89R4049 BEE-F
By: Patterson H.B. No. 3980
A BILL TO BE ENTITLED
AN ACT
relating to the regulation of fantasy contests; requiring an
occupational license; imposing an administrative penalty;
authorizing fees; imposing a tax.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle B, Title 13, Occupations Code, is
amended by adding Chapter 2053 to read as follows:
CHAPTER 2053. FANTASY CONTESTS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 2053.001. DEFINITIONS. In this chapter:
(1) "Adjusted gross fantasy contest receipts" means an
amount equal to the sum of all entry fees a fantasy contest operator
collects from participants less the sum of all prizes paid to
participants multiplied by the location percentage.
(2) "Athlete" means a professional or amateur
competitor in an actual sporting event that is:
(A) regulated by a governing body; and
(B) held between competitors who play
individually or as teams.
(3) "Commission" means the Texas Lottery Commission.
(4) "Entry fee" means the amount of cash or cash
equivalent a participant pays in advance to participate in a
fantasy contest offered by a fantasy contest operator.
(5) "Fantasy contest" means an online fantasy or
simulated game or a contest of skill:
(A) that charges an entry fee; and
(B) in which:
(i) the value of all prizes offered to a
winning participant are established and disclosed to the
participant in advance of the contest;
(ii) all winning outcomes reflect the
participant's relative knowledge and skill;
(iii) the participant assembles, owns, or
manages a fictional roster of actual athletes;
(iv) the participant competes for prizes a
fantasy contest operator awards based on terms the fantasy contest
operator publishes and discloses to the participant in advance of
the contest;
(v) participants compete against each other
or a single participant competes against a target score the fantasy
contest operator establishes;
(vi) a winning outcome is determined solely
by clearly established scoring criteria based on statistical
results of athlete performance, including a fantasy score; and
(vii) a winning outcome is not based on the
score, the point spread, or any performance of one actual team or a
combination of teams or solely on one performance of an individual
athlete in one actual sporting event.
(6) "Fantasy contest operator" means a person who
offers fantasy contests to the public. The term does not include an
Internet service or mobile data service provider who digitally
transfers general information that may include a fantasy contest.
(7) "Location percentage" means the percentage
rounded to the nearest 0.1 percent of the total amount of entry fees
a fantasy contest operator collects from participants located in
this state, divided by the total amount of entry fees the operator
collects from all participants in the fantasy contest.
(8) "Participant" means an individual who
participates in a fantasy contest offered by a fantasy contest
operator. The term does not include an operator who only:
(A) sets house rules for a fantasy contest;
(B) assigns a salary or target score to any
eligible athlete;
(C) accepts an entry fee from an individual who
participates in a fantasy contest; or
(D) awards or disburses prizes in accordance with
this chapter.
(9) "Prohibited participant" means:
(A) an individual who has self-excluded from
participation in fantasy contests under this chapter; or
(B) an athlete, coach, referee, trainer, or staff
member of a sports team, if a fantasy contest entry includes an
athlete selection from a sporting event overseen by the same sports
governing body that oversees the athlete, coach, referee, trainer,
or member.
(10) "Sporting event" means an actual athletic event,
an organized video game competition, or other event the commission
approves that is regulated by a sports governing body and is held as
a competition between athletes who play individually or as teams.
(11) "Sports governing body" means the organization
that prescribes rules and enforces codes of conduct for a sporting
event and the athletes competing in the sporting event.
Sec. 2053.002. FANTASY CONTEST NOT GAMBLING. A fantasy
contest conducted under this chapter does not constitute gambling
for any purpose, including under Chapter 47, Penal Code.
Sec. 2053.003. CONSTRUCTION OF CHAPTER. (a) This chapter
shall be construed liberally to promote the general welfare of the
public and the integrity of the fantasy contest industry.
(b) The commission may not:
(1) adopt rules limiting or regulating:
(A) the house rules or administration of a single
fantasy contest;
(B) the statistical composition of a fantasy
contest; or
(C) the digital platform of a fantasy contest
operator; or
(2) in any way limit or restrict the types of fantasy
contests allowed under this chapter by labelling the contest as
gambling.
