In today’s digital world, you no longer need to be physically present in a casino, at the poker table, or at the racetrack to place a bet. In many states, you can now place those bets online or even play daily fantasy sports directly from your mobile device.
In May 2018, the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act, a federal law that had previously prohibited sports betting. Since then, half of the states have legalized or are in the process of legalizing sports betting. According to the American Gaming Organization, sports betting revenue in 3Q 2020 totaled $352.3 million .
Online gambling includes online casinos, online poker sites, daily fantasy sports (DFS), and sports betting. Sports betting, in turn, includes online and mobile “sportsbooks.” To place an online sports bet, you need an online account. Most states that permit online sports betting allow you to do this on your mobile device, but in certain states, like Nevada, you need to create your account while physically at the casino (and often to make a deposit or withdrawal as well).
As of November 10, 2020, retail and/or online sports betting is permitted in: AR, CO, DC, DE, IA, IL, IN, MI, MS, NV, NH, NM, NJ, NY, MT, OR, PA, RI, and WV. Sports betting is legal, but not operational in the following states: LA, MD, NC, SD, VA, and WA. Pending legislation exists in OR and MA. Sports betting is prohibited in the following states: ID, ND, OK, SC, TX, UT, and WI.
Daily Fantasy Sports: The Big Players
DraftKings and FanDuel are the two largest daily fantasy sports operators. According to its website, DraftKings boasts over 9 million registered users and brought in over $133 million in revenue in 3Q 2020 alone. Both operators are involved in the online sports betting and online casino gambling spaces.
Per the Terms and Conditions applicable to both FanDuel Sportsbook and Betfair Casino (updated 8/3/20), accounts are considered dormant if the owner does not log in within a 12-month period. Dormant accounts are opted out of all bonuses and in accordance with applicable regulations, unclaimed balances in dormant accounts are forfeited. All bonuses and winnings earned from wagering with bonuses are forfeited from any account where a deposit has not been made within 60 days of establishing the account.
How do the sports betting terms and conditions line up against the state unclaimed property laws, especially since many of the unclaimed property statutes were written long before the advent of sports betting? While they may not specifically address it, certain sections of unclaimed property law may bring sports betting within its purview. For example, in those states that have adopted laws modeled on the 2016 Revised Uniform Unclaimed Property Act (RUUPA), “property” excludes game related digital content, defined as digital content that exists only in an electronic game or electronic-game platform. This leaves the door open to include sports betting, as wagers and transactions are made with US currency.
Unclaimed funds left in dormant sports betting accounts can be considered unclaimed property under a states’ catchall provision, which includes all other property not specifically addressed in the law, and usually carries a 3 or 5 year dormancy period, depending on the state. The forfeiture provisions in the terms above could run afoul of the unclaimed property laws, as they are forfeited and not sent to the state as unclaimed property.
Further, many states also prohibit dormancy fees that are “unconscionable.” Other states have language similar to Section 602 of the RUUPA, which permits holders to deduct a dormancy charge if: 1) a valid contract between the holder and the owner authorizes the charges for the owner’s failure to claim the property within a specified time and 2) the holder regularly imposes the charge and does not reverse or cancel it. Again, amounts cannot be unconscionable. It is uncertain whether fees that apply to inactive accounts by FanDuel constitute “unconscionable” charges.
As the states continue to legalize sports betting, we are seeing a corresponding increase in the legislative and regulatory activity related to unclaimed winnings. While they do not specifically alter the unclaimed property laws themselves, most legislation requires that the funds (after a certain period of time and notice to the owner) be reported and remitted to the state in accordance with the state’s unclaimed property laws. Issues may arise if the dormancy periods set by the DFS operators do not match the state’s unclaimed property law, or if a state’s rules relating to sports betting define a different dormancy and/or notice period that deviates from what is required under the unclaimed property law.
Legislation Surrounding Sports Betting
Leading the pack, Delaware adopted its Interactive Fantasy Sports Contest Regulations in late 2017 alongside a full overhaul of its unclaimed property laws. The regulation sits under the Department of Safety and Homeland Security in the Division of Gaming Enforcement, but it does 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 Delaware’s unclaimed property law.
