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With more than 20 states and a number of required for those who manage or control games or tribes now having legal betting and wagers, maintain or operate a system, the regulations in many of those jurisdictions or receive a percentage of revenue. Vendor Minor taking shape, a comparative analysis of the licenses are required for those who provide any other laws in each of those jurisdictions can help services to a sports betting establishment related to the us to identify the requirements imposed by sports betting operation.1 most of the U.S. jurisdictions, as well as the does not distinguish between different types few jurisdictions that are taking a different of suppliers. In addition to systems providers, supplier approach. Are the majority taking the best licensing is required for any person who provides approach, or do those striking out on their maintenance or repair services for systems, provides own have a better way? This article will gaming data (including but not limited to lines and ) provide a summary of the different provides security services, or provides any other “goods, approaches taken by U.S. jurisdictions data or services” if the Illinois Gaming with regard to certain key issues in the Board determines that they “impact regulation of legal sports betting. the integrity or security of the sports wagering operation.”2

THE COMMON requires registration as a DENOMINATORS OF manufacturer and

U.S. SPORTS BETTING distributor of associated equipment REGULATION AND THOSE for retail sports systems that STATES SWIMMING do not include wagering AGAINST THE TIDE accounts.3 Registration is a By Scott Scherer and Melissa Thevenot much simpler and less expensive process than licensing. If wagering 1. Licensing. account functionality is included, licenses as a Every U.S. jurisdiction with legal sports manufacturer and betting (referred to hereinafter simply as distributor “Jurisdictions”) requires licensing of operators of of cashless retail sports books or online betting sites. They wagering also require licensing of key suppliers to the sports systems is betting operator, such as the manufacturers of sports required.4 betting systems. What is required, however, Those who with regard to other suppliers, such as those provide data, who provide data feeds, line setting services, information, geo-location, or financial services? lines and directly to In some cases, full licensing is required. Other Jurisdictions require only a lower level of licensing or registration. In a couple of Jurisdictions, the licensed operator is required to report the names of its service providers and provide copies of contracts, but those service providers are not required to apply for licenses or registrations.

For example, requires suppliers to sports betting operations to obtain either Vendor Major or Vendor Minor licenses. Vendor Major licenses are

NEVADA GAMING LAWYER SEPTEMBER 2020 42 a sports betting operator are required to have a license as an information service.5 Anyone who shares in gaming revenues is also required to be licensed.

New Jersey requires providers of software or systems that accept wagers and vendors with control over wagers at any stage to be licensed. Payment processors, odds-setting companies and geolocation providers require a lower level of license, and any providers of wagering information must register with the Division of Gaming Enforcement.6

2. Age Requirements. Most Jurisdictions where sports betting is run by private operators require players to be at least 21 years of age to place bets. Several Jurisdictions where sports betting is operated by state , including , and , D.C., only require players to be 18 years of age. Presumably, this is because one need only be 18 years of age to purchase tickets in those Jurisdictions.

One unique Jurisdiction is , where players are required to be 21 to engage in sports betting and online gaming but only 18 to engage in fantasy sports , on the other hand, requires licensing of contests.8 Nevada does not distinguish between manufacturers and distributors of gaming devices and commercially-operated fantasy sports contests and “implements of ,”7 but does not generally sports betting. Michigan’s distinction for purposes require licensing of service providers. In this context, of the required age appears to be unique. licensing would be required for system providers, but not necessarily for providers of information used in setting lines or odds. The Iowa Racing and Gaming Commission does, however, require licensees to identify service providers and may require filing of copies of contracts or other information regarding those service providers.

Similarly, New Hampshire required bidders to identify subcontractors and to identify any ethics or integrity issues with those subcontractors, but does not appear to have required separate filings on behalf of those subcontractors.

