NOTE: The governor signed this measure on 6/10/2016. HOUSE BILL 16-1404 BY REPRESENTATIVE(S) Duran and Wist, Esgar, Garnett, Priola, Rosenthal, Ryden, Winter, Kraft-Tharp, Lebsock, Mitsch Bush, Pabon, Williams; also SENATOR(S) Cooke and Guzman, Hill, Jahn, Johnston, Kerr, Cadman. Concerning the regulation of fantasy contests, and in connection therewith, making an appropriation. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. In Colorado Revised Statutes, add article 15.5 to title 12 as follows: ARTICLE 15.5 Fantasy Contests 12-15.5-101. Short title. The short title of this article is the "Fantasy Contests Act". 12-15.5-102. Definitions. As used in this article, unless the context otherwise requires: (1) "Confidential information" means information related to the play of a fantasy contest by fantasy contest players obtained as a result of or by virtue of a person's employment. (2) "Director" means the director of the division of professions and occupations within the department of regulatory agencies or his or her designee. (3) "Entry fee" means cash or cash equivalents that are required to be paid by a fantasy contest player to a fantasy contest operator in order to participate in a fantasy contest. (4) "Fantasy contest" means a fantasy or simulated game or contest in which: (a) The value of all prizes and awards offered to winning participants is established and made known to the participants in advance of the contest; (b) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of athletes in fully completed sporting events; except that a sporting event that has been called or suspended due to weather or any other natural or unforseen event is considered fully completed; and (c) Winning outcomes are not based on randomized or historical events or on the score, point spread, or any performance of any single actual sports team or combination of such teams or solely on any single performance of an individual athlete in any single actual sporting event. (5) "Fantasy contest operator" means a person or entity that offers fantasy contests with an entry fee for a cash prize to members of the public. (6) "Fantasy contest player" means a person who participates in a fantasy contest with an entry fee offered by a fantasy contest operator. (7) "Small fantasy contest operator" means a fantasy contest operator that has no more than seven thousand five hundred fantasy contest players in Colorado with active accounts who participate in fantasy contests with an entry fee. 12-15.5-103. Fantasy contests - director - rules. (1) The director shall promulgate reasonable rules for the identification, licensing, and fingerprinting of applicants for licensure. (2) The director may administer oaths, take affirmations of witnesses, and issue subpoenas to compel the attendance of witnesses and the production of all relevant papers, books, records, documentary evidence, and materials in any hearing, investigation, accusation, or other matter coming before the director pursuant to this article. The director may appoint an administrative law judge pursuant to part 10 of article 30 of title 24, C.R.S., to take evidence and to make findings. 12-15.5-104. Registration. (1) On and after July 1, 2017, an entity shall not operate as a small fantasy contest operator unless the entity is registered with the director. On and after July 1, 2017, an individual who is not operating through an entity shall not operate as a small fantasy contest operator unless the individual is registered with the director. (2) A small fantasy contest operator is subject to all of the provisions of this article; except that: (a) A small fantasy contest operator need only be registered, not licensed, in order to offer fantasy contests for a fee, a small fantasy contest operator is not subject to the requirements of section 12-15.5-106 (2) regarding an annual audit, and a small fantasy operator is subject to section 12-15.5-105 (3); and (b) The director shall: (I) Establish a registration process for small fantasy contest operators; and (II) Not initiate an investigation of a potential violation of this article by a small fantasy contest operator except upon the filing of a complaint with the director that the director reasonably believes warrants investigation. 12-15.5-105. Licensing. (1) On and after July 1, 2017, an entity shall not operate as a fantasy contest operator unless the entity is licensed by the director. On and after July 1, 2017, an individual who is not operating through an entity shall not operate as a fantasy contest operator unless the individual is licensed as a fantasy contest operator by the director. An applicant for licensure must pay license, renewal, and reinstatement fees established by the director consistent with section 24-34-105, C.R.S., and other authorities. The fees must be sufficient to cover the division's direct and indirect costs in administering this article. A licensee must renew the license in accordance with a schedule established by the director pursuant to section 24-34-102 (8), C.R.S. If a licensee fails to renew the license pursuant to the schedule established by the director, the license expires and the entity shall not practice under this article until the reinstatement fees are paid and the director reinstates the license. A person that continues to practice once a license has expired is subject to the penalties provided in this article and section 24-34-102 (8), C.R.S. (2) Applications for licensure as a fantasy contest operator must: (a) Be verified by the oath or affirmation of such person or persons as the director may prescribe; (b) Be made to the director on forms prepared and furnished by the director; and (c) Set forth such information as the director may require to enable the director to determine whether an applicant meets the requirements for licensure under this article. The information must include: (I) The name and address of the applicant; (II) If a partnership, the names and addresses of all of the