Relating to sports gambling and wagering, by providing for fantasy sports contests and sports betting, providing for taxes and fees, making penalties applicable, and including implementation and effective date provisions

Description

Senate File 617 authorizes sports gambling and wagering, including sports wagering and fantasy sports contests in the State of Iowa; provides for taxes and fees; and establishes penalties.

Division I

Division I of SF 617 relates to the authorization and licensing of sports wagering. The Bill defines “sports wagering” as the acceptance of wagers on an authorized sporting event by any system of wagering as authorized by the Iowa Racing and Gaming Commission (IRGC). An authorized sporting event includes a professional, collegiate, or international sporting event, or a professional motor race event. International sporting events include sporting events governed by both the International Olympic Committee (IOC) and the International Federation of Association Football (FIFA). Minor league sporting events, fantasy sports contests, dog and horse racing, and any athletic event or competition of an interscholastic sport as defined in statute are explicitly excluded from the definition of “authorized sporting event.” Sports wagering also excludes placing a wager on the performance or nonperformance of an individual athlete participating in a single game or match of a collegiate sporting event in which a collegiate team from this State is participating or placing a wager on the performance of athletes in an individual international sporting event governed by the IOC in which any participant is under the age of 18.

The IRGC is tasked with adopting rules, including emergency rules if necessary, and standards under which sports wagering may occur, including identifying the scope and type of wagers allowed, identifying occupations within sports wagering that require licensing, and adopting standards for licensing and background qualifications for occupations including establishing fees for an occupational license. The IRGC is also tasked with reviewing licensee reports on any criminal or disciplinary proceedings commenced against the licensee or its employees, and if necessary, utilizing audio and video data as investigative tools. The IRGC is required to report any information received regarding such activity to the Division of Criminal Investigation (DCI) of the Department of Public Safety (DPS), or any other appropriate law enforcement agency. Additionally, the IRGC must report such information to a sports team or sports governing body, so long as sharing the information does not hinder an ongoing criminal investigation. All revenue received by the IRGC from regulatory fees is deposited in the Gaming Regulatory Revolving Fund.

Under current Iowa law, individuals under the age of 21 are prohibited from participating in gaming activity but may work as employees of a licensed gaming entity at the age of 18. Senate File 617 conforms sports wagering and Internet fantasy sports contest participant rules to current law. Additionally, SF 617 provides that a qualified sponsoring organization (QSO) that holds a license to conduct gambling games and sports wagering will receive at least 0.75% of sports wagering net receipts, if applicable, to distribute for educational, civic, public, charitable, patriotic, or religious use. Under current law, QSOs are required to distribute at least 3.0% of adjusted gross receipts from gambling games for these purposes. Division I of SF 617 establishes an initial licensing fee and annual licensing renewal fee for any gaming entity wishing to conduct sports wagering. The Division allows a licensee to enter into operating agreements with one or two entities to have up to a total of two individually branded Internet sites to conduct advance deposit sports wagering for the licensee, unless one additional operating agreement or individually branded Internet site is approved by the IRGC. Division I requires a licensee to include the statewide telephone number authorized by the Iowa Department of Public Health (DPH) to provide problem gambling information to be listed on the advance deposit sports wagering Internet site or mobile application. An individual wishing to participate in advance deposit sports wagering may establish an account with a licensee. Until January 1, 2021, all such applications to establish an account must occur in person at a licensed gaming entity.

Senate File 617 states that license fee revenue collected from entities wishing to conduct sports wagering will be deposited in the General Fund. The Bill establishes an initial licensing fee of $45,000 and an annual licensing renewal fee of $10,000 for any gaming entity wishing to conduct sports wagering and advance deposit sports wagering on a telephone-type device or by any other electronic means. All licensees that have been granted a license to conduct sports wagering are required to take reasonable steps to prohibit coaches, athletic trainers, officials, players, or other individuals who participate in authorized sporting events subject to sports wagering from participating in such wagers. An unlicensed person taking or receiving sports wagers commits a Class D felony.

