New Jersey Enacts Legislation To Regulate Fantasy and Daily Fantasy Sports

August 29, 2017Alerts Gaming Alert

The popularity of fantasy sports, including daily fantasy sports (DFS), as well as a perceived lack of regulation and consumer protections within the industry have resulted in several states expressly authorizing and regulating fantasy sports, with New Jersey being the most recent.

On August 24, 2017, New Jersey Governor Chris Christie signed Assembly Bill A3532, which authorizes and regulates fantasy sports activities within the state. Bill A3532 will become effective 90 days after enactment.

New Jersey became the sixteenth state to authorize and legalize fantasy sports, joining Colorado, Kansas, Missouri, Arkansas, Mississippi, Tennessee, Indiana, Virginia, Maryland, Delaware, New York, Massachusetts, Vermont, New Hampshire and Maine.

In New Jersey, only gambling expressly authorized pursuant to the state constitution is permissible. Bill A3532 expressly states that “fantasy sports activities” are “contests in which the relative skill of the participants predominates to a degree that chance plays no material role in determining the outcome of the activities,” and, therefore, such activities are not considered gambling under New Jersey law. This is consistent with the approach taken by the New Jersey Division of Gaming Enforcement, which enacted a regulation allowing casino licensees to conduct fantasy sports tournaments.

Bill A3532 broadly defines “fantasy sports activities” to include any fantasy or simulated activity or contest that requires an entry fee, in which a participant owns or manages an imaginary team and competes against other participants or a target score for a predetermined prize, with the outcome reflecting the relative skill of the participants.

“Fantasy sports activities” may only be offered through operators, including casino licensees and racetracks that have been issued a permit by the Division of Consumer Affairs in the Department of Law and Public Safety (DCA). The DCA will be responsible for regulating fantasy sports activities within New Jersey, and will have the authority to investigate permit applicants, oversee the conduct of fantasy sports activities, inspect the facilities of fantasy sports operators, suspend the operations of fantasy sports operators and revoke previously issued permits.

Fantasy sports operators that were operating on August 24, 2017, may continue operating for up to 60 days after the DCA makes applications for permits available, and if they apply for a permit during the 60-day period, they may continue operating while their applications are pending. Applicants will be required to pay a permit fee, and once issued a permit, fantasy sports operators must pay the DCA a quarterly operations fee equal to 10.5 percent of fantasy sports gross revenue for the applicable quarter.

Fantasy sports activities must be determined by statistics generated based on the performance of actual individuals participating in actual competitions or athletic events, and the outcome cannot be based solely on the performance of an individual athlete, or on the score, point spread or any performance of any single real team or combination of real teams. The fantasy sports operator must establish and disclose all prizes in advance, disclose the number of entries an individual is permitted to make and take steps to prevent the individual from exceeding those entries.

Finally, Bill A3532 takes several steps to ensure consumer protections are implemented by fantasy sports operators.

For example, fantasy sports operators must adopt procedures to ensure:

  • Statistical information is not shared with third parties before it is publically available.
  • Individuals are permitted to restrict or “self-exclude” themselves from participating.
  • Individuals under the age of 18 may not participate.
  • Fantasy sports activities cannot be based on high school sports.
  • Prohibited participants, such as athletes participating in the games in which the fantasy sports activities are based or individuals with access to non-public information about such activities, cannot participate in the activities.

Fantasy sports operators must also segregate participant funds and take steps to secure participant deposits and annually file audited financial reports with the DCA. Bill A3532 also provides for fines for the unauthorized operation of fantasy sports activities, tampering with equipment and software and offering or allowing fantasy sports activities that have been tampered with.

If you have any questions about this alert, please contact Nicholas Casiello, Jr. at 609.572.2234 or [email protected], C.J. Fisher at 609.572.2209 or [email protected] or any member of the firm’s Gaming Practice.