In Colorado, effective April 14, 2020, Sports Betting Operations must consider patron accounts to be dormant if the patron has not logged into the account for at least 3 years. Dormant accounts will be closed and unclaimed funds are to be reported and remitted in accordance with the unclaimed property laws. At least 60 days prior to reporting the funds, notice must be provided to the patron’s last known physical or email and address and due diligence conducted to locate the patron.
In West Virginia, per emergency rules effective May 15, 2020, an interactive gaming account is considered dormant if there is no patron-initiated activity for 16 months. The interactive gaming operator or service provider must comply with the unclaimed property law in the closing and refunding of the account balance.
Indiana also adopted emergency rules related to sports wagering, effective November 12, 2020, which consider a patron’s account to be dormant if the patron has not logged into the account for at least 3 years. Dormant accounts must be closed by the sports wagering operator and funds reported and remitted in accordance with the unclaimed property law. At least 60 days prior to the reporting of the funds, the sports wagering operator must provide notice to the patron at his last known address and conduct due diligence to locate the patron.
Pending legislation in Pennsylvania would consider an interactive gaming account to be dormant if there is no activity for 2 years. “Activity” includes “login, game play, withdrawal and the like.” Notice must be provided to a player at his registered address (physical or electronic) if the account remains dormant for 1 year. Dormant funds for which the player has not requested payment must be abandoned 60 days after the notice is provided and the funds shall be reported in accordance with the unclaimed property law.
In New Jersey, two bills introduced this year would set a 3-year dormancy period for inactive or dormant accounts. Unclaimed funds would escheat to the state per the unclaimed property law. Currently, dormancy periods are set by the New Jersey Division of Gaming Enforcement. Operators can consider an account dormant after a year of inactivity and must try to locate the owner prior to closing the account. Funds in dormant accounts are split 50-50 between the casino licensee and the state’s Casino Control Funds. These bills are similar to A 4442, which was introduced in September 2018 but did not pass.
These are only a few of the issues that arise at the intersection of online wagering and unclaimed property. There are other subjects for consideration as well. For example, many of the unclaimed property laws include a provision known as an “anti-limitations” provision, which states that the expiration date of any time period set by contract between an owner and the holder does not prevent the funds from being presumed abandoned or affect the holder’s duty to report and remit the funds as unclaimed property. If the state has such a provision, then this may be in conflict with the account terms of a DFS operator or other online gambling operator. Furthermore, there could also be issues with respect to notice, if an operator only has an email on file and not a physical address. It will be an interesting issue to follow as more states legalize sports gambling.
Does My Company have Risk?
If your company currently operates in this industry and you plan to expand your services as more states legalize sports gambling and daily fantasy sports, 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 2 years and the balances in those accounts. Additionally, you should inquire to see if aged balances are kept on the balance sheet or make their way through to the income statement (similar to bad debt). If aged 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. 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 aggressive audit techniques.
For more information about unclaimed property reporting or for guidance creating a compliance program for your company, contact MarketSphere for a free consultation.
 AGA Commercial Gaming Revenue Tracker, American Gaming Organization, November 16, 2020, https://www.americangaming.org/resources/aga-commercial-gaming-revenue-tracker/.
 Legal Sports Betting in the U.S. (as of November 10, 2020), American Gaming Organization, https://www.americangaming.org/wp-content/uploads/2020/08/AGA-Sports-Betting-Map-2020ax.pdf.
 For the full text of the DE Regulations, see:
 For the full text of the CO Regulations, see: https://www.sos.state.co.us/CCR/GenerateRulePdf.do?ruleVersionId=8934.
 For the full text of the WV Emergency Rules, see: http://apps.sos.wv.gov/adlaw/csr/readfile.aspx?DocId=53292&Format=PDF.
 For the full text of the IN Emergency Rules, see: http://iac.iga.in.gov/iac//20201118-IR-068200598ERA.xml.pdf.
 For the proposed PA rules, see: https://www.pacodeandbulletin.gov/secure/pabulletin/data/vol50/50-34/50_34_prm.pdf.
 For the full text of NJ A 567, introduced 1/14/20, and NJ S 3079, introduced 10/29/20, see: https://www.njleg.state.nj.us/2020/Bills/A1000/567_I1.PDF and https://www.njleg.state.nj.us/2020/Bills/S3500/3079_I1.PDF.
*Content contained in this article is considered accurate as of the publish date.