Senate File 617 amends the definition of “adjusted gross receipts” to include gross receipts less winnings paid to wagerers on gambling games. “Sports wagering net receipts” is defined as gross receipts less winnings paid to wagerers on sports wagering. The Bill establishes a 6.75% tax rate on net receipts and directs the tax revenue collected from sports wagering net receipts to be deposited in the Sports Wagering Receipts (SWR) Fund established in Division III of this Bill. Licensees must submit tax payments to the Treasurer of the State within 10 days after the close of the day the wagers were made.

The Bill also requires a licensee that conducts pari-mutuel dog or horse racing to use receipts from gambling games and sports wagering to supplement purses for races particularly for Iowa-bred horses pursuant to agreements between a licensee and representatives of dog or horse owners. Current law provides that agreements concerning purses for horse racing must provide that total annual purses for all horse racing must be no less than 11.0% of the first $200.0 million net receipts, and 6.0% of net receipts above $200.0 million. Senate File 617 amends this provision to include 4.0% of sports wagering net receipts in supplementing total annual horse racing purses.

Senate File 617 allows individuals to voluntarily exclude themselves from advance deposit wagering, from advance deposit sports wagering, and from the gaming floor and sports wagering area of a licensed gambling facility.

Division II

Senate File 617 allows the addition of “fantasy sports contests” and “Internet fantasy sports contests” as legally recognized forms of wagering. “Fantasy sports contests” is defined as any fantasy or simulated games or contests in which the following apply:

• The fantasy sports contest operator is not a participant in the game or contest.
• The value of all prizes and awards offered are known to contest participants in advance.
• All winning outcomes reflect the relative knowledge and skill of participants and are determined by statistical results of the performance of individuals, including athletes in the case of sporting events.
• No winning outcome is based solely on the score, point spread, or any performance(s) of any single actual team or solely on any single performance of an individual athlete or player in any single actual event.
• Until May 1, 2020, “fantasy sports contest” does not include any fantasy or simulated game or contest in which any winning outcomes are based on statistical results from a collegiate sporting event. “Collegiate sporting event” means an athletic event or competition of an intercollegiate sport as defined in Iowa Code section 9A.102.

“Internet fantasy sports contest” is defined as a method of entering a fantasy sports contest by which a person may establish an account with an Internet fantasy sports contest service provider, deposit money into the account, and use the account balance for entering a fantasy sports contest by utilizing electronic communication. An Internet fantasy sports contest service provider means an individual, including a licensee under Iowa Code chapter 99D or 99F, who conducts Internet fantasy sports contests.

Senate File 617 also provides a definition for “bookmaking” as related to gambling activity. The Bill defines “bookmaking” as advancing gambling activity by accepting bets upon the outcome of future contingent events as a business other than as permitted in Iowa Code chapters 99B, 99D, new chapter 99E, and 99F. Such events include the results of a trial or contest of skill, speed, power, or endurance of a person or beast or between persons, beasts, fowl, motor vehicles, or mechanical apparatus or upon result of any chance, casualty, unknown, or contingent event.

The Bill grants the IRGC the authority to supervise and have full jurisdiction over all Internet fantasy sports contests and Internet fantasy sports contest service providers, including establishing rules. The IRGC is also tasked with reviewing licensee reports on any criminal or disciplinary proceedings commenced against the licensee or its employees. The IRGC is required to report any information received regarding such activity to the DCI of the DPS, or any other appropriate law enforcement agency. Additionally, the IRGC must report such information to a sports team or sports governing body, so long as sharing the information does not hinder an ongoing criminal investigation. All revenue received by the IRGC from regulatory fees is deposited in the Gaming Regulatory Revolving Fund. An applicant for an Internet fantasy sports contest service provider license who knowingly submits an application containing false statements commits an aggravated misdemeanor.

