Virginia Lottery Board Approves Sports Betting Regulations; January Launch Expected

Sports betting stakeholders were vocal and the Virginia Lottery Board listened.

Tuesday morning, the board approved heavily revised sports betting regulations via voice vote during a video call, and Deputy Director for Gaming Compliance Gina Smith updated the go-live timeline for Virginia sportsbooks, saying the Lottery is shooting to have operators live online by January.

The timeline has been a bit of a moving target given the bulky administrative process that requires the regs to be approved and posted before applications can be accepted. According to the rules, the Lottery has 90 days from the receipt of a completed application to approve or deny it. The regulations won’t be posted in the Virginia Register until sometime in mid-October, at which point the application process can open. Assuming that’s Oct. 15, there are 79 days until the end of 2020, so if the Lottery needs all 90 days to approve an application, there won’t be time.

Considering that sports betting became legal in this non-casino state on April 22, the idea that operators will be accepting bets in January is impressive — that’s nine months from legal to live in a state with no existing gaming infrastructure.

Olympic betting banned, but could be added

Lottery staff sifted through 183 public comments — many filed on the final day for comments, Sept. 9 — and managed to incorporate key changes into the final version of the rules. The most notable exception is the continued refusal to allow betting on Olympic sports.

According to Smith, she and her staff met and discussed this issue multiple times, but in the final analysis determined that because the law prohibits betting on youth sports, they could not in good faith make Olympic sports a legal betting option. The legislature could revisit the issue and make a provision to allow betting on Olympic sports.

“We did not adopt that recommendation,” Smith said during the meeting, in reference to the Olympics. “We reviewed the definitions and because Olympic sports include minors, we were concerned about going outside the bounds of the statute.”

According to the law, youth sports is defined as such:

an athletic event (i) involving a majority of participants under age 18 or (ii)
in which at least one participant is a team from a public or private elementary, middle, or secondary school, regardless of where such school is located. Regardless of the age of the participants, an athletic event that meets the definition of “college sports” or “professional sports” shall not be considered “youth sports.”

There is certainly room for interpretation due to the use of the word “majority,” but there’s also room for an easy legislative change to add “Olympic sports” to the list of sports that “shall not be considered ‘youth sports.’”

Stakeholders argue that prohibiting Olympic sports will only continue to drive bettors to the black market, just like Virginia’s prohibition on betting on Virginia college teams.

‘Principal’ more clearly defined; loophole closed

For most part, though, stakeholders got what they were looking for and Virginia’s Lottery showed that it will be much like regulators in Colorado. The Colorado market has become a desirable spot for bookmakers — well regarded for transparency in the licensure process, competition, and the regulator’s willingness to work with stakeholders.

Among the biggest concerns for operators was the definition of a “principal,” and how the number of principals in a company would affect licensing fees. In the revised rules, a principal is defined as someone with a 5% stake and voting rights in the company and/or is employed in a “managerial capacity.” The term managerial capacity is now further defined as “the Chief Executive Officer of the permit holder, and, if applicable, its sports betting supplier, and any individual who has ultimate responsibility for the operation of the sports betting platform in Virginia.”

The regulations call for a $50,000 licensing fee for each “principal” above and beyond the $250,000 licensing fee. Operators worried that a principal under the originally vague description of “managerial capacity” could apply to anyone from the CEO to a shift manager, and that it would substantially increase licensing fees. But Smith made clear that the idea behind the regulation was to define a principal as person critical to the high-level operation of the business.

Other sports betting employees who work within the state of Virginia will also be required to be licensed, most with a $500 fee.

All licensing and application fees cover a three-year period.

Lottery staff also massaged 11 VAC 5-60-40 Duties of sports betting permit holder, which in the proposed rules potentially would have allowed a bettor to add him/herself to the self-exclusion list as a way to cancel a wager. In No. 3 of that section, the proposed rules read:

3. Void all outstanding wagers of an individual on the self-exclusion list;

Operators argued this could be a loophole to cancel a big bet and differs from the industry standard. The final regulations read:

3. Refund any remaining balance to an individual on the self-exclusion list consistent with the Department’s regulations and the permit holder’s internal control standards as approved by the Department;

Key definitions, approval processes changed

Among the other key changes:

  • Advertising and marketing: The requirement to have advertising and marketing materials approved by the Lottery Director was removed, allowing operators to be more nimble in the fast-paced sports betting arena.
  • Bill of Rights: Operators will now be required to include a link to the Virginia “Sports Bettors Bill of Rights” on their website, and some tweaks were made to the document.
  • Integrity monitoring: Operators can now choose which integrity monitoring service to use. The proposed rules required operators to use the Global Lottery Management System. Operators requested the opportunity to use the Sports Wagering Integrity Monitoring System instead. The final rules allow for a choice.
  • Self-exclusion: Consumers will now be able to self-exclude using a link on the Virginia Lottery website rather than being asked to visit a sports betting website to self-exclude. However, those wanting to be on the lifetime self-exclusion list will have to present themselves at the Lottery headquarters. Consumers will also automatically come off the two- or five-year self-exclusion lists at the end of the term rather than having to request to be removed.
  • KYC: Operators will now be able to use third-party “Know Your Customer” services to register and vet customers.
  • Identification: The requirement for sports betting employees to wear identification badges was removed.

Some issues weren’t addressed

The proposed rules called for operators to share the handle and odds of every wager, and stakeholders pushed back hard, saying the numbers consistently evolve and that there may not be specific odds for a sports bet. The revised rules require operators to share the “amount wagered on the bet” and “the odds at which the wager is offered,” both more palatable situations for operators.

But some issues do not appear to have been addressed. The NBA, Major League Baseball, and the PGA Tour, which have been lobbying together across the country, wrote in comments that it appears the leagues could be required to apply for the $125,000 supplier license. The draft and final rule are identical:

11VAC5-70-10-Definitions

“Sports betting supplier” or “Supplier” means a person who: (a) manages, administers, or controls wagers initiated, received or made on a sports betting platform; (b) manages, administers, or controls the games on which wagers are initiated, received, or made on a sports betting platform; or (c) maintains or operates the software or hardware of a sports betting platform, including geolocation services, customer integration, and customer account management.

The leagues asked to have the phrase “excluding sports governing bodies as defined in this section” added after the phrase “sports betting platform.” That language was not added, but it seems likely that the Lottery does not intend to require leagues to be licensed and that the word “games” in this sense does not apply to the actual action on the field or court, but rather to sports betting.

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