partners, and if a corporation, association, or other organization, the names and addresses of the president, vice president, secretary, and managing officer, together with all other information deemed necessary by the director; and (III) A designation of the responsible party who is the agent for the licensee for all communications with the director. (3) (a) An applicant may not be eligible for licensure or registration as a fantasy contest operator or licensure renewal if the applicant or any of its officers, directors, or general partners has been convicted of or has entered a plea of nolo contendere or guilty to a felony. (b) The director is governed by section 24-5-101, C.R.S., in considering the conviction or plea of nolo contendere to a felony for any individual subject to a criminal history record check pursuant to subsection (4) of this section. (4) With the submission of an application for a license granted pursuant to this section, each applicant and its officers, directors, and general partners shall submit a complete set of his or her fingerprints to the Colorado bureau of investigation for the purpose of conducting fingerprint-based criminal history record checks. The Colorado bureau of investigation shall forward the fingerprints to the federal bureau of investigation for the purpose of conducting fingerprint-based criminal history record checks. The director may acquire a name-based criminal history record check for a person who has twice submitted to a fingerprint-based criminal history record check and whose fingerprints are unclassifiable. A person who has previously submitted fingerprints for state or local licensing purposes may request the use of the fingerprints on file. The director shall use the information resulting from the fingerprint-based criminal history record check to investigate and determine whether an applicant is qualified to hold a license pursuant to this section. The director may verify the information an applicant is required to submit. The applicant shall pay the costs associated with the fingerprint-based criminal history record check to the Colorado bureau of investigation. (5) A fantasy contest operator shall not conduct, operate, or offer a fantasy contest that: (a) Utilizes: (I) Video or mechanical reels or symbols or any other depictions of slot machines, poker, blackjack, craps, or roulette; or (II) Any device that qualifies as or replicates games that constitute limited gaming under section 9 of article XVIII of the Colorado constitution; or (b) Includes a university, college, high school, or youth sporting event. 12-15.5-106. Consumer protections. (1) A fantasy contest operator, including a small fantasy contest operator, shall implement commercially reasonable procedures for fantasy contests with an entry fee, which procedures are designed to: (a) Prevent employees of the fantasy contest operator, including a small fantasy contest operator, and relatives living in the same household as such employees, from competing in any fantasy contests offered by any fantasy contest operator in which the operator offers a cash prize; (b) Prevent sharing of confidential information that could affect such fantasy contest play with third parties until the information is made publicly available; (c) Verify that a fantasy contest player in such a fantasy contest is eighteen years of age or older; (d) Ensure that individuals who participate or officiate in a game or contest that is the subject of such a fantasy contest will be restricted from entering such a fantasy contest that is determined, in whole or in part, on the accumulated statistical results of a team of individuals in the game or contest in which they are a player or official; (e) Allow individuals to restrict themselves from entering such a fantasy contest upon request and provide reasonable steps to prevent the person from entering such fantasy contests offered by the fantasy contest operator, including a small fantasy contest operator; (f) Disclose the number of entries that a fantasy contest player may submit to each such fantasy contest, provide reasonable steps to prevent players from submitting more than the allowable number, and, in any contest involving at least one hundred one entries, not allow a player to submit more than the lesser of three percent of all entries or one hundred fifty entries; (g) Segregate fantasy contest player funds from operational funds and maintain a reserve in the form of cash, cash equivalents, an irrevocable letter of credit, a bond, or a combination thereof, in the amount of the deposits made to the accounts of fantasy contest players for the benefit and protection of the funds held in such accounts; (h) Distinguish highly experienced players and beginner players and ensure that highly experienced players are conspicuously identified as such to all players; (i) Prohibit the use of scripts in fantasy contests that give a player an unfair advantage over other players and make all authorized scripts readily available to all fantasy contest players; (j) Clearly and conspicuously disclose all rules that govern its contests, including the material terms of each promotional offer at the time the offer is advertised; and (k) Use technologically reasonable measures to limit each fantasy contest player to one active account with that operator. (2) A fantasy contest operator offering fantasy contests in this state shall: (a) Contract with a third party to annually perform an independent audit, consistent with the standards established by the public company accounting oversight board, to ensure compliance with this article; and (b) Submit the results of the audit to the director. 12-15.5-107. Duty to maintain records. Each fantasy contest operator shall keep daily records of its operations and shall maintain the records for at least three years. The records must sufficiently detail all financial transactions to determine compliance with the requirements of this article and must be available for audit and inspection by the director during the fantasy contest operator's regular business hours. 