Virginia’s Proposed Sports Betting Regulations Don’t Raise Major Red Flags

Virginia’s Proposed Sports Betting Regulations Don’t Raise Major Red Flags

The Virginia Lottery on Wednesday rolled out its proposed sports betting rules, and it appears to be taking direction from legal sports betting states regulated by gaming boards, rather than lotteries.

Before the proposed regulations were even presented at the Lottery Board meeting, one member asked if the Lottery was considering a payout cap similar to what the Tennessee Education Lottery is imposing on licensed TN sportsbooks. The unequivocal answer was no.

“The Tennessee model is closest to ours,” Lottery Executive Director Kevin Hall said during the meeting. “We’re still working through lots of details, but it’s safe to say we won’t (have a required hold). It’s somewhat controversial, and the criticism is that margins (in sports betting) are so narrow … that by guaranteeing a 10% hold, it makes the odds worse than” what a consumer could find in the illegal market.

That single statement likely put operators at ease and made Virginia one of only two states with lottery run sports betting to lean more toward the open, hands-off competitive marketplace favored by commercial operators. The other is West Virginia, where the state’s five casinos have sports betting platforms and physical sportsbooks operated by five different national and regional operators. In some other lottery run jurisdictions — in particular Delaware, Montana, New Hampshire, Oregon, Rhode Island and Washington, D.C. — sports bettors have only a single choice for sports betting.

‘Devil will be in the details’

“Virginia seems to have learned from other lottery states, and not done what they have done,” said consultant Brendan Bussmann of Global Market Advisors. “The devil will be in the details, and there is the push and pull with public comment as well as the second round of comments.”

In fact, in Washington, D.C., the D.C. Council bypassed the request-for-proposal process and awarded a sports betting monopoly to Intralot, which already worked with the Lottery. And in New Hampshire, where the state legislature approved up to 10 physical locations and five mobile/online platforms, the lottery there chose to award a single contract to DraftKings, which promised 51% of profit to the state.

With that issue put (mostly) to rest, the proposed regulations in Virginia appear to follow the letter and spirit of the law and there were no major surprises. The Lottery released four key sections of proposed regulations, with more to follow on Aug. 10. A public-comment period on the regulations began Wednesday and will end Sept. 9. The law mandates that the Lottery approve regulations by Sept. 15.

The Lottery broke the proposed rules into four sections:

  • Sports Bettor’s Bill of Rights;
  • Consumer Protection Program;
  • Voluntary Exclusion Program; and
  • Permit Applications.

The Sports Bettor’s Bill of Rights — which may be the only published rendition in the nation from a regulatory body — is a one-page document that reviews the right to integrity and transparency, privacy issues and other several other topics.

Questions about ‘Sports Bettor’s Bill of Rights’

But the first two items in the Bill of Rights could raise questions for operators. From the text:

Sports bettors have the right to access information necessary for bet-making, as well as information demonstrating that the permit holder’s offerings are administered legally and fairly in all respects. Such information includes but is not limited to:

– The handle of the bet
– The odds and pertinent information used to calculate those odds

It’s curious why the Lottery would want to require operators to share the handle on a particular bet with a bettor, but in addition, asking operators or oddsmakers how they set lines seems out of bounds.

The Consumer Protection portion is 11 pages, including a section on age verification, known in the business as “know your customer.” Traditionally, operators have strict controls in place to verify age and stay within the law. But one stakeholder pointed out that in the list of options for age verification, a bettor could fax a verification form, or use “a credit card, debit card, or other online payment system that provides notification of each discrete transaction to the primary account holder.”

While the regulations are not complete, and the verification form has not been made public, it’s not usual for a form to be faxed, though an electronic scan is often sufficient. Prospective bettors are often required to scan or send copies of a driver’s license or passport, and are often asked to back that up with a utility bill or similar to confirm an address.

And the Voluntary Exclusion Program appears to mirror that in many other states. Those who want to exclude themselves can do so for two years, five years or a lifetime, but it’s unclear from the proposed regulations who will hold the list (i.e. the Lottery or the operators or perhaps both). Those selecting a lifetime exclusion cannot be reinstated. In addition, those excluded forfeit wins should they somehow place a wager.

No betting on VA colleges, but college events OK

For operators, the most relevant section is the Permit Applications. Among the highlights:

  • The stage legislature went back and fourth multiple times on whether to allow wagering on college sports, and the ultimate compromise, reflected in the proposed regulations, is no betting on Virginia college sports, but betting on other colleges — and college events in Virginia — will be legal. This leaves open the door, for example, if Richmond were to host an NCAA men’s basketball regional, that consumers could bet on the event, just not on any Virginia team participating;
  • Betting on Olympic sports is prohibited;
  • Prop bets on collegiate athletics events are banned

More operator-specific rules

  • The Lottery will accept licensing applications for a two-week period each year. The initial licensing application window is set for Oct. 15-31, 2020 and the annual window will be May 15-31;
  • Sports betting operator permits will cost $250,000 for a three-year permit with a $200,000 renewal fee. The law calls for additional fees for “principals,” or those who have a 5% or higher stake in a sports betting operator company. The fee is set at $50,000 per principal. Stakeholders were concerned about how this fee would affect licensing costs during the lawmaking process. As an example, DraftKings has three founders, each of whom presumably owns 5% or more of the company. The “principal” licensing fee would then cost DraftKings an additional $150,000 — $50,000 per principal — above the $250,000. (Of course, that’s assuming there’s no one else with at least a 5% stake). While that is an additional fee, even if a company were to have, say 10 principals, the initial $250,000 fee is comparatively low, and the additional fees won’t make licensing unaffordable or unattractive to potential operators;
  • Among the other licensing fees is $125,000 for a supplier, if the supplier is “operating a permit-holder’s platform” or $50,000 for a supplier that is not; and $500 each for vendors and employees who work for either a supplier or operator.

Not included in the proposed regulations is the latest timeline, which Hall shared at the meeting. The key upcoming dates are Aug. 10 for the next set of proposed regulations, Sept. 15 for approval of regulations, Oct. 15-31 application window, and January 2021 for the first licenses to be issued and sports betting operators to go live.

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