While licensing helps to ensure integrity, burdensome licensing requirements may limit the pool of companies willing to provide services to licensed operators, 3. Integrity Fees and especially in smaller markets, thereby restricting the League Data Requirements operators from obtaining the best possible services or Initially, the major sports leagues actively advocated most competitive prices. Jurisdictions need to balance for the payment of so-called “integrity fees.” the potential benefits of licensing against the burdens Essentially, they wanted a percentage of every wager imposed by the licensing process. that would be collected by the state from sports betting

43 NEVADA GAMING LAWYER SEPTEMBER 2020 operators and paid to the leagues to pay for policing sports betting at racetracks and at up to 3 OTBs owned their leagues. In addition, the sports leagues have by each racetrack, , and up to 7 sports facilities requested that sports betting operators be required to with capacities of more than 17,000 people.16 use “official league data” that they would have to purchase from the leagues. Illinois also allows bidding for up to 3 online-only sports betting licenses17 and sports lottery terminals, To date, all of the Jurisdictions have rejected integrity where only parlay wagers are allowed, at up to 5,000 fees. operate on a small profit margin, lottery retail locations in the next two years.18 Other such that even a small percentage of handle paid to the Jurisdictions may allow operators to conduct sports major sports leagues would substantially decrease total betting using “skins” under contracts with the revenue from sports wagering. Instead of imposing authorized bricks and mortar facilities, but prohibit integrity fees, many of the Jurisdictions have sports betting without that relationship.19 introduced requirements to contract with an independent integrity monitor. The independent Some Jurisdictions require no direct connection to integrity monitor collects reports of suspicious bricks and mortar facilities. Those Jurisdictions tend betting activities, determines whether other licensed to be Jurisdictions where sports betting is run by the operators are reporting similar activities and works state lottery, including , New Hampshire, with the appropriate regulator, law enforcement , and Washington, D.C. Certain lottery retailers agency and/or the ’s governing body to have in these Jurisdictions may be allowed to offer retail the suspicious activity investigated. Jurisdictions sports betting as well. Not all lottery Jurisdictions requiring an independent integrity monitor include allow sports betting without a bricks and mortar Colorado,9 ,10 and .11 connection, however. In , sports betting is connected to the three licensed racinos20 and in Rhode As for official league data, all of the early movers on Island, the lottery offers sports betting through two legal sports betting rejected requests to require the existing casinos operated under the lottery’s auspices.21 use of official league data. There were concerns that the leagues’ monopoly on official league data would give them too much power over sports betting operators who would be required to use the data. Several of the Jurisdictions to legalize sports betting more recently, however, have required the use of official league data for in-play wagers if the official league data is available on commercially reasonable terms. These Jurisdictions include Tennessee,12 Michigan,13 Illinois,14 and .15 New Hampshire required its operator, by contract, to use official league data where commercially reasonable.

5. Prohibited Wagers. Some states allow wagering only on “sporting” or “athletic” events or contests, and have specific definitions for those events. In Iowa, for example, wagering is allowed only on “a professional sporting event, collegiate sporting event, international sporting event, or professional motor race event.”22 North 4. Eligibility for Licenses. Carolina allows betting only on “the outcome of professional and collegiate sports contests.”23 Other Most of the Jurisdictions require some tie to bricks Jurisdictions, including Nevada and Michigan,24 allow and mortar establishments, typically casinos, but also wagering on certain “other events” authorized by racetracks, off-track betting facilities (OTBs), and, in regulators. Over the years, Nevada has allowed some cases, sports arenas. For example, Illinois allows