(c) Notwithstanding any other law, the operation of a
fantasy contest is lawful only when conducted in accordance with
this chapter and rules adopted under this chapter.
SUBCHAPTER B. COMMISSION POWERS AND DUTIES
Sec. 2053.051. REGULATION OF FANTASY CONTEST OPERATORS.
The commission shall regulate the conduct of fantasy contest
operators under this chapter.
Sec. 2053.052. GENERAL POWERS. The commission may exercise
the powers necessary to enforce this chapter and rules adopted
under this chapter.
Sec. 2053.053. RULES. (a) The commission shall adopt the
rules the commission considers necessary for the implementation,
administration, and enforcement of this chapter.
(b) Rules the commission proposed under this chapter may be
adopted as emergency rules under Section 2001.034, Government Code.
Sec. 2053.054. REVENUE COLLECTION. The commission shall
assess and collect each fee or tax imposed under this chapter.
Sec. 2053.055. ENFORCEMENT. (a) The commission shall
require fantasy contest operators to implement procedures to
prevent fraud, abuse, and money laundering in the operation of
fantasy contests.
(b) The commission shall verify each fantasy contest
operator implements:
(1) technology and procedures to prevent
participation in a fantasy contest by an individual who is under 18
years of age;
(2) identity verification procedures, including as
necessary the use of a reputable independent third-party in the
business of verifying individuals' personally identifiable
information to detect potential prohibited participants;
(3) mechanisms on the operator's platform designed to
detect and prevent unauthorized accounts, fraud, money laundering,
and collusion; and
(4) geolocation technology to verify a participant
does not enter a fantasy contest from a restricted jurisdiction, as
determined by commission rule.
(c) The commission may cooperate with an investigation
conducted by a law enforcement agency, including providing and
facilitating the provision of account-level entry and
participation information.
Sec. 2053.056. COMPULSIVE AND PROBLEM GAMING STANDARDS.
The commission by rule shall establish compulsive and problem
gaming standards consistent with this chapter for fantasy contest
operators.
SUBCHAPTER C. FANTASY CONTEST OPERATOR LICENSE
Sec. 2053.101. FANTASY CONTEST OPERATOR LICENSE REQUIRED.
A person may not offer or operate a fantasy contest in this state
unless the person holds a fantasy contest operator license issued
by the commission.
Sec. 2053.102. LICENSE APPLICATION. (a) An applicant for a
fantasy contest operator license shall submit an application in
accordance with commission rules.
(b) An application for a fantasy contest operator license
must include:
(1) the applicant's:
(A) name;
(B) principal place of business;
(C) contact information; and
(D) social security number or any applicable
federal tax identification number;
(2) the identity of each individual who has an
ownership interest of at least 10 percent in the applicant or in
shares of the applicant;
(3) criminal history record information of the
applicant;
(4) any ownership interest in a fantasy contest
operator or similar entity in any jurisdiction that is held by a
director, officer, key employee, or individual owner of at least 10
percent of the applicant;
(5) the identity of any business, including a business
in the jurisdiction where the business is incorporated or
registered, in which the applicant or a director, officer, key
employee, or individual owner of at least 10 percent of the
applicant holds an equity interest of at least five percent;
(6) a statement on whether the applicant or a
director, officer, key employee, or individual owner of at least 10
percent of the applicant has ever applied for or been granted any
license, registration, or certificate issued by a licensing
authority in this state or any other jurisdiction for a gaming
activity;
(7) a statement on whether the applicant or a
director, officer, key employee, or individual owner of at least 10
percent of the applicant has filed or been served with a complaint
or other notice filed by a governmental entity regarding
delinquency in payment of or dispute over filings concerning the
payment of any tax required under federal, state, or local law,
including the amount of tax, the type of tax, the taxing agency, and
the period applicable to the complaint or notice; and
(8) information the commission determines is
sufficient to demonstrate the applicant satisfies the requirements
of this chapter and rules adopted under this chapter.
