FSTA Working with SBFSTA To Unify Message

FSTA Working with SBFSTA To Unify Message

The following update can be found in its original form at this link from the Fantasy Sports Trade Association (FSTA):

FSTA Legislative Update: Jay Correia, April 1, 2016

It has been a busy legislative week. It was just two short weeks ago that I joined the FSTA Legislative Committee and I am proud of the amount of work we’ve accomplished in that short period of time. With that said, we’ve still got a long way to go.

Below you will find notes on this week’s legislative affairs.

Over the last week we’ve taken steps towards improving the industry’s legislative messaging so that prior passed bills (like VA / IN) are not suggested as being perfect model states. Peter Schoenke and I have been working with all of the companies involved to ensure our statements are more unified. Our commentary always needs to be based on our agreed upon goals for all legislation. 

Again, those goals are – clarification that fantasy sports are legal games of skill, common sense regulation, and fee structures that allow small operators to remain viable.

While we can remain cordial and appreciative of bills that pass and partially meet our goals, we need to be careful not to claim full victory unless all three standards are met. 

Committee member Peter Schoenke was interviewed in this Associated Press story that discusses the negative impact of big fees. We agree this type of press can assist us with expressing our concerns. If any FSTA members have contacts with the press/media, feel free to reach out to me ([email protected]) so we can continue to collaborate on expressing the full implications that new laws have on our industry.

I communicated with the founders of the newly formed SBFSTA (who are also FSTA members) to help ensure our actions and messaging are unified whenever possible. The SBFSTA has agreed to communicate with me (Jay) prior to any significant move. I, and members of the Board of Directors, agree that more vocalization on behalf of small business is potentially a good thing. Provided the group honors their commitment to attempt to cooperate on the issues I believe the SBFSTA will be able to operate without conflict.

All of the operators that have recently joined the SBFSTA, including its founders, pledged their support regarding the “small business fee structure” outline I have re-stated below. The SBFSTA founders and some of their early members have also provided me a great deal of positive feedback within the last week as it relates to the FSTA demonstrating that it is serious about protecting the whole industry. Like I wrote above, these businesses are all still members of the FSTA. In order to save fantasy sports we need to work together.

Indiana signed into law a fantasy sports bill that is similar to the bill in Virginia. The bill has a $50,000 registration fee and a $5,000 annual renewal requirement. As part of the bill, the legislature will put together a study about the regulations this summer. That should be an outlet for the FSTA to make a case for lower fees for smaller operators.

We're encouraged by our progress in Iowa where a bill to open the state to paid fantasy sports contests has passed a key House committee. It has a small fee ($500) and a 7.5% tax. Peter Schoenke wrote an op-ed in support of the bill: https://t.co/jdDywM383Q

The Massachusetts Attorney General issued her final regulations for daily fantasy sports after issuing proposed regulations last fall. The AG made some changes the FSTA lobbied for, such as companies that offer both season long and DFS games won't have to apply all the rules to both, deposit limits that were not as restrictive and a decrease on the number of underlying games in a contest to be considered a DFS operator. While the FSTA didn't like everything in the regulations (most notably age 21 and no NCAA contests), the FSTA is supportive of the regulations. 

On Tuesday, 03/29/16, the Mississippi house voted to commission a 1-year study on the fantasy sports industry. The idea was to study the industry so it can be determined what regulation will be best a year from now. However, it is different than the senate bill that already passed (that included problematic fees). The bill will head to a conference committee for resolution. We'll remain engaged.

Tennessee is making progress with its bill. It passed the senate yesterday and is perhaps the most extensive of any bill thus far. It largely follows the consumer protection guidelines seen in Massachusetts. The fees, if any, are to be determined. 

Both states are advancing their respective bills and are currently on track as being acceptable based on the feedback we’ve gotten from most of our operators. In Colorado, the legislation the FSTA is supporting currently has no fee structure and bipartisan support. The Denver Post also recently wrote a strong editorial in support (though we don't like the terminology calling it 'sports betting'):  https://t.co/Ejt8YNsxSH

Over the last week I have communicated with almost all of the FSTA’s fantasy sports operators as it relates to fees and other issues we are facing as an industry. I am proud to say that we’ve gotten close to unanimous feedback as it relates to what operators (both season-long and daily) consider to be “fair” regulation. To date, we have been granted permission to use the names of roughly 25 operators to help express our collective argument. I consider this a significant milestone.

As stated above, the FSTA’s desire for every bill is to clarify fantasy sports are legal games of skill, involve basic consumer protections (aka – common sense regulation), and a fee structure that allow small operators to remain viable.  Obviously the ideal scenario is to have no fees or taxes whatsoever. With that said, we do not have control over the situation and therefore it is imperative we understand the comfort level of the businesses in our association. The core elements of the fee structure almost everyone is in agreement with involves:

  • Small Operator Exemptions
    If a flat-price registration fee is included, have a “carve out” that exempts small operators. This works by having a # of users within the state specified. (For example: 7,500 or less in-state users). This helps prevents burdensome initial expenses and also prevents barriers-to-entry via the start-up fees that could be associated with starting a business. 
  • Flat Percentage of Net Revenue
    Any ongoing or initial registration costs should be more along the lines of a fee based on performance whereas the operator simply pays based on the amount of business they conduct within the state. The base rate with which we initially had agreement in proposing was 5%. Therefore, if a member company had 5,000 users in a state that each deposited and then played $500 worth of gameplay, that would be 5,000 x 500 = $2,500,000 in gameplay which equates to ($250,000) at a 10% service fee. Of that $250,000 earned, a 5% fee equates to $12,500.00 that would be due to the state.
  • Avoid Hidden Barriers to Entry
    Some bills have proposed “surety bonds,” where the operator is required to obtain one in the state. These typically cost anywhere from 1% to 10% or so of the full value of the bond. Therefore, with bonds ranging from $100,000 to $1,000,000+ we need to try to avoid these. This was a strong point of influence I received from operators. Even just a few thousand dollars per state is too much of a barrier for just about any small operator. Therefore, we are looking to avoid these (or) suggest alternative methods to protect consumers such as a segregated user deposits requirement (or) an exemption as cited above.
  • “Common Sense Regulations”
    This phrase has been thrown around a lot. The operators within the FSTA seem to have no issue with – basic age requirements, segregation of user deposits from other revenue, functionality that allows a user to opt out from joining a contest, prohibition of employees/contractors from playing any monetarily valued contests, and so on. This is the one area where most states have been fairly consistent and there have not been many points with which most operators disagree. We will continue to be hawkish and look for any “snuck in” items that are detrimental to businesses or the user’s experience.

Thank you for your continued feedback and support. 

We will remain vigilant.

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