assemblyman Adam C. Gray, AB-1437 (then titled “Gambling Addiction”) was meant to simply increase the amount of fees collected by the California Gambling Control Commission from licensed gambling enterprises for the State’s Gambling Addiction Program Fund.

As amended last week, the proposed law is no longer aimed at combatting gambling addiction. Rather, the revised bill (renamed the “Internet Fantasy Sports Game Protection Act”) would now require a person to obtain a license from the State prior to offering an Internet fantasy sports game for play in California. In addition, under the overhauled AB-1437, Californians would only be allowed to participate, after a structured registration process, in Internet fantasy sports games that are licensed by the State.

The amended AB-1437 would require the support of two-thirds of each house of the California state legislature in order to become law.

California Assembly’s Proposed Regulatory Regime

If passed, AB-1437 would impose a number of restrictions on operators in the Internet fantasy sports space. Specifically, as currently written, providers of Internet fantasy sports contests would be required:

  • to obtain a license from the California Department of Justice;
  • to pay a number of fees (in amounts not yet disclosed), including:
    • an up-front licensing fee;
    • a percentage of their gross income (on a quarterly basis); and
    • an annual regulatory fee;
  • to abide by a number of restrictions related to contest rules and prizes;
  • to “facilitate the collection” of State income taxes from players; and
  • to verify – through access to government records and demands for valid government identification – that all players in California are 21 years of age or older.

AB-1437 proposes further amendments to the California Penal Code, which would subject operators of Internet fantasy sports contests to punishments of up to a year in prison and/or $5,000 in fines for violating the above-mentioned provisions.

Keep Your Fantasy Sports Gaming Venture Legal

California’s State Assembly has joined the whirlwind of activity in state legislatures across the country now addressing the legality of fantasy sports contests. As such, when engaging in or operating an Internet fantasy sports contest or other gaming venture, it is important to retain competent legal counsel to remain in compliance with applicable law.