On May 14th, the Supreme Court legalized sports betting, overturning a 1992 federal law which barred most states from permitting sports gambling. As a consequence of the decision, each state will be allowed to introduce and pass legislation for sports betting within its jurisdiction. Almost twenty states, as shown in the map below, have already enacted legislation or introduced bills to legalize sports wagering .
Note - Oregon, Delaware and Rhode Island appear to be readying for sports betting through their lotteries .
Considering the success of online companies who specialize in fantasy sports contests, we anticipate the legalization of sports betting to only spur the industry as a whole, while also generating a new source of revenue for states.
Where Does Unclaimed Property Come In?
If you work in or are familiar with the unclaimed property industry, you are likely aware of how active the state of Delaware was during 2017, see our related blogs Delaware Governor Signs Legislation to Overhaul their Unclaimed Property Laws and Delaware Governor Signs Legislation Delaying Estimation Regulations. Delaware is well known in the industry for being extremely active in auditing companies for unclaimed property compliance. In addition to performing audits, the state is also known for its aggressive audit tactics, specifically those related to estimated amounts due for years where records are not complete and re-searchable, see Delaware Issues Final Reporting & Examination Manual.
A regulation adopted by Delaware in December 2017 that flew under the radar was the Interactive Fantasy Sports Contest Regulations. These regulations sit under the Department of Safety and Homeland Security in the Division of Gaming Enforcement, but they do have unclaimed property implications. The regulations are a consequence of the Delaware Interactive Fantasy Contests Act. As you may assume, they are specific to the online fantasy sports industry and were put in place to, “safeguard the integrity of the games and participants to ensure accountability and the public trust” . In section 20.1 the law states, “Subject to the provisions of 12 Del.C. §1130, et seq., if the funds in an Authorized Player's Account remain unclaimed for five years after the balances are payable or deliverable to the Authorized Player, Registrant shall presume the account to be abandoned.” This is a direct reference to the recently adopted unclaimed property law.
In addition to Delaware, the majority of states include credit balances, customer over-payments, stored-value, and other similar property categories in the definition of "property" within their escheat provisions, all of which may relate to the sports betting industry.
Does My Company have Risk?
If your company operates in this industry and you plan to expand your services to capture the potential of the Supreme Court decision, you should keep unclaimed property reporting requirements in mind. Additionally, if you are a new company or existing company seeking to seize the opportunity in this space, we highly recommend setting up unclaimed property policies and procedures to stay current with regulatory escheat requirements.
To help determine if escheatment risk exists for your company, you should first inquire to see how many customers/accounts have not had activity in more than two years and what, if any, credit amounts relate to those accounts. Additionally, you should inquire to see if aged credit balances are kept on the balance sheet or make their way through to the income statement (similar to bad debt). If aged credit balances exist on the balance sheet or have been offset to income, you may have an unclaimed property reporting obligation.
Moreover, many companies choose Delaware as their state of domicile due to the state’s friendly corporate laws and taxes. (In fact, based on a review of Delaware’s Entity Search page, several of the current online sports contest providers have entities incorporated in DE, including FanDuel, DraftKings, and FantasyDraft ). If your company is incorporated in Delaware and has not properly remitted unclaimed property previously, your exposure may significantly increase in an audit due to the state’s aforementioned aggressive audit techniques.
If you are a potential holder of unclaimed property and would like to inquire about the risks to your company, please contact us.