NEVADA GAMING LAWYER SEPTEMBER 2020 44 wagering on a variety of different sports awards, as more professional or collegiate e-Sports events including post-season sports awards such as the winner take place, it will be easier to make the argument of league or championship MVP awards or the Heisman that e-Sports wagering should be allowed under such trophy, and various e-Sports events.25 statutes. Other Jurisdictions provide regulators the flexibility to allow wagering on other events or All of the Jurisdictions prohibit betting on high school competitions of relative skill, including Michigan and events26 and most prohibit wagering on amateur events Illinois, but the regulators have not yet authorized where the majority of participants are under 18 years wagering on any particular e-Sports events. of age. With regard to collegiate events, the rules vary widely, with some Jurisdictions prohibiting wagers on teams domiciled in 6. Prohibited that Jurisdiction or collegiate Participants. events taking place within All Jurisdictions prohibit 27 the Jurisdiction. wagering by athletes, coaches, and referees participating in Tennessee prohibits all a particular sporting event.37 proposition bets on collegiate Most Jurisdictions extend the sports;28 that is, any bet on a prohibition to others who circumstance during the play may have influence over a of a game which does not particular team, competitor directly affect its final or event, including managers, outcome. Iowa prohibits athletic trainers,38 and proposition bets on the medical professionals.39 individual performance of Indiana expressly extends participants from Iowa the prohibition to a “relative colleges and universities or on living in the same household” the individual performance of with any of the above.40 athletes in Olympic events, if 29 any participant in the event is under 18 years of age. Colorado provides something of a safe harbor by Illinois prohibits proposition bets on the performance requiring sports books to ban only those on lists 30 of a participant under 18 years of age or on injuries. provided by the applicable sport’s governing body Tennessee also prohibits bets on injuries, penalties or through the Division of Gaming.41 Otherwise, 31 other occurrences contrary to public policy. only commercially reasonable efforts to prohibit wagering by such individuals is required.42 As noted above, Nevada has allowed wagering on also allows sports leagues to provide certain e-Sports under the Nevada Gaming Control a list of prohibited participants to the Pennsylvania Board’s authority to allow wagering on “other events.” Gaming Control Board.43 Colorado,32 New Jersey,33 and West Virginia34 have also allowed wagering on e-Sports, except where In New Jersey, owners holding a 10 percent or more participants are under 18 or are part of a high school interest in a sports team, franchise or league are not team. Wagering on e-Sports is expressly prohibited permitted to wager on any event governed by the 35 36 in Pennsylvania and Indiana. same affiliated league or governing body.44 No individual may place wagers who holds a position of Whether e-Sports authority sufficient to exert influence over the event might be allowed participants, or where participation may otherwise in Jurisdictions undermine integrity.45 Any employee of a league or that allow wagering sports team who is not otherwise prohibited from only on “sporting” participation, must register with the Division of or “athletic” events Gaming Enforcement before placing a sports pool likely depends wager.46 As with Colorado and Pennsylvania, a sports on the future of governing body may identify prohibited persons e-Sports. As identified by providing a list to the Division.47 governing bodies develop and are recognized, and

45 NEVADA GAMING LAWYER SEPTEMBER 2020 7. Mobile Wagering. The majority of Jurisdictions allow both retail and mobile wagering within the borders of the Jurisdiction.48 Those that do not permit mobile wagering include , Delaware, , , , and . Tribal sports betting operations in New Mexico, Oregon, and North Carolina could potentially offer mobile wagering, but it would be limited to players within the borders of their tribal lands, absent another arrangement with their respective states. Michigan gaming tribes reached an agreement with the State of Michigan whereby tribal gaming operations may obtain sports betting operator licenses to offer state-wide mobile wagering.49

Some Jurisdictions may prohibit mobile wagering due to problem gambling concerns – they do not want to make it too easy for problem gamblers to place sports wagers. Others may want to drive traffic to the bricks and mortar facilities and fear that allowing mobile wagering will encourage players to avoid those facilities. In most Jurisdictions that allow mobile wagering, it provides and should not be eligible for gaming credit. It is convenience to the residents of the Jurisdiction and impossible, however, to identify all problem gamblers, is a significant (relative to the retail offerings) especially in the early stages of problematic behavior, source of revenue to the operators and of tax and some Jurisdictions take the conservative approach revenue to the Jurisdictions. by banning all use of credit or credit cards.

8. Funding of Mobile Wagering Accounts. 9. Conclusion. The regulatory provisions discussed above are just a Funding of mobile wagering accounts varies by few of those that should be considered by any state Jurisdiction. Some, including Illinois,50 Indiana,51 or tribe considering legal sports wagering. In addition New Jersey,52 Nevada,53 Pennsylvania,54 Virginia,55 to those issues discussed above, virtually all of the Washington, D.C.,56 and ,57 allow the use Jurisdictions have some type of reserve requirement of credit cards to fund mobile accounts, while others, (especially if sports wagering is conducted by private including Iowa58 and Tennessee,59 prohibit the use of commercial interests as opposed to state lotteries) and credit cards. some type of dispute resolution mechanism. These Most Jurisdictions also allow funding of mobile issues were not discussed in more detail here because accounts with debit cards, pre-paid cards, cash, checks, there is little variation between the Jurisdictions, but and ACH transactions.60 Some Jurisdictions, including they are still important components of any sports Nevada61 and Rhode Island,62 permit the issuance of wagering law. casino credit, with various restrictions. Hopefully, this summary of the different approaches The use of credit cards and the issuance of credit taken by U.S. Jurisdictions on these issues will be for gaming is controversial due to problem gambling beneficial not only to those interested in entering the concerns. Credit use can be a substantial convenience sports betting business in a particular Jurisdiction, for players and may enhance their safety by but especially to those states that are still considering eliminating the need to carry cash. The overwhelming the details of their sports betting legislation or majority of credit players use casino credit responsibly. determining whether to amend their existing Moreover, with proper credit checks and appropriate legislation and/or regulations. controls, many problem gamblers may be identified

