A new bill in Alabama introduces legislation to regulate daily fantasy sports (DFS) contests and operators in the state. The new law, called the Fantasy Contests Act, requires contest operators to register with the Office of the Attorney General.
The Act specifies both the conditions for registration as well as the responsibilities of operators once they have been registered. Among other things, DFS operators will need to maintain a reserve of funds which may be in the form of an Alabama fantasy sports operations bond.
See the sections below for an overview of the registration requirements for all DFS contest operators in Alabama!
Alabama Fantasy Contest Act
Alabama has joined the ranks of states who regulate fantasy sports. Under the new law which became effective at the end of May 2019, fantasy sports contest operators in Alabama will now need to register. An exemption applies to operators who offered contests in the state prior to May 1, 2016. These can continue offering contests as of the effective date of the Act.
New operators will need to apply for registration at the Office of the Attorney General. According to the Act, such applications will be made available by the Office within 180 days of its effective date. This means that anytime within the next few months, operators will be able to apply.
Alabama DFS Contest Operators Registration and Obligations
Applicants will need to pay an entry fee for initial registration in the following amount:
- Initial and renewal registration fees of $85,000 for applicants who have national gross fantasy contest revenues above $10 million
- Initial and renewal registration fees of $1,000 for all other applicants
Once registered, fantasy sports operators will need to implement procedures that:
- Make sure that no employees or relatives who live in the same household participate in public contests with cash prizes offered by the operator
- Prevent the sharing of confidential information with third parties
- Ensure that players in fantasy contests are at least 19 years old
- Prevent the operator from offering contests based on the performances of participants in high school or youth athletic events
- Prevent the operator from offering a contest to the public that does not make clear what the awards and prizes are in advance
- Make sure that the winning outcome of a contest is not solely based on the performance or points of any one team or group of teams or particular athlete or participant in a real event
- Ensure that no player in a real-world game is permitted to participate in contests that are entirely or partly determined by the performance of that player or their team
- Enable individuals to restrict themselves from participating in a contest
- Disclose the number of entries participants can submit to a contest and ensure that they cannot submit more than that
- Separate player funds from operational funds, or maintain a reserve that is equal to or greater than the player funds on reserve. That reserve cannot be used for operational activities and can be in the form of cash, cash equivalents, a surety bond or more. The amount of the reserve must exceed the total balances of all the players’ accounts
In addition to the above obligations, fantasy sports operators that offer contests for a fee, must also have a contract with a third party to annually perform an independent audit. This audit must be in accordance with the standards of the American Institute of Certified Public Accountants (AICPA). Its purpose will be to ensure the operator’s compliance with the Fantasy Contests Act.
Yearly, on the anniversary of the date of their registration, operators will also need to pay a tax. This tax will need to be equal to 8% of the operator’s gross DFS contest revenues from the preceding 12 months.
These are the obligations of Alabama fantasy sports operators under the new Act. See the section below for an explanation of the surety bond requirement!
Alabama Fantasy Sports Operations Bond
The bond requirement for DFS operators in Alabama serves the purpose of protecting participants’ funds. The surety bond plays the role of a financial guarantee that if something were to happen to such funds, compensation would be available to cover any losses.
The cost of obtaining a surety bond is significantly lower than maintaining reserves in cash. To get bonded, you will be required to pay only a fraction of the total amount of the bond you need. Depending on your credit score and certain other financial indicators, the cost of your bond may vary between 1% and 5% of the total bond amount.
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