Bet on Guv letting SEA 339 be law?
The following article can be found in its original form in the Indiana Gaming Insight Newsletter:
Indiana Gaming Insight: March 21, 2016
Reproduction approved by publisher.
We were spot-on with our projection that SB 339, the fantasy sports wagering bill that removes the platform from a legal gray zone, would avoid conference committee, receive Senate concurrence, and head to the Governor’s desk.
The betting bucks favor it becoming law without his signature, as Governor Mike Pence (R) has never publicly opposed the measure as an expansion of gambling, and when asked about it after the concurrence, he deftly chose to characterize it to inquiring reporters as helping to corral activities in the Wild West. “My understanding is this is just simply an effort to create some legal boundaries and guidelines around a — the fantasy sports practice — that many Hoosiers enjoy relative to the NFL, particularly,” said the Governor, “and so we’ll take a look at it, give it a fair-minded look.”
This statement is along the lines of what we had told you to expect. As we had suggested to you in our last issue, he is clearly cognizant of one key reason why the bill was on rails: the numbers bandied about that some 1.5 million Hoosiers participate in fantasy sports activities (though that number could perhaps be as “low” as 500,000 who actually played via the major paid vendors, and not on the free Yahoo! and ESPN sites), and offending 1.5 million Hoosiers during an election year — many of whom are in the younger demographic who may not be as staid in their respective political maturation — isn’t a wining proposition. In the absence of any organized public opposition and even newspaper editorials, there is no pressure on the Governor to deep-six the measure.
Indeed, the only real concern being evinced is that from the industry, which may have a touch of buyer’s remorse. On the evening of March 7, the day that Virginia’s governor signed the first fantasy sports regulatory measure in the nation into law, officials with the Fantasy Sports Trade Association (FSTA) dispatched an email missive to membership questioning the “onerous” Virginia licensing fee of $50,000 — the same amount that Indiana’s measure had been lowered to thanks to the actions of House Committee on Ways and Means Chair Tim Brown (R) of Crawfordsville. FSTA leaders expressed concern that many game operators would be unable to afford such a fee, a fear that played out in Indiana as well just a few short days after the bill passed, when sites such as the Fantasy Football Players Championship (FFPC), FanTrax, and RealTime Fantasy Sports suddenly emerged from the woodwork to complain that they “can’t afford those costs,” as Brandon Smith reported for Indiana Public Media. And, adds Smith, there appears to be an industry split between the (two) haves and the have-nots. “While FanDuel and DraftKings are daily fantasy sites, operators such as FFPC’s Dave Gerczak say they run season-long, traditional fantasy games. And he says they shouldn’t have to pay the same fees. ‘Maybe one or two could try and pony up the dough. But when you think about all the states we’re talking about, what they’re trying to do is create this duopoly.’ ”
Smith notes that “Sen. Jon Ford, R-Terre Haute, the bill’s author, says he never heard those complaints. And he notes the legislature will study paid fantasy sports further this summer: ‘I think this is the first bite at the apple and we’re trying to do as much as we can and compromise the most and get a good piece of legislation.’”
But comments such as that are also filtering through to the Governor’s Office, as some forces around the bill — and lawmakers themselves — are now beginning to realize that there are more questions raised or unanswered by Senate Enrolled Act 339 than those answered or loopholes closed, making some uneasy.
Indiana’s enrolled act does not even contain a formal definition of “fantasy sports,” and the National Conference of State Legislatures blogged Wednesday that “Chris Grove, editor of the Legal Sports Report, a Nevada-based publication, says the definition of ‘fantasy contests’ used in some of the legislation doesn’t specifically limit competitions to sports. Fantasy contests based on award shows, political debates, even spelling bees could theoretically be permissible, he says.”
Indeed, the Legal Sports Report published a memo from FSTA president Paul Charchian that suggested getting in the way of the Virginia measure “would have been poor optics for the industry,” as the trade publication characterized it. A Charchian email to concerned operators explained that “sabotaging our own bill will be A) unlikely to change anything in Virginia, and B) political suicide for us in every other state. It should be viewed as a ‘nuclear option’ only.” “Please remember,” FSTA’s Charchian continued, “getting good legislation passed is [the] best outcome for everyone in the industry. We all need legal clarity for fantasy sports…just ask anyone struggling for payment processing. And that remains our goal. We didn’t hit the mark in Virginia, and we recognize that.
