New Requirements for Alabama Fantasy Sports Operators

Alabama recently introduced new rules for fantasy sports operators. House Bill 361 establishes the Alabama Fantasy Contests Act, which brings a strict regulatory framework for operators in the field.

With the new law, fantasy sports contest organizers have to register with state authorities. They also need to comply with specific rules for their activities. One of them requires the segregations of player funds from operational funds. The bill provides options to bypass the fund separation by maintaining a cash reserve or providing a fantasy contest operator bond or irrevocable letter of credit in an appropriate amount.

The details contained in the bill are explained in the sections below, including information on how to obtain an Alabama fantasy sports operations bond.

The stipulations in House Bill 361

House Bill 361 establishes the Alabama Fantasy Contests Act and thus follows a list of other states that have introduced laws for fantasy gaming. It creates a new legislative framework for the activities of fantasy sports operators in the state, also known as daily fantasy sports (DFS).

Operators who offer to the public fantasy contests with an entry fee are now required to undergo a registration with the Office of the Attorney General. The application procedure will be launched within 180 days of the effective date of the bill. It was delivered to the Governor on May 29th, 2019.

Contest operators who were active before May 1st, 2016 have to go through the application for registration within 60 days of the date on which the application becomes available.

For the initial registration process, applicants have to provide the following:

• If your national gross fantasy contest revenue is above $10 million, you have to pay a $85,000 initial registration fee, and the same amount for subsequent annual registrations
• For the rest of operators, the initial registration fee and the subsequent renewal fee is $1,000
• On the date of registration renewal, all operators have to pay into the State General Fund a yearly tax of eight percent of their contest revenues for the last 12 months
• All operators have to undergo an annual independent audit in accordance with the standards of the American Institute of Certified Public Accountants

In addition, the bill sets the rules for operation that fantasy sports operators in Alabama have to adhere to. They include:

• Prevent conflict of interests of employees, real-world game players and other relevant individuals
• Secure confidential information and disclose publicly available information
• Verify the age of contest players
• Allow individuals to restrict themselves from entering a fantasy contest upon request
• Prevent contests based on the performance of participants in high school or youth athletic events
• Establish and make known all prizes and awards offered to winning participants in advance of the game or contest

One of the main rules that operators have to comply with is to segregate their operational funds from contest player funds. An alternative way to meet this requirement is to sustain a separate reserve which is equal to or bigger than the deposited player funds. It can be in the form of cash, cash equivalents, an irrevocable letter of credit, a surety bond, or payment processor reserves. The total amount should be larger than the player funds.

Meeting the cash or bonding requirements

The purpose of the reserve mechanism that Alabama authorities require fantasy sports operators in case they don’t segregate their operational and contest player funds is to protect the interests of the general public. It ensures that the funds deposited by players with the fantasy sports operators will not be misused.

Most options offered in the new bill as an alternative to the funds' separation include maintaining the whole amount of deposited player funds. However, obtaining an Alabama fantasy sports operations bond is a viable option that does not entail having all the funds in an account or cash.

Operators can obtain a surety bond in the respective amount, which is equal or larger than the deposited player funds. To get bonded, they have to cover a bond premium, which represents a percentage of the required amount. It is based on the personal and business finances of the operator. The stronger they are, the lower the bond premium would be. For applicants with stable finances, it can be as low as 1% to 5% of the bond amount.

Do you have further queries about the Alabama fantasy sports operations bond? Don’t hesitate to contact us at 877.514.5146.