12-15.5-108. Authorization to conduct fantasy contests. (1) Fantasy contests are authorized and may be conducted by a fantasy contest operator at a licensed gaming establishment, as that term is defined in section 12-47.1-103 (15). A gaming retailer, as that term is defined in section 12-47.1-103 (24), may conduct fantasy contests if the gaming retailer is licensed as a fantasy contest operator. (2) Fantasy contests are authorized and may be conducted by a fantasy contest operator at a licensed facility at which pari-mutuel wagering, as that term is defined in section 12-60-102 (20.5), may occur. An operator of a class B track, as that term is defined in section 12-60-102 (4), may conduct fantasy contests if the operator is licensed as a fantasy contest operator. (3) A fantasy contest conducted in compliance with this article does not violate article 10 or 10.5 of title 18, C.R.S. 12-15.5-109. Grounds for discipline. (1) The director may deny, suspend, or revoke a license or registration or place on probation or issue a letter of admonition to a licensee or registrant if the fantasy contest operator, including a small fantasy contest operator: (a) Violates any order of the director or any provision of this article or the rules established under this article; (b) Fails to meet the requirements for licensure under this article; or (c) Uses fraud, misrepresentation, or deceit in applying for or attempting to apply for licensure or registration or otherwise in operating or offering to operate a fantasy contest. (2) If it appears to the director, based upon credible evidence as presented in a written complaint, that a person is operating or offering to operate a fantasy contest without having obtained a registration or license, the director may issue an order to cease and desist the activity. The director shall set forth in the order the statutes and rules alleged to have been violated, the facts alleged to have constituted the violation, and the requirement that all unauthorized practices immediately cease. Within ten days after service of the order to cease and desist pursuant to this subsection (2), the person may request a hearing on the question of whether acts or practices in violation of this article have occurred. The hearing shall be conducted pursuant to section 24-4-105, C.R.S. 12-15.5-110. Civil fines. In addition to any other remedy provided by law, a fantasy contest operator, or an employee or agent thereof, who violates this article is subject to a civil fine of not more than one thousand dollars for each such violation, which the state treasurer shall credit to the general fund. The director may file a civil action to collect the fine. 12-15.5-111. Applicability. This article applies to conduct occurring on or after July 1, 2017. 12-15.5-112. Repeal. This article is repealed, effective September 1, 2020. Before its repeal, this article is scheduled for review in accordance with section 24-34-104, C.R.S. SECTION 2. In Colorado Revised Statutes, 24-34-104, add (51.5) (j) as follows: 24-34-104. General assembly review of regulatory agencies and functions for termination, continuation, or reestablishment. (51.5) The following agencies, functions, or both terminate on September 1, 2020: (j) The regulation of fantasy contest operators by the department pursuant to sections 12-15.5-103 to 12-15.5-107, 12-15.5-109, and 12-15.5-110, C.R.S. SECTION 3. Appropriation. (1) For the 2016-17 state fiscal year, $77,546 is appropriated to the department of regulatory agencies. This appropriation is from the division of professions and occupations cash fund created in section 24-34-105 (2) (b) (I), C.R.S. To implement this act, the department may use this appropriation as follows: (a) $62,392 for use by the division of professions and occupations for personal services, which amount is based on an assumption that the division will require an additional 0.9 FTE and temporary staff; (b) $5,653 for use by the division professions and occupations for operating expenses; and (c) $9,501 for the purchase of legal services. (2) For the 2016-17 state fiscal year, $9,501 is appropriated to the department of law. This appropriation is from reappropriated funds received from the department of regulatory agencies under paragraph (c) of subsection (1) of this section. To implement this act, the department of law may use this appropriation to provide legal services for the department of regulatory agencies. (3) For the 2016-17 state fiscal year, $527 is appropriated to the department of public safety for use by the Colorado bureau of investigation. This appropriation is from the Colorado bureau of investigation identification unit fund created in section 24-33.5-426, C.R.S. To implement this act, the bureau may use this appropriation for operating expenses related to identification. SECTION 4. Act subject to petition - effective date - applicability. (1) This act takes effect at 12:01 a.m. on the day following the expiration of the ninety-day period after final adjournment of the general assembly (August 10, 2016, if adjournment sine die is on May 11, 2016); except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within such period, then the act, item, section, or part will not take effect unless approved by the people at the general election to be held in November 2016 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor. (2) This act applies to conduct occurring on or after July 1, 2017. ________________________________________________________ Dickey Lee Hullinghorst Bill L. Cadman SPEAKER OF THE HOUSE PRESIDENT OF OF REPRESENTATIVES THE SENATE ____________________________ ____________________________ Marilyn Eddins Effie Ameen CHIEF CLERK OF THE HOUSE SECRETARY OF OF REPRESENTATIVES THE SENATE APPROVED________________________________________ _________________________________________ John W. Hickenlooper GOVERNOR OF THE STATE OF COLORADO