Division II of SF 617 establishes an initial license fee of $5,000 for any gaming entity wishing to conduct Internet fantasy sports contests. The initial license is valid for not more than three years, and a licensing renewal fee is also established. The IRGC may deny an application for a license based on criteria specified in the Bill. A licensee may renew the license at a renewal fee of $1,000 or, if the licensee collected Internet fantasy sports contest revenue greater than $150,000 in the previous fiscal year, $5,000. Senate File 617 provides that Internet fantasy sports contest licensing fees will be deposited in the Gaming Regulatory Revolving Fund and are considered to be repayment receipts pursuant to Iowa Code section 8.2. Regulatory fees will also be deposited in the Gaming Regulatory Revolving Fund. A licensed Internet fantasy sports contest service provider will receive a credit for the amount of the licensing and regulatory fees paid by the service provider against the taxes to be paid as required by the Bill. Senate File 617 also requires the IRGC to request a background check and requires fingerprints to be submitted to the Federal Bureau of Investigation by the DPS. The IRGC may charge a license applicant a fee set by the DCI of the DPS to recover costs related to fingerprints and background check requirements. If an additional investigation is required, the IRGC may charge the license applicant with the associated costs. These costs and fees will be deposited in the Gaming Enforcement Revolving Fund, are considered to be repayment receipts, and may be retained by the DCI.

Upon approval of a license application, an Internet fantasy sports contest service provider must meet the following requirements:

• Prevent employees of the Internet fantasy sports contest service provider and relatives living in the same household of such employees from competing in any Internet fantasy sports contest on the service provider’s digital platform in which a cash prize is offered.
• Verify that participants in Internet fantasy sports contests in the State of Iowa are age 21 or over.
• Ensure that coaches, officials, players, contestants, or other participants in a contest that is the subject of an Internet fantasy sports contest are restricted from entering into an Internet fantasy sports contest in which the outcome is determined, in whole or part, by accumulated statistical results of a team of individuals in a game or contest in which they participate.
• Allow individuals to voluntarily restrict and exclude themselves from entering into an Internet fantasy sports contest upon request and with support from the Internet fantasy sports contest service provider.
• Allow individuals to establish an electronic account with an Internet fantasy sports contest service provider.
• Require the licensee to include the statewide telephone number authorized by the DPH to provide problem gambling information to be listed on the Internet fantasy sports contest service provider’s Internet site or mobile application.
• Disclose the number of entries an individual Internet fantasy sports contest player may submit for each contest, and take reasonable steps to prevent players from submitting more than the allowable number of entries for a single contest.
• Segregate Internet fantasy sports contest player funds from operational funds, or maintain a reserve in the amount of the deposits in individual player accounts for the benefit and protection of Internet fantasy sports contest player funds.
• Conduct an annual audit.
• Pay the required tax.

The Bill establishes a civil penalty for any individual who willfully fails to comply with the above requirements or any other rules established by the IRGC. The civil penalty charged totals $1,000 per individual violation, but is not to exceed $10,000 for violations arising out of the same transaction. Additionally, for violations relating to entering an Internet fantasy sports contest under the age of 21, a scheduled fine of $500 is charged. Finally, the IRGC is authorized to revoke the license of any individual who fails to comply with new Iowa Code section 99E.4.

Division II of SF 617 also establishes the definition of “Internet fantasy sports contest adjusted revenues” as the amount equal to the total charges and fees collected from all participants entering into an Internet fantasy sports contest less the winnings paid to participants in the contest, multiplied by a location percentage. The location percentage is defined as the percentage, rounded to the nearest tenth of a percent, equal to the total charges and fees collected from all Internet fantasy sports contest players located in the State of Iowa divided by the total charges and fees collected from all participants in the Internet fantasy sports contest. The Bill establishes a 6.75% tax rate on Internet fantasy sports contest adjusted revenues. Tax revenue generated from Internet fantasy sports contests will be deposited into the SWR Fund created in Division III. Licensees must submit tax payments to the Treasurer of the State as determined by the IRGC.

Senate File 617 allows individuals to voluntarily exclude themselves from Internet fantasy sports contests as defined in the Bill, including from the gaming floor.