NEVADA GAMING LAWYER SEPTEMBER 2020 46 Scott Scherer is a Shareholder with Brownstein Hyatt 19 58 Pa. Code § 1401.5(c); W. Va. CSR § 179-9-12. Farber Schreck LLP. He uses his unique mix of 20 29 Del. C. §§ 4819 and 4825(c). regulatory, business, policy and legal perspectives to 21 R.I. Gen. Laws Section § 42-61.2-2.4. help clients achieve their goals. Scott has more than 30 years of gaming experience includes serving as a 22 IAC 491-13.1(99F). member of the Nevada Gaming Control Board, where he 23 Chapter 14, Section 292.2(e)(3) of the North Carolina General Statues. Race had responsibility for the Investigations, Audit and wagering is also allowed. G.S. § 14-292.2(e)(4). Technology divisions; as a supervising deputy in the 24 MCL §§ 432.403(bb) and 432.405(4). Gaming Division of the Nevada Attorney General’s Office; 25 and as in-house counsel for a major gaming device manufacturer (where he See Nev. Gaming Comm’n Reg. 22.120(5) and 22.1201; see also also served for a time as managing director of an international subsidiary). https://gaming.nv.gov/index.aspx?page=83 for a list of previously These experiences inform his representation of clients on state, national and approved events. international business, regulatory and compliance matters. Over the course of 26 See, e.g., Colorado Department of Revenue, Division of Gaming, Sports Betting his career, Scott has worked with clients in Japan, the Philippines, Singapore, Rule 5.3.; 230 ILCS 45/25-25(h). Macao and beyond. In addition to his private sector clients, Scott has also 27 See, e.g., 230 ILCS 45/25-25(d); N.J. Admin. Code § 13:69N-1.1 (definition of advised and assisted various governments in drafting gaming laws and “Prohibited sports event”). regulations. When not working on complex gaming and compliance matters, 28 Tenn. Code Ann. § 4-51-314(a)(1)(B). Scott represents clients with respect to other regulatory issues, including state and local tax, transportation and legislative matters. Scott has served as chair 29 IAC § 491-13.1(99F) (definition of “Authorized sporting event”). of the International Association of Gaming Regulators, a member of the Nevada 30 11 Ill. Adm. Code 1900.1310(c). Assembly, general counsel and chief of staff for Nevada Governor Kenny 31 Tenn. Code Ann. § 4-51-314(a)(1)(A). Guinn, one of Nevada’s representatives to the Conference of Commissioners 32 on Uniform State Laws, a member of the Nevada Commission on Ethics and a See https://www.colorado.gov/pacific/enforcement/sports-betting-catalog for member of the Nevada Gaming Policy Committee. Colorado’s list of events approved wagering. 33 N.J. Admin. Code § 13:69N-1.1 (definition of “Prohibited sports event”). 34 W. Va. Code § 29-22D-3(15) (definition of “Sports event”). Melissa Thevenot is an Associate with Brownstein Hyatt 35 Farber Schreck LLP. She brings a history with tribal 58 Pa. Code § 1401.6(b); see also https://www.playpennsylvania.com/esports- organizations and transactional matters to her gaming betting-not-in-pa/ for comments from Pennsylvania Gaming Control Board practice. She has experience with advising tribal gaming spokesperson regarding . enterprises on compliance with