New Surety Bond Requirements for Fantasy Contest Operators

Fantasy sports laws are being discussed around the country.The popularity of daily fantasy sports (DFS) is growing daily, and so the need to handle the emerging industry’s legal issues is in the spotlight for legislators across the country. Many states have already enacted a fantasy sports law or are in long discussions on how to approach the issue. 

The recent tendency is for states to legalize daily fantasy games, but to impose rules on operators in order to guarantee consumer protection. That’s why in many cases, fantasy sports providers are required to register or license with a governing authority and to post a surety bond.

This appears to be a healthy approach, as it aims to strike a balance between safeguarding the interests of players while avoiding unnecessary bans on the games and their operators. Since in DFS consumers’ data is handled on a regular basis, there needs to be a way to protect it without halting the natural evolving of the games. 

Let’s look at the legal developments in the field and recent surety bond requirements that fantasy sports companies need to meet.

Overview of fantasy sports laws

DFS legislation is pending in more than 20 states currently. The games are officially allowed and regulated in Maryland, Kansas, Rhode Island and Massachusetts. In some other states, such as Arizona, Louisiana, Iowa, Washington and Montana, discussions are likely to take some time, as there is resistance towards legalization.

Florida and Mississippi are among the states that aim to regulate DFS by differentiating them from gambling. Recently New York passed a fantasy sports bill, which is also imposing rules on operators, but legalizing the games. Fourteen states have not launched a process to create fantasy sports laws, and in nine other ones such legislation is currently being contested. 

Bringing clarity in fantasy sports is not an easy process, and legal ambiguity is still present in many places. The Fantasy Sports Trade Association is fighting for the legalization of DFS across the U.S. Since fantasy games are a daily activity for many, it is only natural to find a way to integrate it in legislation. In a few places, regulation over DFS operators is already in place by requiring them to register and get bonded.

Why are surety bonds required?

The purpose of surety bonds is to safeguard players from any potential unlawful actions on the side of DFS operators. In this sense, bonds act as a layer of protection for consumers. The bond works as a contract between three entities, in which a surety guarantees in front of a state authority that the DFS company would compensate financially any harmed parties in case of proven claims.   

Colorado, Indiana, Rhode Island and Virginia have already introduced a surety bond requirement for fantasy contest operators. The bond amount should be a reserve that corresponds to the amount of deposits in the fantasy sports players’ accounts. The legislation also states that players’ funds and the DFS company’s operational funds should be segregated. 

Missouri, Minnesota, New Jersey, and Vermont are in the process of discussing fantasy sports legal issues and creating similar bills that introduce a surety bond requirement.  

What the new rules mean for fantasy sports operators

The new rules can be beneficial for fantasy sports operators too

The new legislation might come as an uncomfortable surprise for DFS operators but in fact, regulation can work positively both for them and for the players. By introducing a place for fantasy sports within the law, it would be much easier for operators to conduct their business without struggling for legalization and without unpleasant legal issues. 

Additionally, the rules can set a clear ground for handling potential legal issues such as insider trading, consumers’ sensitive data leaks and use of unauthorized computer scripts by some players.

In financial terms, in states where surety bonds are required, DFS operators will have to set aside finances to provide the required security. However, to get bonded, they will not need to cover the whole bond amount, but only a fraction of it called the bond premium. In this sense, the financial burden on fantasy sports companies will not be a problematic one.

How do you see the future of fantasy sports laws across the U.S.? Please share your thoughts in the comments below.

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Victor Lance is the founder and president of Lance Surety Bond Associates, Inc. He began his career as an officer in the U.S. Marine Corps, serving two combat tours. As president of Lance Surety, he now focuses on educating and assisting small businesses throughout the country with various license and bond requirements. Victor graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan's Ross School of Business.