Division III

Division III of Senate File 617 establishes a Sports Wagering Receipts (SWR) Fund under the authority of the Department of Management (DOM). Moneys in the SWR Fund are to be used as directed by the members of the General Assembly.

Senate File 617 requires a State agency that receives an appropriation from the SWR Fund to provide a report on the status of all projects funded with the appropriation to the Legislative Services Agency (LSA) and the DOM on or before January 15 annually. The report must include a description of the project, the progress of work completed, the total estimated cost of the project, a list of all revenue sources being utilized to fund the project, the amount of funds expended and obligated, and the estimated or actual completion date of the project. Additionally, SF 617 requires the recipient of funding from an appropriation to a State agency from the SWR Fund to provide a project progress report to the State agency on or before December 31 each year. The report is required to include a description of the project, the progress of the work completed, the total estimated cost of the project, a list of all revenue sources being used to fund the project, the amount of funds expended and obligated, and the estimated completion date or actual completion date of the project, as applicable. Additionally, any moneys appropriated from the SWR Fund to the County Endowment Fund under Iowa Code section 15E.311 that are distributed to eligible county recipients must be considered for grants, upon application, to a charitable organization that operates a racetrack facility that conducts automobile races in that county.

Background

The State of Iowa permits individuals 21 years of age or older to take part in gambling games and related activities. Each gambling licensee must collect debts owed to the State from persons participating in gambling activity. Under current law, a single occurrence win equal to or greater than $1,200 is considered a taxable event and subject to outstanding debt collection. The amount of the debt constitutes a valid lien against the winnings of the person and is collected from the winnings. Each licensee is provided electronic access to the names of persons indebted to the State for purposes of this setoff procedure. The setoff procedure is conducted by the Department of Administrative Services (DAS). The DAS also charges a $7 administrative fee for the setoff procedure. Delinquent debt and past due taxes are deposited in the General Fund in the fiscal year collected.

The IRGC currently regulates and supervises all gaming institutions in the State of Iowa, investigating any violations of current law or the Commission’s rules. The IRGC also acts as the primary licensing entity for such institutions. Under SF 617, the IRGC will have full jurisdiction over and will supervise sports wagering activity and sports wagering license holders, and Internet fantasy sports contests and Internet fantasy sports contest service providers. The IRGC will also establish administrative rules related to both sports wagering and Internet fantasy sports contests.

A Class D felony is punishable by confinement for no more than five years and a fine of at least $750 but not more than $7,500. In FY 2018, there were 22 convictions for violations under Iowa Code chapter 99F.

An aggravated misdemeanor is punishable by confinement for no more than two years and a fine of at least $625 but no more than $6,250.

Assumptions

Division I

• According to a 2017 study completed by Global Market Advisors, approximately 28.0% of all U.S. adults (individuals over the age of 18) participate in sports wagering.1 Senate File 617 only authorizes sports wagering to be available to individuals 21 years of age or older.
• Iowa has a population of approximately 3.16 million people. According to the most recent census data, 72.7% of Iowans are age 21 or over. Extrapolating this data leads to the assumption that approximately 2.3 million Iowans are eligible to participate in sports wagering.
• Using national data provided by Ernst and Young, an individual participant 18 years of age or older spends an annual average amount of approximately $1,626 on sports wagering.2 This estimate is based on the most recent data available and is adjusted for inflation.
• On average, 95.0% of a sports wagering handle (the total amount wagered by all participants) is paid out to winners. The remaining 5.0% of the handle is retained by the authorized sports wagering licensee and is subject to taxation.
• Senate File 617 requires all tax revenue received from participation in sports wagering activity to be deposited in the SWR Fund.
• The IRGC will charge an initial fee of $45,000 per license to conduct sports wagering. A licensee may renew the license at a renewal fee of $10,000. These fees are deposited into the General Fund.
• The DPS charges a deposit fee to any company pursuing a gambling license in the State of Iowa. This deposit fee covers travel and accommodations for an investigator and may range up to $5,000 depending on the location of the applicant. An authorized sports