(c) On commission request, an applicant for a fantasy
contest operator license that is a business entity shall include in
the application the criminal history record information of an
individual who is:
(1) a director, officer, or key employee of the
applicant; or
(2) any individual with an ownership interest of 10
percent or more in the applicant.
(d) The commission by rule may establish additional
qualifications and requirements for a fantasy contest operator
license applicant or license holder as necessary to preserve the
integrity and security of fantasy contests in this state and to
promote and maintain a competitive fantasy contest market.
Sec. 2053.103. CRIMINAL HISTORY RECORD INFORMATION;
FINGERPRINTS. (a) An applicant for a fantasy contest operator
license shall submit fingerprints in accordance with this section
to the commission or to the Department of Public Safety, as
determined by commission rule, for the purpose of obtaining
criminal history record information from the Department of Public
Safety and the Federal Bureau of Investigation.
(b) Fingerprints must be furnished under Subsection (a) by
the applicant's:
(1) owners;
(2) officers;
(3) directors for a corporation applicant;
(4) managers and members for a limited liability
company applicant; and
(5) partners for a partnership applicant.
(c) Each set of fingerprints submitted under Subsection (a)
must be accompanied by an authorization signed by the fingerprinted
individual for the release of information by the Department of
Public Safety and the Federal Bureau of Investigation.
(d) Notwithstanding Subsection (a), an applicant or an
individual described by Subsection (b) who has submitted to a check
of national criminal history record information in any state in the
preceding year before submitting an application under this chapter
is not required to submit to another check of criminal history
record information if the applicant or individual:
(1) provides the results of the previous check of
criminal history record information to the commission; and
(2) affirms no material change has occurred in the
individual's criminal history record information since the check
was conducted.
Sec. 2053.104. INITIAL LICENSE FEE. (a) Except as provided
by Subsection (b), a fantasy contest operator operating in this
state at any time during the preceding year shall remit to the
commission an initial license fee of:
(1) an amount equal to eight percent of the operator's
adjusted gross fantasy contest receipts from the preceding calendar
year; or
(2) $500,000.
(b) A fantasy contest operator that has not operated in this
state at any time during the preceding year shall remit to the
commission an initial license fee of $5,000. A fantasy contest
operator that pays the initial license fee under this subsection
shall remit to the commission a supplemental license fee of the
lesser of:
(1) an amount equal to 10 percent of the operator's
adjusted gross fantasy contest receipts for the first year of
licensure, beginning on the date of licensure, less the amount of
the initial license fee; or
(2) $5,000.
Sec. 2053.105. ISSUANCE OR DENIAL OF LICENSE. (a) On
receipt of a completed application for a fantasy contest operator
license and the required fee, the commission shall conduct the
necessary background investigation to determine whether the
applicant satisfies the qualifications for the license.
(b) On completion of the necessary background
investigation, the commission shall issue a license or deny the
application. The commission may not issue a license to an applicant
convicted of a disqualifying offense.
(c) If the application is denied, the commission shall
forward a statement of the grounds for denial to the applicant and
all other documents on which the commission relied, to the extent
allowed by law.
Sec. 2053.106. LICENSE TERM. (a) A license issued under
this chapter expires on the fourth anniversary of the date of
issuance.
(b) The commission may not require the holder of a fantasy
contest operator license to surrender or terminate the license
before the expiration date of the license solely because of rules
amended under this chapter.
Sec. 2053.107. LICENSE RENEWAL. (a) The commission shall
establish a process for renewing a fantasy contest operator license
issued under this chapter, including the assessment of a renewal
fee in an amount equal to one percent of the license holder's
adjusted gross fantasy contest receipts for the preceding four
years.
(b) The commission may require an applicant for renewal of a
fantasy contest operator license to submit to additional criminal
history record information checks as described by Section 2053.103.
(c) The commission may grant an extension of time for the
renewal of a fantasy contest operator license on receipt of a
written request submitted by the license holder.