The Legal Sports Report also let the cat out of the bag: “The legislation in Indiana — which now sits on the governor’s desk — started out as the model FSTA bill, which included a $5,000 fee. That has been upped to $50,000 initially, through the course of amending the legislation.”
A separate Charchian email contended that both the Virginia and Indiana bills as passed “represent an important step in the ongoing process of creating legal clarity for fantasy sports, a goal we all share.” Then he dropped the bombshell that seemed to have not emerged in any public discussion (or in the minds of any lawmakers with whom your favorite gaming newsletter discussed the then-pending bill): “However, both states have an onerous mandatory regulation fee that makes both states untenable for the majority of the FSTA’s members. We are deeply concerned that these states have made it impossible for so many of our member companies to do business. The FSTA will work toward improving those bills as quickly as possible.”
This point was also raised during House Public Policy Committee by Rep. Todd Huston (R) of Fishers. We told you that he noted back on February 24 that the new licensee fee matrix may stifle innovation from entrepreneurs who might not be on the same plateau as industry leaders DraftKings and FanDuel. “If you’re a provider or a provider that we have never even heard of before — better yet, a young entrepreneur — these are pretty stiff amounts to come up with to create innovation.”
Rep. Alan Morrison (R) of Terre Haute, the chief advocate of the legalization and regulation of fantasy sports wagering, explained to members of that panel that $50,000 is what casinos pay annually, and while he was concerned about instituting “barriers to entry,” he acknowledged then that the bill “is a work in progress.”
House Committee on Public Policy Chair Tom Dermody (R) of LaPorte explained that there are expenses to the state for regulation, and an infrastructure would have to be created for the first operators — probably two — and $150,000 will help to support such operations. Rep. Huston observed that “government hurries up to regulate innovation and creates barriers for more innovation,” and, as you may remember, questioned if only two entities would be able to pay $75,000 each, wouldn’t it be better to have 10 entities eventually pay just $25,000 each?
Rep. Charlie Brown (D) of Gary asked if Rep. Dermody’s intent was to “to keep bad actors out,” and Dermody responded in the affirmative. “So are small guys bad actors?,” retorted Brown. Not necessarily, Rep. Dermody shot back. He wanted to send the message that “if you’re going to do this in Indiana, you’re going to be a committed industry partner.”
But fear not, concerned lawmakers, operators, and industry officials: SEA 339 contains a provision calling for a study of all the stuff that should have been resolved (or at least fully vetted) before solons overwhelmingly passed this bill . . . although one of those topics may well be imposing a real tax, and New Jersey lawmakers are currently working to impose the same (9.25%) tax on gross revenues of fantasy sports operators as Atlantic City casinos pay on their wins.
And despite all the hinkiness, the prospects for the measure becoming law are far better than not at this point.
In the first week that he assumed office in 2013, our sister newsletter, INDIANA LEGISLATIVE INSIGHT, treated readers to an exclusive look at the philosophy that Gov. Pence said he would bring to the table in deciding whether to sign or veto a bill. He said back then that he intended to be “very discerning and disciplined in the times that we would use the veto authority,” and he has remained true to that overarching statement. But digging deeper, he told us that “My two lodestars are constitutionality and fiscal responsibility,” and “any bill that comes across our desk will primarily be considered in that prism ....” While “sometimes people think that beyond ‘constitutionality’ and ‘fiscal responsibility’ that a ‘best interest’ standard” be applied, “I would be — and maybe it comes from the fact that I’m a former legislator — I would be less inclined to use the veto authority in ways that I thought would be subjective, or would supplant the judgment of the executive branch for the judgment of the legislative branch. I believe in the legislative process.”
The March 24 bill-signing deadline likely will come in the midst of March Madness (oddly, the enrolled act did not reach the Governor’s desk until Thursday), fostered by the Indianapolis-based National Collegiate Athletic Association.
The timing again raises questions about why NCAA basketball tournament pools (in which participants complete their own brackets, rather than draw teams blindly) remain “illegal gambling” while the fantasy sports games have now been deemed by lawmakers to be a game of skill, and not chance (or at least not principally chance). Or maybe we’re just grouchy about this because our bracket was busted by the results of that play-in (“First Four”) game between Western Governors University - Indiana and the University of Phoenix!