Michigan Bills to Regulate Fantasy Sports Advance

Image credit: Pkay Chelle

A pair of bills seeking to formally legalize and regulate daily fantasy sports have advanced through a senate committee in Michigan. The bills seek to give daily fantasy sports operators legal clarity, establish licensing conditions and put in place consumer protection regulations for fantasy sites operating in Michigan.

The bills passed the committee vote 7-0 and have now been put to the committee of the whole as they move one stop further through the legislative process. Senate Bills 461 and 462 take daily fantasy sports out of the legal grey zone they currently inhabit by declaring they are games of skill, not gambling.

Both bills call for daily fantasy sports sites to acquire a license with an initial licensing fee of $5,000 and annual renewal fees of $1,000. This bill so far looks like a win for free market principles as even those modest licensing fees can be reduced. The bill states that the initial licensing fee as well as the annual renewal fee cannot exceed 10% of the total entry fees collected minus prizes paid out. In other words, smaller operators will not be priced out of the market by exorbitant fees.

Consumer Regulations

Consumer protection measures in the Michigan fantasy sports bill resembles those we have seen introduced in other states that have enacted similar legislation. Operators are required to prevent employees and their relatives from participating in fantasy sports games, prevent the sharing of confidential information that could affect DFS contests and prevent athletes and officials from participating in contests which they could affect through their actions.

Other regulations in the bill include requiring operators to segregate player funds from operational funds, maintain cash reserves to protect players’ funds and undergo annual financial audits.

Licensed operators will also be required to prevent players under the age of 18 from participating and are prohibited from offering contests based on university, college, high school and youth sporting events. Operators will also be required to offer self-exclusion programs for customers and provide information about problem gambling. If the bill is enacted, it is ordered to take effect within 90 days.

Support of and Opposition to the Bills

One of the sponsors of the legislation, Senator Curtis Hertel Jr., said this bill “is free market legislation that protects citizens but lets the business of fantasy sports keep going here in Michigan. We shouldn’t be penalizing people for basic entertainment. Really this is just another way to enjoy sports and the way we watch.”

Senator Hertel also made it clear that this bill targets daily fantasy sports rather than traditional games that players have been enjoying for years in Michigan.

“To be clear, Michigan residents who’ve been playing fantasy sports with their buddies for decades, maybe each of them probably throwing some money for a prize for the winner at the end of the season, won’t be subject to regulation under this legislation. In fact, they won’t see any difference at all.”

Detroit News reported that MGM Grand and Greektown in Detroit have voiced opposition to the bill. Casino lobbyists say that they support fantasy sports, but worry that consumer protections are insufficient and would rather see the Gaming Control Board oversee daily fantasy sports. Currently, the legislation calls for licensed DFS operators to be overseen by the Department of Licensing and Regulatory Affairs.

The casinos also noted that they do not like the idea of fantasy sports sites not being taxed at the same rate as casino games. The director of the Gaming Control Board also came out and said he believes the Gaming Control Board would be best suited to regulate DFS sites in Michigan.

However, the bill’s sponsors insist that fantasy sports contests are not gambling and should not be treated as such. Senator Hertel also made the point that the fact you can beat other players with your own skill makes fantasy sports a contest of skill, not gambling.

Daily fantasy sports operators are active in Michigan currently, but the passage of these bills will move them out of legally questionable territory and give them firm legal footing. If the bills become law, DFS sites that are already active in Michigan may continue operations until they receive licenses or are denied licenses.