(d) A fantasy contest operator license holder that allows
the license to lapse without requesting an extension of time to file
for renewal of the license must submit an initial license
application.
Sec. 2053.108. APPLICANT OPERATION DURING LICENSE
APPLICATION PERIOD. (a) A fantasy contest operator that submits an
application for a license or license renewal under this chapter may
operate during the application period unless the commission:
(1) has reasonable cause to believe the fantasy
contest operator is or may be in violation of this chapter or rules
adopted under this chapter; and
(2) requires the fantasy contest operator to suspend
operation of any fantasy contest until the license or license
renewal is issued.
(b) Notwithstanding Subsection (a), a fantasy contest
operator that offered fantasy contests to individuals located in
this state before September 1, 2025, may continue to offer contests
to those individuals until the commission approves or denies the
fantasy contest operator's application under this chapter if the
fantasy contest operator files the application with the commission
not later than the 90th day after the date the commission adopts
rules to implement this chapter. This subsection expires September
1, 2029.
Sec. 2053.109. INDEPENDENT AUDIT. (a) Subject to
Subsection (b), an applicant for an initial or renewal fantasy
contest operator license shall:
(1) contract with a certified public accountant to
conduct an independent audit consistent with generally accepted
accounting principles;
(2) annually contract with a testing laboratory,
certified public accountant, or another professional service
provider the commission recognizes to verify in a written report
compliance with this chapter and rules adopted under this chapter;
and
(3) submit to the commission a copy of the audit report
and a copy of the compliance report provided by the entity with
which the applicant contracted under Subdivision (2).
(b) An applicant for an initial fantasy contest operator
license under this chapter is not required to submit an audit report
and a compliance report until after the second anniversary of the
initial license issuance.
SUBCHAPTER D. OPERATION OF FANTASY CONTEST
Sec. 2053.151. MINIMUM AGE OF PARTICIPANT. An individual
may not participate in a fantasy contest under this chapter if the
individual is younger than 18 years of age.
Sec. 2053.152. LOCATION OF PARTICIPANT. A fantasy contest
operator license holder may only accept an entry from a participant
physically located in this state. A fantasy contest operator must
use a geolocation system to ensure each participant is physically
present in this state when submitting a fantasy contest entry
unless otherwise authorized by the commission.
Sec. 2053.153. FANTASY CONTEST OPERATOR TAX. (a) For the
privilege of holding a license to operate fantasy contests under
this chapter, the commission shall impose and collect a tax at a
rate equal to 10 percent of the fantasy contest operator's adjusted
gross fantasy contest receipts.
(b) The accrual method of accounting shall be used to
calculate the amount of tax due. The fantasy contest operator shall
submit to the commission on or before the last day of each calendar
month:
(1) a return indicating:
(A) the amount of tax due under this section for
the preceding calendar month; and
(B) any other information the commission by rule
requires; and
(2) payment of the tax due under this section.
Sec. 2053.154. COMPULSIVE GAMING; VOLUNTARY
SELF-EXCLUSION. (a) Each fantasy contest operator licensed under
this chapter shall include a statement regarding assistance with
gambling problems on:
(1) the license holder's portal, Internet website, or
computer or mobile application; and
(2) all of the license holder's marketing materials
and advertisements.
(b) The commission shall maintain a voluntary
self-exclusion list of individuals who request to be prohibited
from establishing a fantasy contest account with a fantasy contest
operator under this chapter.
(c) A fantasy contest operator may not pay a prize to an
individual included on the commission's self-exclusion list. A
prize won by an individual on the self-exclusion list is forfeited.
The fantasy contest operator shall donate any forfeited prize to a
problem gaming program, as identified and directed by the
commission, not later than the 25th day of the month following the
end of each quarter.
(d) If a self-excluded individual participates in a fantasy
contest, the fantasy contest operator shall report to the
commission:
(1) the name of the self-excluded individual;
(2) the date of the self-excluded individual's
participation in the fantasy contest;
(3) the amount or value of any prizes forfeited by the
self-excluded individual; and
(4) any other action taken by the fantasy contest
operator.