the Indian Gaming 36 Ind. Code § 4-38-5-4. Regulatory Act and federal regulations. Her work has 37 See, e.g., Colorado Department of Revenue, Division of Gaming, Sports Betting included fee-to-trust applications and acquisitions for Rule 6.11(1)(b). tribal land recovery, federal recognition and Indian lands 38 Id. Rule 6.11(1)(c). gaming eligibility, developer agreements and researching 39 and preparing trial documents. Before joining Brownstein Hyatt Farber Schreck, 11 Ill. Adm. Code 1900.1120(a)(5). Melissa served at the National Indian Gaming Commission as a staff attorney, 40 Ind. Code § 4-38-9-3. clerked at Anderson Indian Law and Homer Law firms in Washington, D.C., 41 Colorado Department of Revenue, Division of Gaming, Sports Betting Rule 6.11. was a legal intern in the Department of the Interior’s Office of Indian Gaming A list provided by a sport’s governing body is deemed confidential. Id. and interned with the Oglala Sioux Tribe Legal Department, where she furthered Rule 6.11(1)(f). economic development initiatives for the Pine Ridge Reservation. While in law 42 school, Melissa served as a judicial intern for Magistrate Judge John M. Id. Rule 6.11(3). Bodenhausen of the U.S. District Court for the Eastern District of and 43 58 Pa. Code § 1401.8(f). a research assistant for law and economics Professor Gerrit De Geest. Melissa 44 N.J. Admin. Code § 13:69N-1.11(b). is a member of the board of the Native American Bar Association of DC, and 45 N.J. Admin. Code § 13:69N-1.1 (definition of “Prohibited sports serves as co-chair of the mentorship committee. pool participant”) 46 Supra, n. 47. 47 Supra, n. 48. 1 Colorado Department of Revenue, Division of Gaming, Sports Betting Rule 3.1. 48 See, e.g., 230 ILCS 45/25-30, 25-35 and 25-40; 2 11 Illinois Adm. Code §1900.150(c). 49 MCL § 432.406(1)(b). 3 Nev. Rev. Stat. § 463.0136 and 463.665. 50 11 Ill. Adm. Code 1900.1220(d)(1). 4 Nev. Rev. Stat. § 463.014 and 463.650. 51 Indiana Gaming Commission, Emergency Rule LSA #19-641, Chapter 7, § 4. 5 Nev. Rev. Stat. § 463.01642 and 463.160. 52 N.J.A.C. § 13:69O-1.3(d)(2). 6 N.J. Admin. Code § 13:69J-1.2(c)-(d) and (f). 53 Nev. Gaming Comm’n Reg. 5.225(9)(d). 7 Iowa Code 99F.1 (definition of “manufacturer”); 99F.17. 54 58 Pa. Code § 812.7(a)(3). 8 Compare MCL §§ 432.403(e) and 432.411(1) with MCL § 432.506. 55 Va. Code Ann. § 58.1-4031(D). 9 Colorado Department of Revenue, Division of Gaming, Sports Betting Rule 8.1. 56 D.C. Code Mun. Regs. tit. 30 § 2122.10. 10 N.J. Admin. Code § 13:69N-1.6. 57 W. Va. CSR § 179-9-14.4.2. 11 Indiana Gaming Commission, Emergency Rule LSA #19-641, Chapter 4, § 1. 58 Iowa Code 99F.9.7. 12 Tenn. Code Ann. § 4-51-316. 59 Tennessee Education Lottery, Sports Gaming License Rules, Regulations And 13 MCL 432.410a. Standards, Rule 5.1.8(G). 14 230 ILCS 45/25-25(g). 60 See, e.g., 11 Ill. Adm. Code 1900.1220(d)(4) and (5); Nev. Gaming Comm’n 15 Va. Code Ann. § 58.1-4036. Reg. 5.225(9); 58 Pa. Code § 812.7(a). 16 230 ILCS 45/25-10, 25-30, 25-35 and 25-40. 61 Nev. Rev. Stat. § 463.368. 17 230 ILCS 45/25-45. 62 R.I. Gen. Laws Section 42-61.2-3.2. 18 230 ILCS 45/25-70.

47 NEVADA GAMING LAWYER SEPTEMBER 2020