(e) A fantasy contest operator shall develop and maintain a
program to mitigate and curtail compulsive play, which may be
implemented in conjunction with the commission.
SUBCHAPTER E. REPORTING, INVESTIGATION, AND ENFORCEMENT
Sec. 2053.201. REQUIRED REPORTING BY LICENSE HOLDER. The
holder of a fantasy contest operator license shall promptly notify
the commission of any information relating to:
(1) a confirmed breach of the relevant sports
governing body's internal regulations and codes of conduct
regarding participation in fantasy contests that is provided to the
fantasy contest operator;
(2) conduct corrupting any outcome related to a
sporting event for financial gain purposes, including match fixing;
and
(3) confirmed illegal activities, including use of
money derived from illegal activity, entries to conceal or launder
money derived from illegal activity, multi-accounting, and use of
false identification.
Sec. 2053.202. COMMISSION INVESTIGATION AND REPORTING OF
PROHIBITED CONDUCT. (a) The commission shall investigate all
reasonable allegations of prohibited conduct and refer any credible
allegations to an appropriate law enforcement agency.
(b) The identity of any person reporting prohibited conduct
is confidential unless:
(1) the person authorizes disclosure of the person's
identity; or
(2) the allegation of prohibited conduct is referred
to a law enforcement agency.
(c) If the commission receives a complaint of prohibited
conduct by an athlete, the commission in accordance with commission
rules shall notify the appropriate sports governing body of the
athlete to review the complaint.
(d) The commission shall adopt rules governing
investigations of prohibited conduct and referrals to law
enforcement agencies.
Sec. 2053.203. LICENSE HOLDER COOPERATION WITH
INVESTIGATION. A fantasy contest operator license holder may
cooperate with investigations conducted by law enforcement
agencies, including providing and facilitating the provision of
account-level entry and participation information.
Sec. 2053.204. ADMINISTRATIVE PENALTY. (a) The commission
may impose an administrative penalty on a person licensed under
this chapter who violates this chapter or a rule adopted under this
chapter.
(b) The amount of the penalty may not exceed $5,000, and
each day a violation continues or occurs is a separate violation for
the purpose of imposing a penalty. The amount shall be based on:
(1) the seriousness of the violation, including the
nature, circumstances, extent, and gravity of the violation;
(2) the economic harm caused by the violation;
(3) the history of previous violations;
(4) the amount necessary to deter a future violation;
(5) efforts to correct the violation; and
(6) any other matter that justice may require.
(c) The enforcement of the penalty may be stayed during the
time the order is under judicial review if the person pays the
penalty to the clerk of the court or files a supersedeas bond with
the court in the amount of the penalty. A person who cannot afford
to pay the penalty or file the bond may stay the enforcement by
filing an affidavit in the manner required by the Texas Rules of
Civil Procedure for a party who cannot afford to file security for
costs, subject to the right of the commission to contest the
affidavit as provided by those rules.
(d) The attorney general may sue to collect the penalty.
(e) A proceeding to impose the penalty is considered to be a
contested case under Chapter 2001, Government Code.
SECTION 2. Section 411.108(a-1), Government Code, is
amended to read as follows:
(a-1) The Texas Lottery Commission is entitled to obtain
criminal history record information as provided by Subsection (a-2)
that relates to a person:
(1) licensed under Chapter 2001, Occupations Code;
(2)[, or] described by Section 2001.3025, Occupations
Code; or
(3) holding or applying for a license under Chapter
2053, Occupations Code.
SECTION 3. Not later than February 1, 2026, the Texas
Lottery Commission shall adopt the rules necessary to implement
Chapter 2053, Occupations Code, as added by this Act.
SECTION 4. Notwithstanding Section 2053.153, Occupations
Code, as added by this Act, a fantasy contest operator license
holder is not required to pay the tax established by that section
before July 1, 2026.
SECTION 5. This Act takes effect September 1, 2025.